Exam 28: Inflation, Unemployment, and Federal Reserve Policy

Robert Shiller posed the following question to workers: "Imagine that next year the inflation rate unexpectedly doubles. How long would it probably take, in these times, before your income is increased enough so that you can afford the same things as you do today?" Shiller found that ________ percent of the workers he interviewed reported that it would take several years to restore the purchasing power of their wages or that this power would never be restored.

If the Fed chose to change its policy actions implemented during the heart of the recession faster than the timing suggested by the White House, this would be an indication of the Fed's

If firms and workers have adaptive expectations, what impact will expansionary monetary policy have on inflation, unemployment, and the Phillips curve?

If the economy experiences a(n) ________, inflation will rise and real GDP will fall.

If people assume that future rates of inflation will ________, they are said to have adaptive expectations.

If expected inflation rises, the long-run Phillips curve will

If expectations are adaptive, how will the economy adjust to a new long-run equilibrium in response to expansionary monetary policy? Support your answer with a graph of the Phillips curve.

Forward guidance refers to central banks

If the economy is producing at potential GDP

Proponents of the new classical macroeconomics do not believe which of the following?

Which of the following is not an appropriate policy for a central bank to follow if the economy is plagued with deflation?

In face of a negative supply shock, the Fed may avoid a rise in unemployment only if it is willing to increase the rate of inflation.

The major criticism of real business cycle models is

In August 1979, President Jimmy Carter appointed ________ as chairman of the Board of Governors of the Federal Reserve System.

When a central bank makes joint decisions with the government's Treasury department,

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

When inflation is very low, how do workers and firms adjust their expectations of inflation?

If workers and firms raise their inflation expectations

Figure 28-2 -Refer to Figure 28-2. Suppose the economy is at point A. The Fed uses expansionary monetary policy to lower the unemployment rate permanently below the level associated with A. Which of the following will occur?

If the Fed decided to reverse its policy actions implemented during the heart of the recession, the Fed would be acting to try to prevent