Actual and natural rates of unemployment

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1. (Figure: Actual and Natural Rates of Unemployment) Look at the figure Actual and Natural Rates of Unemployment. In 2014 the output gap was:

832_Actual and Natural Rates of Unemployment.jpg

• positive
• negative
• zero
• impossible to determine without more information

2. If potential output is higher than actual output, then the unemployment rate is:
• zero.
• above the natural rate.
• equal to the natural rate.
• below the natural rate.

3. (Figure: Expected Inflation and the Short-Run Phillips Curve) Look at the figure Expected Inflation and the Short-Run Phillips Curve. Suppose that this economy has an unemployment rate of 6%, inflation of 2%, and an expectation of 2% future inflation. If the central bank decreases the money supply such that aggregate demand shifts to the left and unemployment rises to 8%, then inflation will:

1166_Expected Inflation and the Short-Run Phillips Curve.jpg

• rise to 4%.
• not change.
• rise to 2%.
• fall to zero.

Reference no: EM131139281

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