Exam 14: Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

A fiscal policy that changes over time as economic conditions change is considered to be time inconsistent.

Critics of the Federal Reserve maintain that, to correct the credibility problem of monetary policy, the Fed should:

Following a decline in the inflation rate, once long-term wage contracts are renegotiated and all prices in the economy adjust to their new equilibrium:

Irrespective of whether the inflation rate is high or low, if the inflation rate is above the expected level, the unemployment rate in the economy will remain stable.

Suppose that the economy has witnessed an 8 percent increase in its money supply over the last few years and the Fed now announces a plan to increase the money supply by 4 percent per year. What will be the public response, assuming that the Fed has a reputation for always implementing its announced plans?

The change in the money supply in an economy is measured as:

The reservation wage is the minimum wage rate that an unemployed worker must receive before employment is accepted.

During the 1970s, real shocks to the U.S. economy caused:

Other things equal, the higher the fiscal deficit, the higher the required increase in base money.

The long-run Phillips curve indicates that the consequences of trying to reduce unemployment below its natural rate would be:

If the government fiscal deficit equals $240 million and government borrowing equals $120 million, what is the change in the money supply in the economy?

The Phillips curve based on the unemployment and inflation rates in the U.S. between 1961 and 1969 was:

The figure given below represents the short run and long run Phillips curve. Figure 14.4 -Refer to Figure 14.4. Suppose the economy is located at point A, but the government increases spending because it believes that 6 percent unemployment is unacceptably high. If the adaptive expectations hypothesis holds, in the short run, the economy will move to:

To some economists, the "great moderation" means:

Which of the following will be a short run impact of a pre-election expansionary fiscal policy, public expectations remaining constant?

Wage contracts force businesses to adjust wages rather than employment in response to an unexpected change in aggregate demand.

A sudden technological breakthrough in an economy would:

Which of the following is most likely to have contributed to better inventory management?

If nominal wages are contractually fixed and cannot change in the short run, then an unexpected decline in the inflation rate will reduce business revenues and lower the unemployment rate.

If the government fiscal deficit equals $78 billion, government borrowing equals $38 million, and tax revenue equals $92 billion, what is the value of the change in the money supply?