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Krugman/Wells

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Inflation, Disinflation, and Deflation

Krugman/Wells

CHECK YOUR UNDERSTANDING

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

- yes
- no

Check Your Understanding 16-2Question 1*

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

Check Your Understanding 16-2Questions 1 and 2

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

- True
- False

- True
- False

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

- 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.

- True
- False

- yes
- no

- liquidity trap
- debt deflation
- state of disinflation