Macroeconomics – 5. Unemployment, Inflation, and Stagflation

  1. Why is the distinction between cyclical, frictional, and structural unemployment important?
  2. Define the unemployment rate.
  3. Explain Okun’s law.
  4. Illustrate demand-pull inflation.
  5. Illustrate cost-push inflation.
  6. What is the Keynesian dilemma that arises with stagflation?
  7. What is the core or inertial rate of inflation?
  8. Why are inflationary expectations important?
  9. What are adaptive expectations?
  10. Illustrate how adaptive expectations lead to an inertial inflation rate.
  11. What relationship does the Phillips Curve purport to illustrate?
  12. What happened in the 1970s to shake economists’ faith in the Phillips Curve?
  13. What is the standard explanation of the Phillips Curve breakdown?
  14. According to the Monetarists, the disappearance of the Phillips Curve in the 1970s may best be explained through what two things?
  15. What is the natural or lowest sustainable rate of unemployment?
  16. What are the policy implications of the Monetarist’s natural rate theory, particularly with regard to Keynesian activism?
  17. Is the natural rate of unemployment constant?
  18. Illustrate an inflationary spiral from the Monetarists’ perspective.  How do the Monetarists stop an inflationary spiral?
  19. Contrast the traditional Keynesian versus Monetarist approaches to wringing inflation out of the economy. Why does neither have political appeal?
  20. Illustrate how Supply-side economics offers a very painless way to avoid both the Keynesian stagflation dilemma and the bitter Monetarist cure for an inflationary spiral.
  21. Illustrate the Laffer Curve.
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