Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.
16 >> 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
2) Suppose that all wages and prices in an economy are indexed to inflation. Can there still be an inflation tax? • yes • no
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
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. • True • False
1) There is a trade-off between unemployment and inflation in both the short run and the long run. • 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
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.
3b) The costs of disinflation can be reduced if the Fed doesn’t reveal its policy to reduce inflation. • True • False
1a. Do lenders typically lend at a negative nominal interest rate? • yes • no
1b. The ______ is when monetary policy is ineffective because the nominal interest rate cannot fall below zero. • liquidity trap • debt deflation • state of disinflation