Exam 28: Inflation, Unemployment, and Federal Reserve Policy

Deflation refers to

One problem with deflation is that it can raise the real value of debt.

All of the following have enhanced the Fed's credibility in conducting monetary policy except

If workers and firms expect that inflation will be 3 percent next year, and real wages are not changing over time, by how much will nominal wages increase?

If the actual rate of inflation exceeds the expected rate of inflation, the actual real wage is greater than the expected real wage and unemployment falls.

The natural rate of unemployment is the rate that exists when the economy is producing at potential GDP.

A reduction in the rate of inflation is referred to as

In order to change inflationary expectations in 1979, the Fed's monetary policy under Paul Volcker's leadership resulted in ________ and ________.

If the Federal Reserve announces that its target for the federal funds rate is rising from 4 percent to 4.25 percent, how do you expect workers and firms to react?

Figure 28-1 -Refer to Figure 28-1. What should the Federal Reserve do if it wants to move from point A to point B in the short-run Phillips curve depicted in the figure above?

Figure 28-9 -Refer to Figure 28-9. A(n) ________ would be depicted as a movement from A to D to C.

Gretchen expects the price level to rise from 104 this year to 108 next year, and she is able to incorporate these expectations into her wage contract. If the price level rises to 106 next year instead of 108, which of the following will occur?

The price level in the economy between 2016 and 2017 rose from 100 to 110. Between 2017 and 2018, the price level rose from 110 to 121. How does the short-run Phillips curve predict the unemployment rate will change as a result?

Workers at a local mining company are paid $25.60 per hour, and they have incorporated a 3 percent annual raise in their contracts to account for expected inflation. Explain how unexpected inflation of 5 percent will affect the real wage and the unemployment rate.

The natural rate of unemployment will not change following an increase in ________ unemployment.

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

According to real business cycle models

If the Federal Reserve chooses to fight high unemployment with expansionary monetary policy and firms and consumers expect this policy to increase inflation, which of the following would you expect to see?

In the 1960s, many economists and policymakers considered the trade-off between inflation and unemployment revealed in the Phillips curve to be permanent. This belief was challenged by ________, who argued that there is not trade-off between inflation and unemployment in the long run.

What does it mean to say that workers and firms have rational expectations?