Questions from General Economics

Q: Illustrate the effects of the following developments on both the short-

Illustrate the effects of the following developments on both the short-run and long-run Phillips curves. Give the economic reasoning underlying your answers. a. a rise in the natural rate of unemploym...

Q: What is “natural” about the natural rate of unemployment?

What is “natural” about the natural rate of unemployment? Why might the natural rate of unemployment differ across countries?

Q: Suppose a drought destroys farm crops and drives up the price of

Suppose a drought destroys farm crops and drives up the price of food. What is the effect on the short-run trade-off between inflation and unemployment?

Q: The Fed decides to reduce inflation. Use the Phillips curve to

The Fed decides to reduce inflation. Use the Phillips curve to show the short-run and long-run effects of this policy. How might the short-run costs be reduced?

Q: Policymakers sometimes propose laws requiring firms to give workers certain fringe benefits

Policymakers sometimes propose laws requiring firms to give workers certain fringe benefits, such as health insurance or paid parental leave. Let’s consider the effects of such a policy on the labor m...

Q: Draw the short-run trade-off between inflation and unemployment

Draw the short-run trade-off between inflation and unemployment. How might the Fed move the economy from one point on this curve to another?

Q: Draw the long-run trade-off between inflation and unemployment

Draw the long-run trade-off between inflation and unemployment. Explain how the short-run and long-run trade-offs are related.

Q: Draw the short-run Phillips curve and the long-run

Draw the short-run Phillips curve and the long-run Phillips curve. Explain why they are different.

Q: Give an example of a favorable shock to aggregate supply. Use

Give an example of a favorable shock to aggregate supply. Use the model of aggregate demand and aggregate supply to explain the effects of such a shock. How does it affect the Phillips curve?

Q: What is the sacrifice ratio? How might the credibility of the

What is the sacrifice ratio? How might the credibility of the Fed’s commitment to reduce inflation affect the sacrifice ratio?