Exam 17: Inflation, unemployment, and Federal Reserve Policy

Some economists are concerned that by holding its target for the federal funds rate close to zero for three years,the Fed's policy is actually

One problem with deflation is that it can raise the real value of debt.

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

In which of the following situations might you expect expansionary monetary policy to reduce the unemployment rate?

If unemployment persists for a long period of time,the natural rate of unemployment rises.

Gretchen expects the price level to rise from 104 this year to 108 next year,and she is able to incorporate these expectations into her wage contract.If the price level rises to 106 next year instead of 108,which of the following will occur?

Does the short-run Phillips curve have a positive or negative slope? Explain how this slope is derived.

If the rate of inflation in the economy is steady at 5 percent per year,how does the short-run Phillips curve predict that the unemployment rate will be changing,if at all? Does your answer change if inflation in the economy is 0 percent? Illustrate your answer with a Phillips curve.

During which of the following time periods did inflation remain above 5 percent every year?

The natural rate of unemployment is the rate that exists when the economy is producing at potential GDP.

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

Contractionary monetary policy will result in

The key to understanding the short-run trade-off behind the Phillips curve is that an increase in inflation will decrease unemployment if the inflation is ________ by both workers and firms.

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

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?

Some economists argue that the short-run Phillips curve is not vertical,and that monetary policy can be effective in the short run.Which one of the following is not one of the reasons for this skepticism?

What impact does monetary policy have on the long-run Phillips curve?

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?

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

Figure 28-2 -Refer to Figure 28-2.At which point is the unemployment rate equal to the natural rate of unemployment?