Reducing Inflation After a Supply Shock via a Negative Bargaining Gap
In the WS-PS model, reducing the high inflation that follows a persistent supply shock requires the creation of a negative bargaining gap. This is accomplished by pushing unemployment to a level that is temporarily higher than the new, elevated structural unemployment rate established by the shock.
0
1
Tags
Economics
Economy
Introduction to Macroeconomics Course
Ch.4 Inflation and unemployment - The Economy 2.0 Macroeconomics @ CORE Econ
The Economy 2.0 Macroeconomics @ CORE Econ
CORE Econ
Social Science
Empirical Science
Science
Related
Doubling of UK Structural Unemployment (1970-1985)
Reducing Inflation After a Supply Shock via a Negative Bargaining Gap
Terms of Trade
Estimating the Real Wage Impact of a Terms-of-Trade Loss
Restoring Supply-Side Equilibrium After a Negative Supply Shock
Analyzing an External Price Shock
A small, open economy is heavily dependent on imported oil for its energy and manufacturing needs. Following a major geopolitical event, the global price of oil doubles and is expected to remain high. Arrange the following domestic economic consequences in the most likely chronological order.
A manufacturing-based economy is heavily reliant on a specific imported metal for production. If the global price of this metal permanently increases by 40%, which of the following outcomes is the most probable consequence for the domestic economy, assuming both firms and workers try to avoid a reduction in their real incomes?
Inflationary Pressures from an Import Price Shock
The Macroeconomic Ripple Effect of an Import Price Shock
A sustained increase in the price of essential imported raw materials will lead to a temporary rise in unemployment, which will return to its original level once firms and workers adjust to the new, higher price level.
An economy experiences a large and persistent increase in the cost of essential imported inputs. Match each resulting economic phenomenon with its direct consequence.
When an economy experiences a permanent increase in the cost of essential imported inputs, the resulting conflict between firms raising prices and workers demanding higher wages to protect their real incomes leads to a sustained period of inflation and an eventual increase in the long-run or ____ unemployment rate.
An economy that is a net importer of oil experiences a permanent, sharp increase in the global price of oil. This event reduces the total real income available to be distributed between domestic firms and workers. Which statement best evaluates the fundamental economic conflict this creates and its ultimate resolution?
Evaluating Policy Responses to an Import Price Shock
Reducing Inflation After a Supply Shock via a Negative Bargaining Gap
The Role of High Unemployment in Reducing Inflation After the 1970s Oil Shocks
Stabilizing an Economy After a Supply Shock
An economy experiences a permanent adverse supply-side event, such as a new tax on production, which raises firms' costs and triggers a wage-price spiral. To eventually restore a stable rate of inflation without further policy intervention, what adjustment must occur within the labor market?
Following a permanent adverse supply-side shock that lowers the price-setting curve, arrange the following events in the chronological order they must occur for the economy to return to a stable inflation equilibrium.
Following a permanent negative supply-side shock, such as a lasting increase in energy costs, the economy can return to its original rate of unemployment and still achieve stable inflation.
The Labor Market's Role in Post-Shock Inflation Stabilization
Learn After
Policymaker's Role in Post-Supply Shock Disinflation
Policy Response to a Sustained Price Shock
An economy experiences a permanent and significant increase in the world price of a key imported raw material. This event has shifted the level of unemployment consistent with stable inflation to a higher rate. In the aftermath, inflation is running well above the central bank's target. To successfully reduce inflation back towards the target, which of the following conditions must be achieved, at least temporarily?
An economy experiences a lasting adverse event that increases the cost of production for all firms. This leads to an initial surge in inflation and establishes a new, higher rate of unemployment that would be sustainable in the long run. Arrange the following stages into the logical sequence that describes how the economy can be guided back to a stable, low rate of inflation.
The Mechanism of Disinflation After a Supply Shock
An economy experiences a persistent adverse supply-side event that raises the long-run unemployment rate required to keep inflation stable. Match each phase of the economic adjustment process with its corresponding description of unemployment and inflation dynamics.
The Rationale for Higher Unemployment in Disinflation
Following a persistent adverse supply shock that has permanently increased an economy's structural unemployment rate, inflation can be brought back to its target level simply by allowing the actual unemployment rate to rise and settle at this new, higher structural level.
Following a persistent adverse supply-side event, an economy's structural unemployment rate has increased. To actively reduce the resulting high inflation, policymakers must implement measures that temporarily push the actual unemployment rate above this new structural rate, thereby creating a ______.
Critique of a Disinflation Strategy
Evaluating a Disinflationary Policy Proposal
The Role of High Unemployment in Reducing Inflation After the 1970s Oil Shocks