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

A decline in aggregate demand is analogous to an upward movement along the short-run Phillips curve.

The natural rate of unemployment is defined as the unemployment rate that exists in the absence of:

If the actual unemployment rate is below the natural rate of unemployment, then the actual inflation rate must exceed the expected inflation rate, and the economy will be operating along the short-run Phillips curve.

According to the regulation Q, the maximum interest rate that the U.S. banks could pay on deposits were limited by the Federal Reserve. This reduced volatility in the financial markets and largely benefited the U.S. banks.

When aggregate demand declines unexpectedly and wage contracts are fixed, then the average price level will:

Assume that taxes are constant. If the government borrows $17 billion in new funds and has a budget deficit of $35 billion, then the central bank has to:

According to the theory of adaptive expectations, if the inflation rate has been 4.2 percent for the last ten years, people will expect next year's inflation rate to be:

The figure given below represents the short run and long run Phillips curve. Figure 14.4 -Refer to Figure 14.4. If the observed unemployment rate equals the natural rate, and the expected rate of inflation equals zero, the economy will be located at:

U.S. economic data from 1955 to 2000 show that both unemployment and inflation rates increased during that period.

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

The figure given below shows the Phillips curves of the U.S. economy during early 1960s to late 1970s. Figure 14.2 -Refer to Figure 14.2. Phillips curve II is associated with the late 1980s in the United States and indicates that 5 percent unemployment was consistent with 4 percent inflation. Which curve would be associated with the late 1970s in the United States?

A look at macroeconomic data across countries reveals that when economies experience recessions, unemployment rates rise, but wages fall very little, if at all. Which of the following is most likely to support the above observation?

The figure given below shows the Phillips curves of the U.S. economy during early 1960s to late 1970s. Figure 14.2 -Refer to Figure 14.2. Following the movement from point A to point B on Phillips curve III, what would cause the Phillips curve to shift up so that 5 percent unemployment is associated with 10 percent inflation?

According to the theory of rational expectations, the economy always remains at the natural rate of unemployment, irrespective of policy changes.

The money supply declines when, other things equal:

The slope of the short-run Phillips curve is consistent with:

The hypothesis of political business cycles is based on the assumption that a vertical Phillips curve always holds.

One of the most important factors in determining the natural rate of unemployment is demographic change, such as a change in the age of the labor force.

If the public expects the incumbent administration to stimulate the economy shortly before an election:

Which of the following shifts the aggregate supply curve to the left?