Chapter 8 Inflation Its Causes and Cures Copyright

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Chapter 8 Inflation: Its Causes and Cures Copyright © 2006 Pearson Addison-Wesley. All rights

Chapter 8 Inflation: Its Causes and Cures Copyright © 2006 Pearson Addison-Wesley. All rights reserved.

Figure 8 -1 The Inflation Rate and the Output Ratio, 1960– 2004 Copyright ©

Figure 8 -1 The Inflation Rate and the Output Ratio, 1960– 2004 Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 2

Figure 8 -2 Relationship of the Short-Run Aggregate Supply (SAS) Curve to the Short-Run

Figure 8 -2 Relationship of the Short-Run Aggregate Supply (SAS) Curve to the Short-Run Phillips (SP) Curve Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 3

Figure 8 -3 Effect on the Short-Run Phillips Curve of an Increase in the

Figure 8 -3 Effect on the Short-Run Phillips Curve of an Increase in the Expected Inflation Rate (pe) from Zero to 3 Percent Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 4

Table 8 -1 Alternative Divisions of 6 Percent Nominal GDP Growth Between Inflation and

Table 8 -1 Alternative Divisions of 6 Percent Nominal GDP Growth Between Inflation and Real GDP Growth Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 5

Figure 8 -4 The Adjustment Path of Inflation and the Output Ratio to an

Figure 8 -4 The Adjustment Path of Inflation and the Output Ratio to an Acceleration of Nominal GDP Growth from Zero to 6 Percent When Expectations Fail to Adjust Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 6

Figure 8 -5 Effect on Inflation and Real GDP of an Acceleration of Demand

Figure 8 -5 Effect on Inflation and Real GDP of an Acceleration of Demand Growth from Zero to 6 Percent Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 7

Figure 8 -6 Initial Effect on Inflation and Real GDP of a Slowdown in

Figure 8 -6 Initial Effect on Inflation and Real GDP of a Slowdown in Nominal GDP Growth from 10 Percent to 4 Percent Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 8

Figure 8 -7 Adjustment Path of Inflation and Real GDP to a Policy That

Figure 8 -7 Adjustment Path of Inflation and Real GDP to a Policy That Cuts Nominal GDP Growth from 10 Percent in 1980 to 4 Percent in 1981 and Thereafter Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 9

International Perspective Did Disinflation in Europe Differ from That in the United States? Copyright

International Perspective Did Disinflation in Europe Differ from That in the United States? Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 10

Figure 8 -8 The Inflation Rate and the Output Ratio, 1980– 95 Copyright ©

Figure 8 -8 The Inflation Rate and the Output Ratio, 1980– 95 Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 11

Figure 8 -9 Four-Quarter Growth Rate of the GDP Deflator and the Level of

Figure 8 -9 Four-Quarter Growth Rate of the GDP Deflator and the Level of Nominal and Real Oil Prices, 1970– 2004 Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 12

Figure 8 -10 The Effect on the Inflation Rate and the Output Ratio of

Figure 8 -10 The Effect on the Inflation Rate and the Output Ratio of an Adverse Supply Shock That Shifts the SP Curve Upward by 3 Percent Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 13

Figure 8 -11 Effect of Adverse Supply Shocks in the 1970 s and Beneficial

Figure 8 -11 Effect of Adverse Supply Shocks in the 1970 s and Beneficial Supply Shocks in the 1990 s Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 14

Figure 8 -12 Responses of the Inflation Rate (p) and the Output Ratio (Y/YN)

Figure 8 -12 Responses of the Inflation Rate (p) and the Output Ratio (Y/YN) to Shifts in Nominal GDP Growth and in the SP Curve (1 of 2) Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 15

Figure 8 -12 Responses of the Inflation Rate (p) and the Output Ratio (Y/YN)

Figure 8 -12 Responses of the Inflation Rate (p) and the Output Ratio (Y/YN) to Shifts in Nominal GDP Growth and in the SP Curve (2 of 2) Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 16

Figure 8 -12 Responses of the Inflation Rate (p) and the Output Ratio (Y/YN)

Figure 8 -12 Responses of the Inflation Rate (p) and the Output Ratio (Y/YN) to Shifts in Nominal GDP Growth and in the SP Curve Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 17

Figure 8 -13 The U. S. Ratio of Actual to Natural Real GDP (Y/YN)

Figure 8 -13 The U. S. Ratio of Actual to Natural Real GDP (Y/YN) and the Unemployment Rate, 1965– 2004 Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 18

Figure 8 -14 The Unemployment Rate and the Inflation Rate, 1960– 2004 Copyright ©

Figure 8 -14 The Unemployment Rate and the Inflation Rate, 1960– 2004 Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 19

Figure 8 -15 Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 20

Figure 8 -15 Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 20

Figure 8 -16 Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 21

Figure 8 -16 Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 21

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