QUESTIONS FOR REVIEW

Question 14.1

1. Explain the two theories of aggregate supply. On what market imperfection does each theory rely? What do the theories have in common?

Question 14.2

2. How is the Phillips curve related to aggregate supply?

Question 14.3

3. Why might inflation be inertial?

Question 14.4

4. Explain the differences between demand-pull inflation and cost-push inflation.

Question 14.5

5. Under what circumstances might it be possible to reduce inflation without causing a recession?

Question 14.6

6. Explain two ways in which a recession might raise the natural rate of unemployment.