PICK 3 AND ANSWER
1. The Case in Point titled â€œSome Reflections on the 1970sâ€ describes the
changes in inflation and in unemployment in 1970 and 1971 as a
watershed development for macroeconomic thought. Why was an
increase in unemployment such a significant event?
2. As the economy slipped into recession in 1980 and 1981, the Fed was
under enormous pressure to adopt an expansionary monetary policy.
Suppose it had begun an expansionary policy early in 1981. What does
the textâ€™s analysis of the inflation-unemployment cycle suggest about
how the macroeconomic history of the 1980s might have been changed?
3. Here are some news reports covering events of the past 35 years.
In each case, identify the phase (Phillips, stagflation, or recovery)
the economy is in, and suggest what change in aggregate demand
or aggregate supply might have caused it.
a. â€œPresident Nixon expressed satisfaction with last yearâ€™s
economic performance. He said that with inflation and
unemployment heading down, the nation â€˜is on the right
b. â€œThe nationâ€™s inflation rate rose to a record high last month,
the government reported yesterday. The consumer price
index jumped 0.3% in January. Coupled with the
announcement earlier this month that unemployment had
risen by 0.5 percentage points, the reports suggested that the
first month of President Nixonâ€™s second term had gotten off
to a rocky start.â€
c. â€œPresident Carter expressed concern about reports of rising
inflation but insisted the economy is on the right course. He
pointed to recent reductions in unemployment as evidence
that his economic policies are working.â€
4. The text notes that changes in oil prices can affect the inflationunemployment
outcome. Explain what effect changes in oil prices may
have on these two variables.
5. The introduction to this chapter suggests that unemployment fell, and
inflation generally fell, through most of the 1990s. What phase (Phillips,
stagflation, or recovery) does this represent? Relative to U.S. experience
from the 1960s until the 1990s, what was unusual about this?
6. Suppose that declining resource supplies reduce potential output in
each period by 4%. What kind of monetary policy would be needed to
maintain a zero rate of inflation at full employment?
Chapter 16 Inflation and Unemployment
16.4 Review and Practice 681
7. The Humphreyâ€“Hawkins Act of 1978 required that the federal
government maintain an unemployment rate of 4% and hold the
inflation rate to less than 3%. What does the inflation-unemployment
relationship tell you about achieving such goals?
8. The American Economic Association publishes a newsletter (which is
available on the AEAâ€™s Internet site at http://www.aeaweb.org/joe/)
called Job Openings for Economists (JOE). Virtually all academic and many
nonacademic positions for which applicants are being sought for
economics positions are listed in the newsletter, which is quite
inexpensive. How do you think that the publication of this journal
affects the unemployment rate among economists? What type of
unemployment does it affect?
9. Many people think that the process of putting computer technology to
work and incorporating computers into the workplace is causing a
massive restructuring of virtually every institution of modern life. If
they are right, what are the implications for unemployment? What kind
of unemployment would be affected?
10. The natural unemployment rate in the United States has varied over the
last 50 years. According to the Congressional Budget Office, the natural
rate was 5.5% in 1960, rose to about 6.5% in the 1970s, and had declined
to about 4.8% by 2000. What do you think might have caused this
11. Suppose the Fed begins carrying out an expansionary monetary policy
in order to close a recessionary gap. Relate what happens during the
next two phases of the inflation-unemployment cycle to the maxim
â€œYou can fool some of the people some of the time, but you canâ€™t fool all
of the people all of the time.â€