Exam 28: Inflation, Unemployment, and Federal Reserve Policy

Figure 28-6 -Refer to Figure 28-6. If firms and workers have adaptive expectations, an expansionary monetary policy will cause the short-run equilibrium to move from

When individuals use all available information about an economic variable to make a decision, expectations are

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

The expansionary monetary and fiscal policies of the 1960s resulted in ________ inflation rates and ________ rates of unemployment.

If workers and firms expect that inflation will be 5 percent next year, and real wages are not changing over time, by how much will nominal wages increase?

Figure 28-1 -Refer to Figure 28-1. Suppose that the economy is currently at point A, and the unemployment rate at A is the natural rate. What policy would the Federal Reserve pursue if it wanted the economy to move to point B in the long run?

In an effort to discover whether or not workers understand inflation, economist Robert Shiller conducted a survey. When asked about the effect of general inflation on their wages or salary, the most popular response coming from workers was

Can the Federal Reserve achieve both low inflation and low levels of unemployment? Explain.

Alejandro expects the price level to rise from 105 this year to 108 next year. If the price level rises to 110 next year instead of 108, which of the following will occur?

A higher inflation rate can lead to lower unemployment if ________ mistakenly expect the inflation rate to be lower than it turns out to be.

At the point where actual inflation is equal to expected inflation

What is the NAIRU?

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 expectations of inflation are reduced to 8 percent by the Fed's announcement, the rate of unemployment will be ________ in the short run.

When confronted with rational expectations regarding changes in monetary policy, the short-run Phillips curve may be vertical.

Figure 28-1 -Refer to Figure 28-1. Suppose that the economy is currently at point A. If the Federal Reserve engaged in contractionary monetary policy, where would the economy end up in the short run?

If the Federal Reserve announces that its target for the federal funds rate is falling from 3 percent to 2.25 percent, how do you expect workers and firms to react?

Figure 28-8 -Refer to Figure 28-8. A typical long-run Phillips curve would have the appearance of a curve running through points

Assume weak growth in aggregate demand keeps the economy below potential GDP, so unemployment rises but inflation falls. This explains the ________ slope of the short-run Phillips curve.

Figure 28-2 -Refer to Figure 28-2. Suppose the economy is at point C in the figure above. If workers adjust their expectations of inflation, which of the following will be true?

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