Exam 28: Inflation, Unemployment, and Federal Reserve Policy

The short-run Phillips curve will shift if there is

A decrease in the expected inflation rate will

According to the short-run Phillips curve, if unemployment is 3.2% and inflation is 1.3%, an increase in the inflation rate might result in which of the following?

In the dynamic AD-AS model, when will a decrease in aggregate demand not result in a lower inflation rate in the short run?

In the long run, the Phillips curve is a ________ at ________.

With which of the following statements would a "real business cycle" theorist most closely agree?

Empirical evidence shows that the short-run Phillips curve was vertical during the 1950s and 1960s.

Which of the following best describes the negative slope of the short-run Phillips curve?

Article Summary Since the Fed introduced its annual goal of an inflation target of 2 percent in January 2012, the personal consumption expenditures price index has fallen short of this goal more than 90 percent of the time. This has prompted some analysts and Fed officials to acknowledge that the Fed has lost some of its credibility in achieving its 2 percent target, and has Fed officials again discussing whether to hold off on raising interest rates. Fed Governor Lael Brainard stated that the Fed's failure to increase inflation to its 2 percent target may have influenced how companies and consumers view the inflation outlook, stating "Households and firms have experienced a prolonged period of inflation below our objective, and that may be affecting their perception of underlying inflation." Since expectations influence the actions of companies and consumers, they help determine where inflation actually ends up. Consumers who are accustomed to low inflation will resist paying up for goods and services, and therefore companies will avoid increasing wages, fearing they won't be able to raise prices to cover the added labor costs. It's a vicious circle that can hinder the Fed from achieving its inflation target. -Refer to the Article Summary. If the Federal Reserve's announcements about upcoming monetary policy decisions are not seen as credible, as is mentioned in the article summary regarding the Fed's 2 percent inflation target, which of the following would you expect to see?

According to the short-run Phillips curve, which of the following would result in low rates of unemployment?

In which of the following situations might you expect expansionary monetary policy to reduce the unemployment rate?

Two actions by the Fed during Alan Greenspan's term as chairman have been identified as possibly contributing to the financial crisis in 2008. Which of the following was one of those actions?

If the Phillips curve represents a "structural relationship," then

An increase in the level of structural unemployment will shift the long-run Phillips curve.

Figure 28-9 -Refer to Figure 28-9. Fed Chairman Paul Volcker's response to high inflation of the late 1970s is depicted in the figure above as a movement from

The ________ curves are both vertical.

Expansionary monetary policy will result in

What actions could the Federal Reserve take to achieve consistent growth in real GDP at 4 percent per year?

Some economists argue that the short-run Phillips curve is not vertical, and that monetary policy can be effective in the short run. Which one of the following is not one of the reasons for this skepticism?

Figure 28-2 -Refer to Figure 28-2. Suppose the economy is at point A in the figure above. Which of the following is true?