Using the information in this chapter, label each of the following statements true, false or uncertain. Explain briefly.
a. The IS curve shifts to the right with an increase in G, to the right with an increase in T, and to the right with an increase in x.
b. If (u - un) is greater than zero, then (Y - Yn) is greater than zero.
c. If (u - un) is equal to zero, the output is at potential.
d. If (u - un) is less than zero, the output gap is negative.
e. If the output gap is positive, inflation is higher than expected inflation.
f. Okun’s law says that if output growth increases by one percentage point, the rate of unemployment drops by one percentage point.
g. At the natural rate of unemployment, inflation is equal to expected inflation.
h. In a medium-run equilibrium, the rate of inflation is stable at zero.
i. The central bank can always act to keep output equal to potential output.
j. Active policy changes, either in monetary policy or fiscal policy, are required to return the economy to medium run equilibrium if a shock is permanent.
k. A permanent increase in government spending would require a higher real policy rate be put in place by the central bank in order to keep inflation stable.
l. A large increase in the price of oil increases the natural rate of unemployment.