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In the long run, inflation occurs if the ______ grows fast than_______
- quantity of money
- potential GDP
An inflation that starts because aggregate demand is increased is called
Demand-pull inflation can begin with any factor that increases aggregate demand. For example:
- cut in the interest rate
- increase in the quantity of money
- an increase in government expenditure
- tax cut
In demand-pull inflation, an increas in aggregate demand causes the price level to_____ and real GDP_________
- reamains at potential GDP
An inflation that starts with an increase is costs is called a
There are two main factors that causes prices to increase:
- An increase in the money wage rate
- An increase in the money price of raw materials
In cost-push inflation, the initial leftward shift of the short-run aggregate supply curve ends with a/n ________ price level and real GDP______
- remains at potential GDP
The combination of rising inflation and decreasing GDP is called
When the inflation forecast is correct, the economy operates at
When aggregate demand increases, but the increase is expected, so its effect on the price level is expected, this is called
If aggregate demand grows faster than expected, real GDP moves above potential GDP, the inflation rate ___________________________, and the economy behaves like it does in a ______________________.
- exceeds its expected rate
- demand-pull inflation
If aggregate demand grows more slowlythan expected, real GDP _____________ potential GDP, the inflation rate ____________, and the economy behaves like it does in a ___________________________.
- falls below
- cost-push inflation
A Phillips curveis a curve that shows the relationship
between the inflation rate and the unemployment rate.
The short-run Phillips curve shows the tradeoff between the inflation rate and unemployment rate, holding constant
- The expected inflation rate
- the natural unemployement rate
If the inflation rate rises above the expected inflation rate, unemployment..
falls below its natural rate
If the inflation rate falls below the expected inflation rate, unemployement
rises above it's natural rate
The long-run Phillips curveshows the relationship between inflation and unemployment when
The actual inflation rate equals the expected inflation rate
The long-run Phillips curve (LRPC) is _________ at the natural unemployment rate
A change in the natural unemployment rate shifts
both the LRPCand SRPC
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