Exam 28: Inflation, Unemployment, and Federal Reserve Policy

Figure 28-2 -Refer to Figure 28-2. Suppose the Fed used expansionary policy to push short-run equilibrium to point B. If the short-run equilibrium remained at point B long enough

In the long run, the Federal Reserve can control which of the following?

According to economists Robert Lucas and Thomas Sargent, when are the gains to accurately forecasting inflation highest?

What is a "structural" relationship?

A study conducted by Alberto Alesina and Lawrence Summers concluded that countries with highly independent central banks had ________ than countries whose central banks had little independence.

Figure 28-7 -Refer to Figure 28-7. Consider the Phillips curves depicted in the graph above. The Fed announces its intention to decrease inflation from 10 percent to 5 percent per year, and it succeeds. If the assumptions of the rational expectations school hold true, and the Fed's announcement is credible, the rate of unemployment will be ________ in the short run.

If rational workers and firms know that the Federal Reserve is following a contractionary monetary policy, they will expect inflation to ________ and will adjust wages so that the real wage ________.

What can the Federal Reserve do to reduce the natural rate of unemployment?

If workers accurately predict the rate of inflation, is there a short-run trade-off between inflation and unemployment, as predicted by the Phillips curve? Why or why not?

Suppose a presidential candidate makes a statement in a debate whereby he promises that he would encourage the Fed to permanently lower the unemployment rate to 3%. His opponent claims that this type of policy idea is mired in the 1960s and would only cause inflation. Explain what the opponent means.

The unemployment rate that exists when the economy is at potential GDP is called

Figure 28-9 -Refer to Figure 28-9. A follower of the new classical macroeconomics would argue that ________ like that pursued by Paul Volcker in 1979, would result in a movement from C to A.

The long-run Phillips curve is ________ than the short-run Phillips curve.

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?

The long-run aggregate supply curve is ________, while the long-run Phillips curve is ________.

What impact does expansionary monetary policy have on the short-run Phillips curve if consumers and firms expect the expansionary monetary policy to increase inflation?

An increase in the inflation rate increases employment only if the increase in inflation is unexpected.

If wages and prices adjust rapidly, we would expect expansionary monetary policy to be

Which of the following would increase the natural rate of unemployment?

If the Federal Reserve attempts to continue reducing unemployment by manipulating monetary policy, which of the following would you expect to see?