Macroeconomics

David Colander

Chapter 16

Inflation and the Phillips Curve - all with Video Answers

Educators

Chapter Questions

Problem 1

Why do lenders tend to lose out in an unexpected inflation? LO1

Oluwadamilola Ameobi

Oluwadamilola Ameobi

Numerade Educator

Problem 2

Under what conditions would lenders not lose out in inflation? LO1

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Problem 3

If you base your expectations of inflation on what has happened in the past, what kind of expectations are you demonstrating? $\mathrm{LO} 2$

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Problem 4

If productivity growth is 3 percent and wage increases are 5 percent, what would you predict inflation would be? $\mathrm{LO} 2$

Jennifer Stoner

Jennifer Stoner

Numerade Educator

Problem 5

What three assumptions turn the equation of exchange into the quantity theory of money? LO3

Xiaomin Bian

Numerade Educator

Problem 6

What does the quantity theory predict will happen to inflation if the money supply rises 10 percent? LO3

Tristan Wille

Numerade Educator

Problem 7

Why did the relationship between growth in the money supply and inflation break down in the 1990s? LO3

Kaylee Mcclellan

Kaylee Mcclellan

Numerade Educator

Problem 8

For what countries is the connection between the growth in the money supply and inflation still evident? What accounts for this? LO3

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Problem 9

If governments are aware that increases in the money supply cause inflation, why do some countries increase the money supply by significant amounts anyway? $\mathrm{LO} 3$

NS

Nayeli Selkis

Numerade Educator

Problem 10

What is the inflation tax? Who pays it? LO3

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Problem 11

Who is more likely to support monetary rules-a quantity theorist or an institutionalist? Explain your answer. LO3

Xiaomin Bian

Numerade Educator

Problem 12

Assume the money supply is $$\$ 500$$, the velocity of money is 8 , and the price level is $$\$ 2$$. Using the quantity theory of money:
a. Determine the level of real output.
b. Determine the level of nominal output.
c. Assuming velocity remains constant, what will happen if the money supply rises 20 percent?
d. If the government established price controls and also raised the money supply 20 percent, what would happen? LO3

Yi Chun Lin

Washington University in St Louis

Problem 13

What is the direction of causation between money and prices according to the institutional theory of inflation? LO4

Xiaomin Bian

Numerade Educator

Problem 14

What is the insider/outsider theory of inflation? Would quantity or institutional theorists likely believe this theory? LO4

Xiaomin Bian

Numerade Educator

Problem 15

Draw a short-run Phillips curve. What does it say about the relationship between inflation and unemployment? LO5

EA

Erwin Antoni

Numerade Educator

Problem 16

Draw a long-run Phillips curve. What does it say about the relationship between inflation and unemployment? LO5

EA

Erwin Antoni

Numerade Educator

Problem 17

If people's expectations of inflation didn't change, would the economy move from a short-run to a longrun Phillips curve? LO5

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Problem 18

In the mid-1990s and through the early 2000 s, Japan's annual money supply growth rate fell to $1-2$ percent from an average annual rate of $10-11$ percent in the late 1980s. What effect did this decline likely have on
a. Japanese real output?
b. Japanese unemployment?
c. Japanese inflation? LO5

Alejandro Ruiz

Numerade Educator

Problem 19

Congratulations. You've just been appointed finance minister of Inflationland. Inflation has been ongoing for the past five years at 5 percent. The target rate of unemployment, 5 percent, is also the actual rate.
a. Demonstrate the economy's likely position on both short-run and long-run Phillips curves.
b. The president tells you she wants to be reelected. Devise a monetary policy strategy for her that might help her accomplish her goal.
c. Demonstrate that strategy graphically, including the likely long-run consequences. LO5

EA

Erwin Antoni

Numerade Educator

Problem 20

European Community Bank (ECB) governing council member Erkki Liikanen was quoted in a 2004 Wall Street Journal article as saying, "The stronger we get the productivity growth .... the more room we will get in monetary policy (to keep interest rates low)."
a. Demonstrate his argument using the $A S / A D$ model.
b. Demonstrate his argument using the Phillips curve model. LO5

EA

Erwin Antoni

Numerade Educator

Problem 21

What is the reasoning behind the view that there is a trade-off between inflation and growth? LO6

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