Brief Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN: 9781337091985
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 17, Problem 4CQQ
To determine
The exchange rate between Paris and New York.
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Rational expectations believe that
a. the government must change government spending and taxes during inflation and deflation gaps
b. people will form the most accurate possible expectations about the future that they can, using all the available information available to them
c. the federal reserve must buy and sell government securities during inflation and deflation gaps
d. the economy will never self-correct
Which of the following reduces the effectiveness of inflation targeting as a means of reducing cyclical fluctuations in the economy?
A) People increasingly believe that the rate of inflation affects the level of real output.
B) Oil prices become more stable.
C) Goodhart's Law, as applied to inflation targets, breaks down.
D) The trade-off between inflation and unemployment (and output) virtually disappears.
true or false
Suppose that the central bank lost credibility in the sense that people no longer believe its inflation target (that is, inflation expectations are not `anchored’). In this case, both short-run output and long-run output do not increase in response to a permanently higher inflation target.
Chapter 17 Solutions
Brief Principles of Macroeconomics (MindTap Course List)
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Q3) B. Explain the differences between creeping inflation and walking inflation?
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A worldwide drought has reduced food production. Inflation has increased, unemployment has risen above the natural rate, Pakistani’s are frustrated with their government. Your roommate says, "This economic mess has got to be somebody's fault—probably the Prime Minister or National Assembly. A year ago, both inflation and unemployment were lower. We need to vote in some policymakers that know how to get rid of this inflation and unemployment."
a. If policymakers increase aggregate demand in response to the supply shock, in what direction will the economy move along the new short-run Phillips curve? What will happen to inflation and unemployment?
b. Is there a policy that can immediately reduce both inflation and unemployment? Explain.
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Monetary Policy: End of Chapter Problem
In the quantity theory, inflation does all of the adjusting. Recall that
M* + v* = Inflation + real growth.
a. Consider the nation of Kydland. Before the shock to Kydland’s economy, M* = 10%, v* = 3%, real growth = 4%. What is inflation?
Inflation is
%.
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We have talked about inflation. Consider the following question and evaluate: Do rising oil prices cause inflation?
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‘If the economy has high but stable inflation, the government has much to lose and little to gain by reducing inflation to a low rate.’ Explain and assess this statement.
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Using the Frieman-Phelps expectations-augmented Phillips curve, if actual and expected inflationare equal to each other, thenA)workers are correctly forecasting inflation and the economy is in long run equilibriumB)the policymaker needs to pursue expansionary policy to create more output.C)in the long run workers will adjust their expectations, resulting in a business cycle in the longrun.D)the economy is in an expansion above the natural rate of output.
arrow_forward
A worldwide drought has reduced food production. Inflation has increased, unemployment has risen above the natural rate, Pakistani’sare frustrated with their government. Your roommate says, "This economic mess has got to be somebody's fault—probably the Prime Ministeror National Assembly. A year ago, both inflation and unemployment were lower. We need to vote in some policymakers that know how to get rid of this inflation and unemployment."
a.If policymakers increase aggregate demand in response to the supply shock,in what direction will the economy move along the new short-run Phillips curve? What will happen to inflation and unemployment?b.Is there a policy that can immediately reduce both inflation and unemployment? Explain.
arrow_forward
The two main types of inflation are demand-pull and labor slide. True or false?
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The price-wage spiral is associated with which type of inflation?
a.
Cost push
b.
Demand pull
c.
Built in
d.
Chronic
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