If the unemployment rate in the economy is steady at 4 percent per year, how does the short-run Phillips curve predict that the inflation rate will be changing, if at all? What will happen if the unemployment rate now rises to 7 percent per year?
Assume there are no changes to inflation expectations. Provide an appropriate graph to support your discussion.
If the unemployment rate is constant at 4 percent per year, the inflation rate should remain constant, as shown in the graph below (as long as the unemployment rate is 4 percent, the inflation rate does not change). If the unemployment rate rises to 7 percent, then the Phillips curve would predict that the inflation rate will be lower than it was when unemployment was 4 percent.
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The Consumer Price Index market basket contains
A) the goods and services that the economists working for the BLS believes consumers should buy. B) the U.S.-produced goods and services purchased by an average urban household. C) the minimal dietary requirements of an average urban household. D) the goods and services purchased by an average urban household. E) the ideal calorie intake of each member of an average urban household.
If the price of the good measured along the vertical axis increases without a change in the price of the good measured along the horizontal axis, the consumer's budget constraint:
A) pivots rightward without a change in the intercept on the horizontal axis. B) pivots leftward without a change in the intercept on the horizontal axis. C) shifts to the right. D) shifts to the left.
Increases in government spending result in ________ in the short run, and permanent increases in government spending result in ________ in the long run
A) complete crowding out; complete crowding out B) partial crowding out; partial crowding out C) partial crowding out; complete crowding out D) complete crowding out; partial crowding out
Explain two ways by which the Federal Reserve System can increase the monetary base. Why is the effect of Federal Reserve actions on bank reserves less exact than the effect on the monetary base?
What will be an ideal response?