Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

An increase in expected inflation will

Accepted Answer

A) increase real wages. 
B) decrease the natural rate of unemployment. 
C) shift the long-run Phillips curve to the right. 
D) None of the above is correct. 
A) increase real wages. 
B) decrease the natural rate of unemployment. 
C) shift the long-run Phillips curve to the right. 
D) None of the above is correct.

Question 3

Figure 17-2  
-Refer to Figure 17-2.Suppose the economy is at point B in the figure above.Which of the following is true?

Accepted Answer

A) The expected rate of inflation is 3%. 
B) The natural rate of unemployment is 3.8%. 
C) The current unemployment rate is 5%. 
D) The economy is producing at potential GDP. 
E) Expected inflation and actual inflation are the same. 
A) The expected rate of inflation is 3%. 
B) The natural rate of unemployment is 3.8%. 
C) The current unemployment rate is 5%. 
D) The economy is producing at potential GDP. 
E) Expected inflation and actual inflation are the same.

Question 4

Figure 17-7  
-Refer to Figure 17-7.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 not altered by the Fed's announcement,the rate of unemployment will be ________ in the short run.

Accepted Answer

A) less than 5.5 percent 
B) 5.5 percent 
C) between 5.5 and 7.5 percent 
D) 7.5 percent 
A) less than 5.5 percent 
B) 5.5 percent 
C) between 5.5 and 7.5 percent 
D) 7.5 percent

Question 5

Figure 17-7  
-Refer to Figure 17-7.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.

Accepted Answer

A) less than 5.5 percent 
B) 5.5 percent 
C) between 5.5 and 7.5 percent 
D) 7.5 percent 
A) less than 5.5 percent 
B) 5.5 percent 
C) between 5.5 and 7.5 percent 
D) 7.5 percent

Question 6

In the decade of the ________,A.W.Phillips plotted data for Great Britain which revealed a relationship between rates of changes in wages versus unemployment rates.Economists later discovered other "Phillips Curve" relationships between rates of inflation versus unemployment rates.

Accepted Answer

A) 1930s 
B) 1940s 
C) 1950s 
D) 1960s 
A) 1930s 
B) 1940s 
C) 1950s 
D) 1960s

Question 7

All other factors held constant,increased growth in aggregate demand will

Accepted Answer

A) increase inflation. 
B) reduce unemployment. 
C) move the economy to a higher point on the short-run Phillips curve. 
D) All of the above are correct. 
A) increase inflation. 
B) reduce unemployment. 
C) move the economy to a higher point on the short-run Phillips curve. 
D) All of the above are correct.

Question 8

Explain why an anticipated expansionary monetary policy would not result in reduced unemployment rates if workers and firms have rational expectations.

Accepted Answer

If workers and firms have rational expec

Question 9

If the long-run aggregate supply curve is vertical

Accepted Answer

A) the economy stays at the natural rate of inflation in the long run. 
B) the short-run Phillips curve must be vertical. 
C) unemployment and inflation are positively related in the long run. 
D) the trade-off between unemployment and inflation cannot be permanent. 
A) the economy stays at the natural rate of inflation in the long run. 
B) the short-run Phillips curve must be vertical. 
C) unemployment and inflation are positively related in the long run. 
D) the trade-off between unemployment and inflation cannot be permanent.

Question 10

What can the Federal Reserve do to reduce the natural rate of unemployment?

Accepted Answer

A) nothing 
B) follow expansionary monetary policy that will increase inflation 
C) follow expansionary monetary policy that will reduce inflation 
D) follow contractionary monetary policy that will increase inflation 
A) nothing 
B) follow expansionary monetary policy that will increase inflation 
C) follow expansionary monetary policy that will reduce inflation 
D) follow contractionary monetary policy that will increase inflation

Question 11

A decrease in the expected inflation rate will

Accepted Answer

A) shift the short-run Phillips curve to the right. 
B) shift the short-run Phillips curve to the left. 
C) increase the inflation rate. 
D) increase the unemployment rate. 
A) shift the short-run Phillips curve to the right. 
B) shift the short-run Phillips curve to the left. 
C) increase the inflation rate. 
D) increase the unemployment rate.

Question 12

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.

Accepted Answer

A) True 
 B)False

Question 13

If the Federal Reserve announces that its target for the federal funds rate is rising from 4 percent to 4.25 percent,how do you expect workers and firms to react?

Accepted Answer

A) As long as the Fed's announcement is credible,workers and firms will increase their consumption and investment spending,which will increase aggregate demand and inflation. 
B) As long as the Fed's announcement is credible,workers and firms will reduce their consumption and investment spending,which will reduce aggregate demand and reduce inflation. 
C) If the Fed's announcement is not credible,workers and firms will not expect inflation to fall so they will reduce their consumption and investment spending,which will increase aggregate demand and reduce inflation. 
D) Workers and firms will incorporate the increase in interest rates into their expectations of inflation,and they will expect inflation to rise as a result of Fed's policy announcement. 
A) As long as the Fed's announcement is credible,workers and firms will increase their consumption and investment spending,which will increase aggregate demand and inflation. 
B) As long as the Fed's announcement is credible,workers and firms will reduce their consumption and investment spending,which will reduce aggregate demand and reduce inflation. 
C) If the Fed's announcement is not credible,workers and firms will not expect inflation to fall so they will reduce their consumption and investment spending,which will increase aggregate demand and reduce inflation. 
D) Workers and firms will incorporate the increase in interest rates into their expectations of inflation,and they will expect inflation to rise as a result of Fed's policy announcement.

Question 14

What is a "structural" relationship?

Accepted Answer

A) a relationship that depends on the size of firm investments in capital such as buildings and other structures 
B) a relationship that depends on the basic behavior of consumers and firms and remains unchanged over long periods 
C) a relationship between any two variables that is temporary 
D) any relationship that cannot be anticipated 
A) a relationship that depends on the size of firm investments in capital such as buildings and other structures 
B) a relationship that depends on the basic behavior of consumers and firms and remains unchanged over long periods 
C) a relationship between any two variables that is temporary 
D) any relationship that cannot be anticipated

Question 15

A provision of the Dodd-Frank Act of 2010 revised the Federal Reserve Act to

Accepted Answer

A) allow the Fed to make loans to investment banks. 
B) allow the Fed to make loans to any individual,partnership,or corporation in unusual and exigent circumstances. 
C) restrict the Fed's ability to make loans except to commercial banks. 
D) allow the Fed to buy commercial paper issued by nonfinancial firms. 
A) allow the Fed to make loans to investment banks. 
B) allow the Fed to make loans to any individual,partnership,or corporation in unusual and exigent circumstances. 
C) restrict the Fed's ability to make loans except to commercial banks. 
D) allow the Fed to buy commercial paper issued by nonfinancial firms.

Question 16

An increase in frictional unemployment will

Accepted Answer

A) shift the long-run Phillips curve to the right. 
B) increase the natural rate of unemployment. 
C) shift the short-run Phillips curve to the right. 
D) All of the above are correct. 
E) None of the above is correct. 
A) shift the long-run Phillips curve to the right. 
B) increase the natural rate of unemployment. 
C) shift the short-run Phillips curve to the right. 
D) All of the above are correct. 
E) None of the above is correct.

Question 17

Robert Shiller posed the following question to workers: "Imagine that next year the inflation rate unexpectedly doubles.How long would it probably take,in these times,before your income is increased enough so that you can afford the same things as you do today?" Shiller found that ________ percent of the workers he interviewed reported that it would take several years to restore the purchasing power of their wages or that this power would never be restored.

Accepted Answer

A) 25 
B) 42 
C) 64 
D) 81 
A) 25 
B) 42 
C) 64 
D) 81

Question 18

Which of the following could increase unemployment and inflation simultaneously?

Accepted Answer

A) an increase in oil prices 
B) expansionary monetary policy 
C) contractionary monetary policy 
D) a decrease in the real wage 
A) an increase in oil prices 
B) expansionary monetary policy 
C) contractionary monetary policy 
D) a decrease in the real wage

Question 19

During the 1960s,when confronted with moderate and stable inflation,people tended to form adaptive expectations of future inflation rates.

Accepted Answer

A) True 
 B)False

Question 20

Monetary policy can

Accepted Answer

A) shift the short-run trade-off between inflation and unemployment if it affects expected inflation. 
B) shift the long-run trade-off between inflation and unemployment through changes in cyclical unemployment. 
C) shift neither the short-run nor long-run Phillips curve trade-offs between inflation and unemployment. 
D) shift both the short-run and long-run trade-offs between inflation and unemployment if changes in policy are credible. 
A) shift the short-run trade-off between inflation and unemployment if it affects expected inflation. 
B) shift the long-run trade-off between inflation and unemployment through changes in cyclical unemployment. 
C) shift neither the short-run nor long-run Phillips curve trade-offs between inflation and unemployment. 
D) shift both the short-run and long-run trade-offs between inflation and unemployment if changes in policy are credible.

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

An increase in expected inflation will

Figure 17-2 -Refer to Figure 17-2.Suppose the economy is at point B in the figure above.Which of the following is true?

In the decade of the ________,A.W.Phillips plotted data for Great Britain which revealed a relationship between rates of changes in wages versus unemployment rates.Economists later discovered other "Phillips Curve" relationships between rates of inflation versus unemployment rates.

All other factors held constant,increased growth in aggregate demand will

Explain why an anticipated expansionary monetary policy would not result in reduced unemployment rates if workers and firms have rational expectations.

If the long-run aggregate supply curve is vertical

What can the Federal Reserve do to reduce the natural rate of unemployment?

A decrease in the expected inflation rate will

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.

If the Federal Reserve announces that its target for the federal funds rate is rising from 4 percent to 4.25 percent,how do you expect workers and firms to react?

What is a "structural" relationship?

A provision of the Dodd-Frank Act of 2010 revised the Federal Reserve Act to

An increase in frictional unemployment will

Which of the following could increase unemployment and inflation simultaneously?

During the 1960s,when confronted with moderate and stable inflation,people tended to form adaptive expectations of future inflation rates.

Monetary policy can

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: The Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money,Banks,and the Federal Reserve System

Monetary Policy

Fiscal Policy

Macroeconomics in an Open Economy

The International Financial System

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Exam 17: Inflation, Unemployment, and Federal Reserve Policy

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

An increase in expected inflation will

Figure 17-2 -Refer to Figure 17-2.Suppose the economy is at point B in the figure above.Which of the following is true?

In the decade of the ________,A.W.Phillips plotted data for Great Britain which revealed a relationship between rates of changes in wages versus unemployment rates.Economists later discovered other "Phillips Curve" relationships between rates of inflation versus unemployment rates.

All other factors held constant,increased growth in aggregate demand will

Explain why an anticipated expansionary monetary policy would not result in reduced unemployment rates if workers and firms have rational expectations.

If the long-run aggregate supply curve is vertical

What can the Federal Reserve do to reduce the natural rate of unemployment?

A decrease in the expected inflation rate will

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.

If the Federal Reserve announces that its target for the federal funds rate is rising from 4 percent to 4.25 percent,how do you expect workers and firms to react?

What is a "structural" relationship?

A provision of the Dodd-Frank Act of 2010 revised the Federal Reserve Act to

An increase in frictional unemployment will

Which of the following could increase unemployment and inflation simultaneously?

During the 1960s,when confronted with moderate and stable inflation,people tended to form adaptive expectations of future inflation rates.

Monetary policy can

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: The Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money,Banks,and the Federal Reserve System

Monetary Policy

Fiscal Policy

Macroeconomics in an Open Economy

The International Financial System

Filters