Exam 17: Inflation, unemployment, and Federal Reserve Policy

Figure 28-2 -Refer to Figure 28-2.The shifts shown in the short-run and long-run Phillips curves between period 1 and period 2 could be explained by

The experience of Paul Volcker's fight against inflation during the late 1970s and early 1980s indicates that firms and workers

Figure 28-2 -If expected inflation falls,the long-run Phillips curve will

Figure 28-1 -Refer to Figure 28-1. What should the Federal Reserve do if it wants to move from point A to point C in the short-run Phillips curve depicted in the figure above?

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

Figure 28-6 -If people assume that future rates of inflation will ________,they are said to have adaptive expectations.

Fed Chairman Alan Greenspan managed to keep the rate of inflation low as the economy was growing at a brisk pace by setting and hitting low money supply growth rate targets.

Figure 28-6 -According to ________,the economy is normally at potential GDP.

Figure 28-7 -Refer to Figure 28-7. A follower of the new classical macroeconomics would argue that ________ like that pursued by Paul Volcker in 1979,would result in a movement from C to A.

If the unemployment rate in the economy is steady at 4 percent per year,how does the short-run Phillips curve predict that the inflation rate will be changing,if at all? What will happen if the unemployment rate now rises to 7 percent per year? Assume there are no changes to inflation expectations.Provide an appropriate graph to support your discussion.

Figure 28-4 -If strong aggregate demand is pushing the economy beyond potential real GDP,which of the following must be true?

Suppose the current inflation rate and the expected inflation rate are both 3 percent.The current unemployment rate and the natural rate of unemployment are both 4 percent.Use a Phillips curve graph to show the effect on the economy of a severe supply shock.If the Federal Reserve keeps monetary policy unchanged,what will eventually happen to the unemployment rate? Show this on your Phillips curve graph.

Figure 28-4 -Refer to Figure 28-4.Consider the Phillips curves shown in the above graph. We can conclude from this graph that

An increase in the level of structural unemployment will shift the long-run Phillips curve.

A fall in the inflation rate from 8 to 2 percent is an example of deflation.

Figure 28-6 -When individuals use ________ about an economic variable to make a decision,expectations are rational.

The Bank of England gained independence from the British government in 1997.An independent central bank will help the British economy

If the Federal Reserve's announcements about upcoming monetary policy decisions are credible,which of the following would you expect to see?

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?

If workers and firms raise their inflation expectations,