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

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

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

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

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

6. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 8-6 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

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

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

9. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 8-9 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

10. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 8-10 International Perspective Did Disinflation in Europe Differ from That in the United States?

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

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

13. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 8-13 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

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

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

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

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

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

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

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

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