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16. >>. Inflation, Disinflation, and Deflation. Krugman/Wells. CHECK YOUR UNDERSTANDING. Check Your Understanding 16-1 Questions 1 and 2.

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Krugman wells

16

>>

Inflation, Disinflation, and Deflation

Krugman/Wells

CHECK YOUR UNDERSTANDING


Check your understanding 16 1 questions 1 and 2

Check Your Understanding 16-1Questions 1 and 2


Krugman wells

1) Suppose there is a large increase in the money supply in an economy that previously had low inflation. As a consequence, output expands in the short run. Does this disprove the classical model?

  • Yes

  • No


Krugman wells

2) Suppose that all wages and prices in an economy are indexed to inflation. Can there still be an inflation tax?

  • yes

  • no


Krugman wells

Check Your Understanding 16-2Question 1*


Krugman wells

1*) Use Okun’s Law to predict the unemployment rate when the natural rate of unemployment is 5.2% and the output gap is -10%.

  • 10.2%

  • 4.8%

  • -4.8%

  • 0


Krugman wells

Check Your Understanding 16-2Questions 1 and 2


Krugman wells

1) The short-run Phillips curve illustrates the negative relationship between cyclical unemployment and the actual inflation rate for a given level of the expected inflation rate.

  • True

  • False


2 the short run phillips curve shifts up in response to a fall in commodity prices

2) The short-run Phillips curve shifts up in response to a fall in commodity prices.

  • True

  • False


Check your understanding 16 3 questions 1 3

Check Your Understanding 16-3Questions 1-3


1 there is a trade off between unemployment and inflation in both the short run and the long run

1) There is a trade-off between unemployment and inflation in both the short run and the long run.

  • True

  • False


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2) British economists believe that the natural rate of unemployment rose from 3% to 10% during the 1970s. During that period Britain experienced a sharp acceleration of inflation. This may have been caused by positive supply shocks.

  • True

  • False


3a disinflation is costly because in order to reduce the inflation rate

3a) Disinflation is costly because in order to reduce the inflation rate:

  • unusually high inflation is necessary for a time.

  • unsustainably large increases in output are necessary.

  • taxes must increase.

  • unemployment usually must increase above the natural rate.


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3b) The costs of disinflation can be reduced if the Fed doesn’t reveal its policy to reduce inflation.

  • True

  • False


Check your understanding 16 4 question 1

Check Your Understanding 16-4Question 1


1a do lenders typically lend at a negative nominal interest rate

1a. Do lenders typically lend at a negative nominal interest rate?

  • yes

  • no


Krugman wells

1b. The ______ is when monetary policy is ineffective because the nominal interest rate cannot fall below zero.

  • liquidity trap

  • debt deflation

  • state of disinflation


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