E. deflation is likely to occur. 13. Discuss the possible impact of inflation, disinflation and deflation of the ratios, and explain the . Please match each of the descriptions with the corresponding organization or group. The inflation rate was constant at 7 percent annually for most of the twentieth century. a. In the long run, the inflation rate MOST likely will: In this graph, SRPC1 is the short-run Phillips curve for this economy when the expected inflation rate equals 0%. a. disinflation b. The more the public believes that the government's policies will reduce inflation, the less unemployment will need to be imposed to adjust public expectations of inflation. b. a.) Okun's law finds that output gaps and unemployment rates are _____ related in a _____ ratio. b.) Please adjust the SRPC to reflect what happens when expected inflation decreases by 2 % points. aggregate demand curve shifted to the right. A. disinflation: A … 11.) The inflation tax is often used as a significant source of revenue in developing countries where the tax collection and reporting system is not well developed and tax evasion may be high. higher shoe-leather costs. Key Terms. Demand-pull inflation is a tenet of Keynesian economics that describes the effects of an imbalance in aggregate supply and demand. the policymakers lacked credibility. The cost of disinflation is: a.) B) disinflation. The CPI measures the: A) average change in prices paid by urban consumers for a typical market basket of consumer goods and services. The inflation rate rises at a higher rate. Disinflation is not the same as deflation, when inflation drops below zero. Moreover, just two years into the disinflation process in New Zealand the Government introduced a 10 per cent Goods and Services Tax, which increased the CPI by an estimated 8 per cent. 5. Borrowers are negatively impacted and lenders are positively impacted. C. An economy is in equilibrium at the natural rate of unemployment, and government spending decreases. If expected inflation decreases, then the short-run Phillips curve will: The long-run Phillips curve is _____ at the nonaccelerating inflation rate of unemployment. The unemployment cost of disinflation can be mitigated by government credibility. 6. How can you explain why the unemployment rate did not fall as much, although the economy was experiencing strong economic growth? By CUSTOS As I suspected, markets are not finding it easy to hold up in face of continuing uncer- tainties. c. Determine whether each of the statements describes inflation, deflation, or both. How can they minimize the unemployment cost of disinflation? Which statement accurately describes disinflation? occurs when borrowers reduce their aggregate spending, because the deflation increases the debt burden that borrowers experience. b.) Now, as the price level starts decreasing, in our basic IS-LM model, LM curve starts shifting rightwards, and keeps shifting, until, we reach full employment. ~ Companies may react to a sudden increase in demand by having workers work longer hours rather than hiring new workers. Figure 34-1: Expected Inflation and the Short-Run Phillips Curve SRPC 0 is the Phillips curve with an expected inflation rate of 0%; SRPC 2 Paul Robin Krugman (/ ˈ k r ʊ ɡ m ə n / KRUUG-mən; born February 28, 1953) is an American economist who is the Distinguished Professor of Economics at the Graduate Center of the City University of New York, and a columnist for The New York Times. Finally, the economy moves to E3. 2.) ... (CPI)to accurately state the rate of inflation? Headline inflation is the raw inflation figure as reported through the Consumer Price Index (CPI) that is released monthly by the Bureau of Labor Statistics. a. D. the short-run Phillips curve will shift down. 1.) Suppose that the economy starts at E1 and moves to E2, where AD2 intersects SRAS1. Examples of how inflation can reduce real incomes and real savings. When nominal interest rates cannot be lowered any further. 5.) Is it possible for there to be no cost of disinflation? 2 shows the decline in inflation and in real activity during the Volcker disinflation, which involves a cumulative output loss of about 20% according to traditional calculations. It refers to the rate of change: It’s a slowdown in the rate of inflation . Also costs of hyperinflation. We could conclude with certainty that Question 41 answers the rational expectations hypothesis is false. If the monetary authorities decide to increase the nominal money supply by 10% when the economy is at its full-employment level of output, in the long run the aggregate price level increases by _____% and real GDP _____. Using the graph, the short-run Phillips curve (SRPC) equals SRPC2 when the expected inflation rate equals _____%. Liquidity traps are most likely to occur when the: True. Question 42 text Question 42 2 points Save Which of the following describes the Volcker disinflation most accurately? Inflation, disinflation and deflation can have significant effects on income statements and balance sheets, and therefore on the calculation of ratios. Borrowers and lenders should base their decisions on the _____ rate of interest and not the _____ rate of interest. Policy makers would like to disinflate the economy at the lowest economic cost possible. Which statement about chained consumer price index for urban consumers (C-CPI-U)is TRUE? _____ refers to a falling aggregate price level. Who gains when there is unexpected deflation? more accurate in periods of high inflation than in periods of low inflation. a. d.) higher unemployment rates . B, In year 1, the economy is experiencing deflation and in year 2, the economy is experiencing disinflation. In fact, the real consequences of the disinflation were sharply smaller than Okun's predictions. Suppose that this economy has an unemployment rate of 6%, no inflation, and no expectation of inflation. In 1982, the cyclical unemployment rate was approximately: equal to the natural rate of unemployment. The economy is depicted in the accompanying graph. Statement II: If last year's rate of inflation was 6%, that would mean that the price of every good or service went up by 6% for last year. Suppose a mortgage company lends $100,000 to the Miller family to buy a house worth $105,000. After experiencing a recession for the past two years, the residents of Albernia were looking forward to a decrease in the unemployment rate. The crude quantity theory of money very accurately describes the relation between the money supply and the price level. Choose one answer. Choose one answer. A) The two measures do not move together, so they cannot be used interchangeably by policymakers. Some items may be neither an advantage nor a disadvantage and should not be placed under either heading. Concerned about the crowding-out effects of government borrowing on private investment spending, a candidate for president argues that the United States should just print money to cover the government's budget deficit. short-run aggregate supply curve shifts to the left. In 2008, Krugman was awarded the Nobel Memorial Prize in Economic Sciences for his contributions to New Trade Theory and New Economic Geography. Reset Selection Question 17 of 20 5.0 Points Which is the most accurate statement? If expected inflation decreases, then the _____ curve will shift to the _____. It must be accompanied by a decline in the price level. 4 e.) Redo question 4 with an inflation rate of 25% and answer the following questions. C. B) The two measures' movements closely parallel each other, even on a month-to-month basis. Then, in mid-1989, that tax was increased from 10 per cent to 12.5 per cent. Refer to Figure: AD-AS. Who gains when there is unexpected deflation? D. supply-siders. Liquidity traps are most likely to occur when the: The worst inflation in the United States in modern times occurred in the late 1970s, when prices were increasing at an annual rate of 13%. During periods of _____, people are eager to hold large sums of money. Year CPI 2016 238.577 2015 237.017 2014 236.736 2013 232.957 2012 229.594 2011 224.939 2010 218.056 2009 214.537 2008 215.303 2007 207.342 2006 … public expects deflation. Using your knowledge of the inflation tax to answer the questions. Thus, price level is decreasing. Liabilities and revenue b. Select all accurate explanations. C. inflation will increase. This paper describes the history of inflation targeting at the Reserve Bank of New Zealand and how transparency has shaped the Reserve Bank’s approach to monetary policy. A) The labor force participation rate of men has climbed from about 75 percent to 90 percent. Assume that the United States government introduces an expansionary monetary policy, increasing the money supply in the market. During periods of disinflation, the general price level is still increasing, but it is occurring slower than before. Assume that the state of the economy is not the result of a negative supply shock. asked by umme on February 17, 2017; Math. Cash flow statement Question33 Marks: 1 The income statement reflects which of the following? In the accompanying diagram, shift the AD, LRAS, and/or SRAS curves and move the equilibrium point to its new position to show why this policy will ultimately result in a higher aggregate price level but no change in real GDP. c. To ensure the best experience, please update your browser. C. monetarists. Disinflation doesn’t refer to the direction of prices (as inflation and deflation do). Which of the following terms describes a situation in which there is a reduction in the rate of inflation from 4% to 3% per year? The economy would move up a fixed Phillips curve to a higher unemployment rate and a lower inflation rate if the: When the output gap is positive, the unemployment rate: The _____ model helps to explain long-run economic fluctuations. It is a gradual reduction in the price level over time. Suppose there is unexpected deflation this year that reduces the aggregate price level. Joel Tillinghast of Fidelity Investments describes Keynes as an early practitioner of value investing, a school of thought formalized in the U.S. by Benjamin Graham and David Dodd at Columbia Business School during the 1920s and '30s, but Keynes is believed to have developed his ideas independently. Now and again institutional buyers pick up cheap lines of stock but most investors are on the side- lines The classical model of price level assumes that the economy moves from _____; thus, inflation _____ and real GDP _____. In year 1, the economy is experiencing inflation and in year 2, the economy is also experiencing inflation. Now, if output is below its natural rate, inflation is negative, or we have disinflation in the economy. In the United States, if there is a decrease in the expected inflation rate of 2%, then the short-run Phillips curve will _____ and the actual inflation rate will _____. a.) Which of the following describes the Volcker disinflation most accurately? When prices are falling, what term do economists use? Cash flow statement Question33 Marks: 1 The income statement reflects which of the following? Its philosophy b. D) superdeflation. Which answer below accurately characterizes the changes in the nation\'s price level? D) reflation. It is the process of bringing down the inflation that has become embedded in expectations. Suppose that actual aggregate output is equal to the potential output; the actual unemployment rate is: If the natural rate of unemployment is 5% and the actual rate of unemployment is 4%: A Phillips curve implies a negative relationship between: Refer to Figure: Expected Inflation and the Short-Run Phillips Curve. ~ By printing money to pay its debt, government decreases the value of money and causes the inflation tax. If the money held by the public is $3 billion and inflation is 6%, the inflation tax is: If the money supply grows by 4% and the real money supply is $100 billion, real seignorage is: Refer to Figure 16-4: Actual and Natural Rates of Unemployment. The short-run Phillips curve would shift upward if the: According to the text, in the long run, an increase in the inflation rate will lead to: increase real GDP only in the short run, and raise the price level in the long run. 12.) Choose one answer. Then, answer the following question. Statement I: Deflation and disinflation mean exactly the same thing. Almost all of the public believed that the Fed would keep money growth low, so unemployment rose less than it would have otherwise. D. supply-siders. 4.) The crude quantity theory of money very accurately describes the relation between the money supply and the price level. An increase of the inflation rate from 10% to 100% is called: A) inflation. B. 8.) Deflation c. contraction d. Inflation; Which of the following best describes the evolution of inflation in Canada? Jason and Mary are married taxpayers in 2015. Answer the following questions about the (real) inflation tax, assuming that the price level starts at 1. C) disinflation. Liabilities and revenue b. It is the process of bringing down the inflation that has become embedded in expectations 6.) Cash flow and assets c. Revenue and expenses d. Assets and cash flow Question34 Marks: 1 A mission statement for a company does NOT include which of the following? D) hyperinflation. c.) lower menu costs . For example, deflation would be an inflation rate of -1 percent, while disinflation would be a change in the inflation rate from 3 percent one year to 2 percent in the next. If nominal wages are slow to adjust to changes in the price level, then the effect of an increase in the money supply is to: To achieve disinflation, stabilization policy should be: The classical model of the price level reflects the work of: Due to historical differences, countries often differ in how quickly a change in actual inflation is incorporated into a change in expected inflation. lower unemployment rates . In a country such as Japan, which has had very little inflation in recent memory, it will take longer for a change in the actual inflation rate to be reflected in a corresponding change in the expected inflation rate. The short-run and long-run Phillips curve may be used to illustrate disinflation. If not indepentent, then the government might be tempted to have the central bank print more money (creating inflation) whenever the government runs a budget deficit. Costless disinflation is possible but unlikely--it would only be possible if expectations about inflation shifted immediately after the announcement of the government's plan. The short-run Phillips curve shifts downward if expected inflation: In the long run, an increase in the money supply will cause nominal prices and nominal wages to _____ the percentage increase in the money supply. a.) Almost all of the public believed that the Fed would keep money growth low, so unemployment rose more than it would have otherwise. Suppose that, in the next year, the government plans to use monetary policy to decrease interest rates. The quantity theory of money and the equation of exchange are two ways of saying exactly the same thing. The price level for most goods has fallen and the annual change in the Consumer Price Index (CPI) has been negative over the past two years. Who are the winners and losers if, during the first year, prices unexpectedly fall by 10%? policy may plunge the economy into a recession. In the following examples, would the classical model of the price level be relevant? the rational expectations hypothesis is true. a. Which of the following accurately describes disinflation? Fig. Gilt-edged prices, from which in present conditions other markets and, especially, well-secured prior charges and the best industrial equities must take their cue, are still slithering. What are the advantages and disadvantages of such a plan? This means that the price increased at a … a. The economy of Brittania has been suffering from high inflation with an unemployment rate equal to its natural rate. How does the change in the monetary base help in the government's efforts to finance its deficits? C) hyperinflation. B) deflation. In Graph 1, adjust the proper curve or curves appropriately to show the effect of the policy change. the decrease in the real value of money held by the public caused by inflation, A Phillips curve implies a negative relationship between, An increase in the expected rate of inflation, During the 1950s and 1960s, the short-run Phillips curve for the U.S. economy showed a(n), inverse relationship between unemployment and inflation, vertical at the nonaccelerating-inflation rate of unemployment (NAIRU), The LRPC curve is vertical at the NAIRU because, any unemployment rate below the NAIRU will lead to ever-accelerating inflation. A. disinflation is likely to occur. An economy is in equilibrium at the natural rate of unemployment, and government spending increases. a change in the output gap occurs with a change in the rate of unemployment that is smaller in magnitude and in the opposite direction. In the accompanying graph, demonstrate the long run effect on aggregate demand and short run aggregate supply. Public announcement of medium-term numerical target for inflation; Institutional commitment to price stability as the primary, long-run goal of monetary policy and a commitment to achieve the inflation goal Which statement accurately describes disinflation? b. A. The accompanying graph depicts a hypothetical economy's short-run Philips curve . Monetary and fiscal policy will be effective only in the short run for Japan and not Zimbabwe. In Graph 2, move Point A to show what will happen to inflation in the long run as a result of the movement in Graph 1. The relationship between inflation and unemployment in the short run is different from their relationship in the long run. Study 24 Chapter 16 flashcards from Caleb P. on StudyBlue. None of the above is certain. Which of the following statements accurately describes the two measures of the money supply? 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