Using the information in this chapter, label each of the following statements tr

Question

Using the information in this chapter, label each of the following statements true, false, or uncertain. Explain briefly. a. The original Phillips curve is the negative relation between unemployment and inflation that was first observed in the United Kingdom. b. The original Phillips curve relation has proven to be very stable across countries and over time. c. For some periods of history, inflation has been very persistent between adjacent years. In other periods of history, this year's inflation has been a poor predictor of next year's inflation. d. Policy makers can exploit the inflation-unemployment trade-off only temporarily. e. Expected inflation always equals actual inflation. f. In the late 1960s, the economists Milton Friedman and Edmund Phelps said that policy makers could achieve as low a rate of unemployment as they wanted. g. If people assume that inflation will be the same as last year's inflation, the Phillips curve relation will be a relation between the change in the inflation rate and the unemployment rate. h. The natural rate of unemployment is constant over time within a country. i. The natural rate of unemployment is the same in all countries. j. Deflation means that the rate of inflation is negative.

Explanation / Answer

1. True, Phillip's curve showcases an inverse relation between Unemployment and Inflation.

2. Uncertain. The Phillip's curve had proven to be stable across countries, due to the occurrence of stagflation in the 1970s

3. True. This is because the next year's inflation is usually predicted by current year's inflation. However, it wasn't the case before the occurrence of many financial crises.

4. True. This is because the trade-off might not work in the long run, as has been observed on many occasions over the years.

j). True. Deflation is a reduction in the general price level, and is thus negative inflation

i). False. The natural rate of employment is different for different countries.

h. False. The natural rate of unemployment changes over time within a country.

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