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    according to the sticky-price model, other things being equal, the greater the proportion, s, of firms that follow the sticky-price rule, the ______ the ______ in output in response to an unexpected price increase.

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    Chapter 14 Flashcards & Practice Test

    Memorize flashcards and build a practice test to quiz yourself before your exam. Start studying the Chapter 14 flashcards containing study terms like According to the sticky-price model, other things being equal, the greater the proportion, s, of firms that follow the sticky-price rule, the ______ the ______ in output in response to an unexpected price increase., According to the imperfect-information model, when the price level rises by the amount the producer expected it to rise, the producer:, The short-run aggregate supply curve is drawn for a given: and more.

    Chapter 14

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    According to the sticky-price model, other things being equal, the greater the proportion, s, of firms that follow the sticky-price rule, the ______ the ______ in output in response to an unexpected price increase.

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    greater; increase

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    According to the imperfect-information model, when the price level rises by the amount the producer expected it to rise, the producer:

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    does not change production

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    Terms in this set (16)

    According to the sticky-price model, other things being equal, the greater the proportion, s, of firms that follow the sticky-price rule, the ______ the ______ in output in response to an unexpected price increase.

    greater; increase

    According to the imperfect-information model, when the price level rises by the amount the producer expected it to rise, the producer:

    does not change production

    The short-run aggregate supply curve is drawn for a given:

    expected price level

    Along an aggregate supply curve, if the level of output is less than the natural level of output, then the price level is:

    less than the expected price level

    According to the Phillips curve, other things being equal, inflation depends positively on:

    expected inflation

    Based on the Phillips curve, unexpected movements in inflation are related to ______, and based on the short-run aggregate supply curve, unexpected movements in the price level are related to ______.

    unemployment; ouput

    Inflation inertia is represented in the aggregate supply-aggregate demand model by continuing upward shifts in the:

    aggregate demand and short-run aggregate supply curves.

    In the case of demand-pull inflation, other things being equal:

    the inflation rate rises but the unemployment rate falls.

    The most prominent feature of the U.S. economy in the 1980s was:

    demand-pull deflation

    The tradeoff between inflation and unemployment does not exist in the long run because people will adjust their expectations so that expected inflation:

    equals the inflation rate

    The percentage of a year's real GDP that must be foregone to reduce inflation by 1 percentage point is called the:

    sacrifice ratio

    Advocates of the rational-expectations approach predict that a credible policy to lower inflation will ______ the sacrifice ratio.

    lower

    According to the natural-rate hypothesis, output will be at the natural rate:

    in the long run

    In the sticky-price model, if no firms have flexible prices, the short-run aggregate supply schedule will:

    be horizontal

    The government can lower inflation with a low sacrifice ratio if the:

    public believes that policymakers are committed to reducing inflation.

    Assume that an economy has the usual type of Phillips curve except that the natural rate of unemployment in an economy is given by an average of the unemployment rates in the last two years. Then, there is:

    a long-run tradeoff between inflation and unemployment.

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    Verified questions

    ECONOMICS

    Give an example of each of the following terms. a. franchise b. cooperative c. nonprofit organization

    Verified answer ECONOMICS

    Suppose that a country experiences a reduction in productivity-that is, an adverse shock to the production function. a. What happens to the labor demand curve? b. How would this change in productivity affect the labor market-that is, employment, unemployment, and real wages-if the labor market is always in equilibrium? c. How would this change in productivity affect the labor market if unions prevent real wages from falling?

    Verified answer ECONOMICS

    Describe the characteristics of money.

    Verified answer ECONOMICS

    Suppose that XTel currently is selling at $40 per share. You buy 500 shares using$15,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 8%. What is the percentage increase in the net worth of your brokerage account if the price of XTel immediately changes to (i) $44; (ii)$40; (iii) $36? How would your answer to (b) change if you had financed the initial purchase with only$10,000 of your own money?

    Source : quizlet.com

    Mankiw Chapter 14 Quiz

    ? Mankiw Quiz 14

    On-Line Quiz

    Note: There are 10 multiple choice questions below. Answer each question by clicking the appropriate button. When you have answered all of the questions, click the "Check Answers" button at the bottom of the page. Your score will be calculated, and you will see a list of the questions that you answered correctly, and those that you answered incorrectly. You may retake the quiz as often as you wish. Click the "Reset" button to clear all your answers before you retake the quiz.

    Source : webs.wofford.edu

    Unit 15 Inflation, unemployment, and monetary policy – The Economy

    How the rate of unemployment and the level of output in the economy affect inflation, the challenges this poses to policymakers, and how this knowledge can support effective policies to stabilize employment and incomes

    UNIT 15

    INFLATION, UNEMPLOYMENT, AND MONETARY POLICY

    THEMES AND CAPSTONE UNITS

    History, instability, and growth

    Global economy Inequality Innovation Politics and policy EXPAND ALL

    How the rate of unemployment and the level of output in the economy affect inflation, the challenges this poses to policymakers, and how this knowledge can support effective policies to stabilize employment and incomes

    When unemployment is low, inflation tends to rise. When unemployment is high, inflation falls.

    Policymakers and voters prefer low unemployment and low inflation (but not a falling price level).

    They typically cannot have both and face a trade-off instead.

    There is an inflation-stabilizing rate of unemployment, and a wage-price inflation spiral develops if unemployment is kept lower than this.

    Monetary policy affects aggregate demand and inflation through a variety of channels.

    Adverse shocks, such as an oil price increase, can lead to higher unemployment and higher inflation.

    Many governments have given responsibility for monetary policy—often described as inflation targeting—to central banks.

    Before his successful 1992 US presidential campaign, Bill Clinton’s electoral strategists had decided that two of their campaign issues should be health policy and ‘change’. But it was the third focus of his campaign—the recession of 1991—that resonated with the public. The reason was the phrase the campaign workers used: ‘The economy, stupid!’

    The 1991 recession meant that many Americans lost their jobs, and the Clinton campaign slogan brought this issue to the attention of the voters. When the ballots were counted in November 1992, Clinton received almost 6 million more votes than George H. W. Bush, the incumbent president.

    In a democracy, election outcomes are always affected by the state of the economy, and how the public judges the economic competence of the government and the opposition. Two important measures of this economic performance are unemployment and inflation. In Unit 13 we saw that unemployment undermines our wellbeing, but inflation worries us too. Figure 15.1 shows that in US presidential elections, the margin of victory of the ruling party is higher when inflation is lower.

    Line of best fit R 2 = 0.30 1924 1940 1996 1912 1976 1916 1948 1980 1920 −16 −12 −8 −4 0 4 8 12 16 0 4 8 12 16 Annual inflation (%) Ruling party margin of victory or defeat (%) FULLSCREEN

    Figure 15.1 Inflation and presidential election victory in the US (1912–2020).

    Note: In the chart, two years in which deflation occurred have been omitted. If the two observations in which deflation (falling prices) occurred are included in the regression in absolute values—reflecting the fact that it is changes in prices that are unpopular—then the relationship shown in the figure is stronger. The R-squared is 0.43 compared to 0.30, and the coefficient on inflation is still negative and significant. Inflation before 1950: Michael Bordo, Barry Eichengreen, Daniela Klingebiel, and Maria Soledad Martinez-Peria. 2001. ‘Is the crisis problem growing more severe?’. Economic Policy 16 (32) (April): pp. 52–82; CPI after 1950: Federal Reserve Bank of St. Louis. 2021. FRED; Electoral results: US National Archives. 2021. ‘1789–2021 Presidential Elections’. US Electoral College.

    So if you are a politician worrying about your citizens’ concerns as well as your own career, you should minimize both unemployment and inflation. Is this possible?

    We get an insight by looking at how a German minister of finance, trained as an economist, handled his dual role as a politician (at an election rally in the evening) and as an economist (in his office the next day).

    Helmut Schmidt was called the ‘super minister’ in the West German government of Chancellor Willy Brandt because he was both minister of economics and minister of finance.

    At an election rally in 1972, he claimed that: ‘Five per cent inflation is easier to bear than five per cent unemployment.’ He promised that his party would prioritize lower unemployment while keeping inflation low and stable.

    Helmut Schmidt (1918–2015) was West German Chancellor from 1974 until 1982. In 1972, inflation in West Germany was 5.5% (up from 5.2% the previous year) and unemployment was 0.7% (up from 0.5% the previous year). By 1975, inflation was 5.9% and unemployment was 3.1%.

    The following day Professor Otto Schlecht, head of the economics policy department at the Federal Ministry of Economics, said to Schmidt: ‘Herr Minister, what you said yesterday, which is in the newspapers this morning, is false.’

    Schmidt replied: ‘I agree that what I said was technically wrong. But you cannot advise me about what I decide is politically expedient to say to an election rally in front of 10,000 Ruhr miners in the Westfalenhalle in Dortmund.’

    Helmut Schmidt’s commitment at the rally and his explanation afterward, show two things about the relationship between economics and politics. The first is that politicians are elected to office, and so respond to the views of voters. The second is that politicians as policymakers face constraints on their choice of policies. They can’t just promise the economic outcomes that voters care about—in Schmidt’s case: low unemployment, and low and stable inflation. The economist in Schmidt was well aware of the constraints but, at the rally, he was speaking as a politician.

    Source : www.core-econ.org

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