12. An increase in the expected inflation rate will a. shift the short run Phill
ID: 1120102 • Letter: 1
Question
12. An increase in the expected inflation rate will a. shift the short run Phillips curve upward b. shift the short-run Phillips curve downward aund to the left c. cause no shift in the Phillips curve d. cause the unemployment rate to increase 13. An economist favoring an active approach who observes a drop in real GDP caused by a decrease in agt demand is most likely to think that a· the economy will recover by itself before d b. discretionary policy will correct the situation before the conomy recovers by c. the economy will recover by itself before policy rules correct the situation d. the imposition of policy rules will correct the situation before the economy recovers by policy can correct the situation itself itself Exhibit 0053 Price evel Potential output SRAS AD Real Gor 14. According to those who favor a passive approach to poliey how will the econosmy shown in Exhibit 0053 atain equilibrium at potential output? a. The SRAS curve will shift to the left. b. The SRAS curve will shift to the right. c. Either the money supply or government spending should be incrensed. d. Either the money supply or government spending should be decreased. 15. According to the rational expectations model, the only time active policy has an impact on aggregate output is whon a. it is BapExplanation / Answer
12. c) cause no shift in the Phillips curve
An increase in expected inflation leads to increase in actual inflation. This is because with higher expected inflation, wage setters will demand higher wage due to this there will be increase in cost which leads to higher price and higher inflation. Change in inflation rate and unemployment rate does not cause shift of the curve rather it leads to movement.
14. c) Either the money supply or government spending should be increased.
This recessionary gap can be eliminated when either SRAS or AD shifts rightwards and this can be done when either government increase its spending or Fed use tools which increases supply of money in the economy.
15. c) It is unannounced.
Active policy has an impact on AD when it is unannounced.
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