Costs of Reducing Inflation
What is deflation?
Reduction in the price level
Coffee (2022 $10.00 2023: $7.00)
When actual inflation exceeds expected inflation, _______.
unemployment is less than the natural rate of unemployment.
Sacrifice Ratio
the number of percentage points of annual output lost in the process of reducing inflation by 1 percentage point
What is disinflation?
A reduction in the rate of inflation
ex (inflation 2022= 7% 2023= 3%)
An increase in expected inflation shifts the short-run Phillips curve....
upward, and the unemployment-inflation trade-off is less favorable
When the Fed contracts growth in the money supply to reduce inflation, it moves the economy along the _______ Phillips curve, resulting in temporarily high unemployment
Short-run
The cost of disinflation depends on ...
how quickly expectations of inflation fall