SOLVED

11) If the unemployment rate is below its natural rate, then ________. A) output is below its potential level B) there is excess tightness in the labor market C) the AS curve will shift to the right D) all of the above E) none of the above 12) If the unemployment rate is above its natural rate, then ________. A) output is below its potential level B) there is excess tightness in the labor market C) wages and prices will rise more rapidly and the AS curve will shift to the left D) all of the above E) none of the above 13) If the unemployment rate is above its natural rate, then ________. A) output is below its potential level B) there is excess slack in the labor market which will dive down wages C) inflation will decline until equilibrium output reaches its potential level D) all of the above E) none of the above 14) Picture an economy that is in general equilibrium. What would happen if the natural rate of unemployment were to experience an increase? A) according to the Phillips curve, the ensuing negative unemployment gap would exert inflationary pressures B) according to Okun’s Law, the ensuing negative unemployment gap would be consistent with a positive output gap C) according to the AD-AS framework, the LRAS curve would shift to the left and the ensuing positive output gap would be closed by subsequent leftward shifts in the AS curve to higher equilibrium levels of inflation D) all of the above E) none of the above 15) Picture an economy that is in general equilibrium. What would happen if the natural rate of unemployment were to experience a decrease? A) according to the Phillips curve, the ensuing negative unemployment gap would exert inflationary pressures B) according to Okun’s Law, the ensuing negative unemployment gap would be consistent with a positive output gap C) according to the AD-AS framework, the LRAS curve would shift to the right and the ensuing output gap would have to be closed by subsequent rightward shifts in the AS curve to a lower equilibrium level of inflation D) all of the above E) none of the above 16) An economy is in long-run equilibrium when output equals potential output. Why is there no long-run equilibrium rate of “potential inflation”? 17) The aggregate demand curve is Y = 75 – 3Ï€, and the short-run aggregate supply curve is Ï€ = 6.2 + 0.8(Y – 70). Assuming adaptive expectations, calculate the inflation rate and output for the next period.