Question

If the Bank of Canada were to miscalculate the NAIRU (non-accelerating inflation rate of unemployment) as being 10% when in fact it was 12%, it might cause O A. consumers to spend more than they intended, because the Bank of Canada misled them about the unemployment rate. O B. a reduction in the natural rate of unemployment, because it would be allowing inflation to occur. O c. a one-time reduction in unemployment, because of a one-time increase in the money supply and the price level. O D. a temporary decrease in inflationary expectations, because NAIRU measures the expected inflation rate. O E. accelerating inflation, because it would be unknowingly validating an inflationary gap. If the NAIRU was 7% and the actual unemployment rate was 6%, we would conclude that O A. the output-gap effect would work to increase nominal wages for workers. O B. there would be no output-gap effect because unemployment was very high. O C. the unemployment rate would have to fall further before the expectational effect would influence wage changes O D. the sticky wages would mean no decrease in nominal wages. O E. the expectational and output-gap effects would both likely mean no change in nominal wages.

Answer 1

1- ans is E

Because, miscalculated NAIRU is less than what it actually is. Inflationary pressures will mount up.

2- ans is A

Because the corresponding output to NAIRU is less than the output corresponding to actual unemployment. This will push up nominal wages

3- ans is B

To bring back to a new equilibrium on the vertical line at E1 where AD1 and AS1 intersect each other.

4- ans is C

Unemployment is too higher than the rate to keep inflation stable. Low output leading to recessionary pressure.

5- ans is D. A new equilibrium on the same vertical line

6- ans is B

To keep inflation constant, new AD and AS should intersect at NAIRU point, so the shift of the curves ought to be accordingly.