Inflation And The Philips Curve

Question 1

Define employed

Answer 1

Working at a paid job

Question 2

Define unemployment

Answer 2

Not employed but looking for a job

Question 3

Define labour force

Answer 3

The amount of labour available for producing goods and services; all employed plus unemployed people

Question 4

Define - outside labour force

Answer 4

Not employed , and not looking for work

Question 5

Define the u/e rate

Answer 5

% if the labour force that is u/e

Question 6

Define the labour force participation rate

Answer 6

The fraction of the adult population that participates in the labour force

Question 7

Natural rate hypothesis?

Answer 7

LR level of employment, output and u/e described by the classical model

Question 8

What is cost push inflation

Answer 8

Price changes resulting from supply shocks.
Adverse supply shocks typically raise production costs and induce firms to increase prices “pushing “ inflation up
E.g devaluation of pound following brexit

Question 9

What is demand-pull inflation

Answer 9

Price changes resulting from demand shocks.
Negative shocks in AD causes u/e to rise above it’s natural rate, which pulls the inflation rate down
E.g - credit crunch

Question 10

What are the main objections of the adaptive expectations hypothesis ?

Answer 10

1) irrationality of making systematic errors
2) the complete reliance on partial info (only past inflation)
3) Economists use macro econometric models to forecast inflation

Question 11

Define the sacrifice ratio

Answer 11

The % of a years real GDP that must be foregone to reduce inflation by 1%