Exam 17: Inflation, unemployment, and Federal Reserve Policy

Expansionary monetary policy will result in

Figure 28-1 -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.

Use the following information to draw a graph showing the short-run and long-run Phillips curves,and be sure your graph shows the point where the short-run and long-run Phillips curves intersect. Natural rate of unemployment = 4 percent Current rate of unemployment = 5 percent Expected inflation rate = 3 percent Current inflation rate = 2 percent

What action should the Fed take if it wants to move from a point on the short-run Phillips curve representing low unemployment and high inflation to a point representing higher unemployment and lower inflation?

The price level in the economy between 2010 and 2011 rose from 100 to 110.Between 2011 and 2012,the price level rose from 110 to 121.How does the short-run Phillips curve predict the unemployment rate will change as a result?

Figure 28-5 -Refer to Figure 28-5.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.

Figure 28-4 -Monetary policy has ________ impact on the long-run Phillips curve.

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?

Ceteris paribus,in the short run following an increase in the rate of growth in Aggregate Demand,we would expect to see an increase in the rate of inflation and an increase in the rate of unemployment.

If the Fed attempts to reach and maintain very low rates of unemployment,we would expect the rate of inflation to rise.

If the Phillips curve represents a "________ relationship," then the trade-off between unemployment and inflation is permanent.

The "rational expectations" school of economists,including Robert Lucas and Thomas Sargent,argue that changes in monetary policy cannot affect unemployment rates in the short run or long run.

Figure 28-6 -Models that focus on factors other than changes in the money supply to explain fluctuations in real GDP are called

The curve showing the short-run relationship between ________ and the ________ is called the Phillips curve.

In the 1960s,many economists and policy makers considered the trade-off between inflation and unemployment revealed in the Phillips curve to be permanent. This belief was challenged by ________,who argued that there is no trade-off between inflation and unemployment and the long run.

If changes in inflation are higher than expected,

A study conducted by Alberto Alesina and Lawrence Summers concluded that countries with ________ had lower inflation rates than countries with ________.

Use the information below to explain adjustments that move the economy to a long-run equilibrium. Assume that firms and workers have adaptive expectations. The current unemployment rate = 7%. The natural rate of unemployment = 5.5%. Last year's inflation rate = 5%. This year's inflation rate = 4%.

Figure 28-7 -Refer to Figure 28-7. A(n)________ would be depicted as a movement from A to D to C .

What is the natural rate of unemployment?