Macro week 3

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Week 3 Homework

1. Some Classical and Monetarist economists claim that inflation is always a "monetary phenomenon." What do they mean by this claim and are they correct?
They use the equation MV=PQ to show that any change in the amount of money in a system will change the price level. I believe that history shows they are correct, if the Fed reserve started printing a bunch of money without taking any out of circulation, then prices would go up for everything.
2. How can a higher price of oil create inflation?
Yes, as the price of oil goes up so does inflation.
3. What is the relationship between the short-run aggregate supply curve and the short-run Phillips curve? Between the long-run aggregate supply curve and the long-run Phillips curve?
Any changes in aggregate demand cause movement on the Phillips curve. Both long and short term, for every
4. Supposed the expected and actual inflation rages are 7 percent and the natural rate of unemployment is 6 percent. If the inflation rate falls to 5 percent while the expected rate remains at 7 percent, what happens to the unemployment rate?
If employment is lower than expected, the real wage rate rises, demand for labor decreases, and unemployment goes up.
5. Suppose the expected and actual inflation rates are 7 percent and the natural rate of unemployment is 6 percent. If the inflation rate falls to 5 percent and the expected inflation rate also falls to 5 percent, what happens to the unemployment rate?
There is no effect on unemployment when the change in inflation rate is anticipated.
6. Suppose that the actual inflation rate is 7 percent and that the economy is at the natural unemployment rate. If the Fed announces that it is going to lower the inflation rate and people believe this announcements (so that the decline in the inflation rate is not a surprise), what happens to the unemployment rate? Suppose that people believe the Fed's announcement and that the expected inflation rate falls, but then the Fed keeps

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