Origins of Increased Inflation from a Stable Equilibrium
When an economy is at its inflation-stabilizing rate of unemployment, where inflation is constant, any subsequent increase in the inflation rate is initiated by specific economic disturbances. These disturbances are categorized into two primary types of triggers.
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Introduction to Macroeconomics Course
Ch.4 Inflation and unemployment - The Economy 2.0 Macroeconomics @ CORE Econ
The Economy 2.0 Macroeconomics @ CORE Econ
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Origins of Increased Inflation from a Stable Equilibrium
Requirement of a Constant Real Exchange Rate for Supply-Side Equilibrium
Long-Run Real Interest Rate and Supply-Side Equilibrium
An economy is in a stable state where unemployment is at its supply-side equilibrium level and the actual inflation rate has been constant at 2% for several years. Suddenly, due to a credible announcement from the central bank, both firms and workers revise their inflation expectations for the upcoming year to 4%. Assuming aggregate demand in the economy remains just sufficient to keep the unemployment rate at its initial equilibrium level, what is the most likely outcome for the actual inflation rate in the next period?
Analyzing Economic Stability
Conditions for Stable Inflation
In an economy experiencing a stable inflationary equilibrium, a persistent positive bargaining gap is necessary to ensure that the actual rate of inflation remains constant and positive.
Match each economic state on the left with its corresponding implication for the bargaining gap and inflation on the right.
An economy is in a state of stable equilibrium with a constant, positive rate of inflation. Arrange the following statements to describe the logical sequence of events that occurs within a single period (e.g., one year) to maintain this equilibrium.
The Mechanics of Stable Inflationary Equilibrium
In an economy at a stable inflationary equilibrium, both nominal wages and prices are rising at the same constant rate. This implies that the ________ wage must be constant, corresponding to the level determined by the intersection of the wage-setting and price-setting curves.
An economy is described as being in a stable inflationary equilibrium. Which of the following statements would be inconsistent with this description?
Evaluating a Policy to Reduce Unemployment
Learn After
Analyzing an Inflationary Shock
Analyzing an Inflationary Trigger
An economy is in a stable equilibrium with a constant, positive rate of inflation. Which of the following events would most likely be an initial trigger for an increase in the inflation rate?
An economy is operating at its inflation-stabilizing rate of unemployment, where the inflation rate is constant. A sudden, permanent increase in the bargaining power of firms allows them to set higher prices relative to their costs. What is the most likely immediate consequence of this change?
Explaining an Inflationary Trigger
True or False: In an economy initially at a stable equilibrium with a constant rate of inflation, a sudden and sustained increase in aggregate demand will cause the economy to immediately settle into a new, stable equilibrium at a higher, but constant, rate of inflation.
An economy is initially in a stable equilibrium with a constant, positive rate of inflation. A sudden, sustained increase in the bargaining power of workers then occurs. Arrange the following events in the logical sequence that describes the resulting inflationary process.
An economy is in a stable equilibrium with a constant, positive rate of inflation. Match each economic shock described below with its most direct, immediate consequence that initiates a rise in inflation.
In an economy at its inflation-stabilizing rate of unemployment, a positive aggregate demand shock that pushes unemployment below the equilibrium level will initially lead to an increase in the bargaining power of ______, triggering a rise in inflation.
Evaluating a Policy Response to an Inflationary Shock