Exam 28: Inflation, Unemployment, and Federal Reserve Policy

In the long run, the Fed may decrease the unemployment rate only if it is willing to increase the rate of inflation.

In the decade of the ________, A.W. Phillips plotted data for Great Britain which revealed a relationship between rates of changes in wages versus unemployment rates. Economists later discovered other "Phillips Curve" relationships between rates of inflation versus unemployment rates.

What is the relationship between the short-run Phillips curve and the long-run Phillips curve?

If inflation falls from 11% to 5%, there is deflation.

The natural rate of unemployment is fixed and unchanging.

How would you expect the Fed to respond to a negative supply shock in the economy?

During which of the following time periods did inflation remain above 5 percent every year?

When unemployment is above its natural rate, the inflation rate will eventually

Ceteris paribus, in the short run following a decrease in the rate of growth in aggregate demand, we would expect to see an increase in the rate of unemployment and a decrease in the rate of inflation.

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?

Figure 28-9 -Refer to Figure 28-9. A follower of the new classical macroeconomics would argue that a contractionary monetary policy to lower inflation after a supply shock, like that pursued by Volcker in 1979, would result in a movement from

Figure 28-2 -Refer to Figure 28-2. The nonaccelerating inflation rate of unemployment, or NAIRU, is associated with which point rate in the figure above?

Fed Chairman Alan Greenspan managed to keep the rate of inflation low as the economy was growing at a brisk pace by setting and hitting low money supply growth rate targets.

A study conducted by Robert Shiller, a Yale Economist, found that a large majority of the public thinks that increases in inflation will not quickly lead to an increase in wages.

If changes in inflation are higher than expected

Figure 28-9 -Refer to Figure 28-9. A supply shock, such as rising oil prices, would be depicted as a movement from

If weak aggregate demand is pushing the economy into recession, which of the following must be true?

Employees at the university have negotiated a 5 percent increase in wages for the next year, based on their inflation expectations. If inflation is actually 6 percent over the next year, which of the following will occur?

Which of the following could decrease unemployment and inflation simultaneously?

Which of the following could increase unemployment and inflation simultaneously?