Exam 28: Inflation, Unemployment, and Federal Reserve Policy

An increase in the expected inflation rate will

________ would be the source of a "real" business cycle.

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

If workers and firms ignore inflation or form their inflation expectations adaptively, expansionary monetary policy will lower unemployment permanently.

Workers and firms are currently expecting the price level to increase from 110 to 114. The Federal Reserve then announces that it will be reducing the growth rate of the money supply. If the Fed's announcement is credible, and firms and workers have rational expectations, describe how the expectations of firms and workers will be affected and how the change in expectations will affect the unemployment rate.

Why do most economists believe that it is important for a country's central bank to be independent of the rest of the country's central government?

If workers and firms have rational expectations, they understand that ________ monetary policy will raise the inflation rate, so actual inflation ________ expected inflation.

If actual inflation is greater than expected inflation, what is the relationship between the actual real wage and the expected real wage?

A decrease in expected inflation will

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

A "long-run exploitable Phillips curve" refers to a Phillips curve that in the long run is ________ rather than ________.

The price level in the economy between 2016 and 2017 rose from 100 to 105. Between 2017 and 2018, the price level rose from 105 to 110.25. How does the short-run Phillips curve predict the unemployment rate will change as a result?

The actual real wage is lower than the expected real wage if

If the long-run aggregate supply curve is vertical

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

General Motors and Toll Brothers faced consequences when the Federal Open Market Committee ________ between 2015 and 2017. This Fed action was considered partly responsible for decreasing demand for new automobiles and new houses in 2017.

Figure 28-2 -Refer to Figure 28-2. At which point are inflation expectations equal to the actual inflation rate?

What action should the Fed take if it wants to move from a point on the short-run Phillips curve representing low unemployment and high inflation to a point representing higher unemployment and lower inflation?

If the Fed attempts to reach and maintain very low rates of unemployment, we would expect the rate of inflation to rise.

According to the "rational expectations" school of thought in macroeconomics, the short-run Phillips curve is ________ in face of unanticipated changes in monetary policy.