Chapter 32 – Inflation, Disinflation, and Deflation – page 1
What distinction did Zimbabwe achieve in June of 2008? ____________________________________
How does the U.S. experience with inflation since the Great Depression compare?
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Money and Inflation – The Classical Model of Money and Prices - In the long-run, all
price in the economy, including wages and prices of intermediate goods, rise by the
____________ percentage as the ___________________________________________.
The classical model of price level says what about price level? ______________________________
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The classical model was used broadly by economists before the work of what
economist? When did he gain influence? ______________________________________________________
In the classical model, the SRAS curve is ______________________________________________________.
In reality, economists have found that price levels adjust more rapidly during periods of
____________ inflation and less rapidly during periods of ____________ inflation.
The Inflation Tax – Does the U.S. federal government pay for any of its obligations with
printed money? How? Why? What is this called? ___________________________________________
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If a person owned $100 of cash in their wallet for a year, and the inflation rate was 3%,
what is the real purchasing power of that $100 at the end of the year? ____________________
(p 863) What does it mean when labor contracts are “indexed” to inflation? ______________
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What is the effect of indexation? _______________________________________________________________
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The Logic of Hyperinflation – How does the public protect itself from high inflation?
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How can the government respond to this move by the public? ______________________________
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What is seignorage and how is it calculated? _________________________________________________
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What problem can this easily lead to? How? __________________________________________________
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How did Zimbabwe get in a position where it needed to print money to meet its
obligations? ______________________________________________________________________________________
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Prob. 1.
4. a.
b.
c.
d.
e.
Moderate Inflation and Disinflation - What is the relationship between inflation and
unemployment in the short-term? _____________________________________________________________
What temptations and dilemmas are created by the relationship between inflation and
unemployment? _________________________________________________________________________________
The Output Gap and the Unemployment Rate - The actual unemployment rate is equal to
the natural rate of unemployment when _____________ output equals _______________ output.
When the output gap is positive, actual unemployment is _________________________ than
natural unemployment. When the output gap is negative, actual unemployment is
_________________________ than natural unemployment. (Look at Figure 32-5 to see this.)
What is Okun’s law? How has the law come to be applied typically? Why is this not a
one-to-one relationship? ________________________________________________________________________
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Draw a graph that has the inflation rate as the y-axis and the unemployment rate as the
x-axis. What direction is the slope? Why? ____________________________________________________
graph here:
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Chapter 32 – Inflation, Disinflation, and Deflation – page 2
The Short-run Phillips Curve shows that as unemployment goes _____, inflation goes
_______. How do the Short-run Phillips Curve and shifts in the AD curve represent the
same intuition? __________________________________________________________________________________
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So then why can the government not simply reduce employment by pursuing inflation
in the economy all the time? (Address expected inflation and explain Figure 32-10).
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In which direction was the SRPC shifting in the 1970s? Why? ______________________________
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In which direction was the SRPC shifting in the 1990s? Why? ______________________________
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CYU 32-2 1. _______________________________________________________________________________________
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2. __________________________________________________________________________________________________
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Problem 6. ________________________________________________________________________________________
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8. __________________________________________________________________________________________________
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Inflation and the Unemployment Rate in the Long-Run – Most economists believe
that in the long-run, there is no trade-off between __________________________________________.
What happens to the SRPC when the public develops expectations about the inflation
rate? ______________________________________________________________________________________________
Explain why the slope of the Long-Run Phillips curve (LRPC) is vertical and how it
represents the nonaccelerating inflation rate of unemployment (NAIRU). ________________
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CYU 32-3, 1. ______________________________________________________________________________________
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How are NAIRU and the natural rate of unemployment related? ____________________________
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What have policy makers likely tried to do if an economy has found itself facing
persistently high inflation? _____________________________________________________________________
What are the costs of disinflation? Why? ______________________________________________________
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Describe the Great Disinflation of the 1980s. _________________________________________________
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Deflation – What is deflation? _________________________________________________________________
How does deflation affect lenders and borrowers (a process known as debt deflation).
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Why are interest rates “zero bound”? How can this limit the effectiveness of monetary
policy? ____________________________________________________________________________________________
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What is “the liquidity trap”? What effect does this problem have on an economy?
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What has the Federal Reserve done in recent years to stimulate the economy as it has
faced zero bound interest rates? _______________________________________________________________
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CYU 32-4, 1. ______________________________________________________________________________________
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Problem 11. ______________________________________________________________________________________
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13. _________________________________________________________________________________________________
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