Question 1

In the long run,the Phillips curve is a ________ at ________.

Accepted Answer

A) horizontal line; 0% inflation 
B) negatively sloped line; the intersection of aggregate demand and short-run aggregate supply 
C) vertical line; the natural rate of unemployment 
D) None of the above is correct. 
A) horizontal line; 0% inflation 
B) negatively sloped line; the intersection of aggregate demand and short-run aggregate supply 
C) vertical line; the natural rate of unemployment 
D) None of the above is correct.

Question 2

Figure 17-1  
-Refer to Figure 17-1.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?

Accepted Answer

A) buy treasury bills 
B) sell treasury bills 
C) raise the discount rate 
D) decrease the money supply 
E) raise taxes 
A) buy treasury bills 
B) sell treasury bills 
C) raise the discount rate 
D) decrease the money supply 
E) raise taxes

Question 3

Figure 17-9  
-Refer to Figure 17-9.A(n)________ would be depicted as a movement from A to D to C.

Accepted Answer

A) supply shock,such as rising oil prices 
B) increase in aggregate demand 
C) implementation of contractionary monetary policy 
D) increase in short-run aggregate supply 
A) supply shock,such as rising oil prices 
B) increase in aggregate demand 
C) implementation of contractionary monetary policy 
D) increase in short-run aggregate supply

Question 4

If the current unemployment rate is 5%,under which of the following circumstances would you expect the Fed to use contractionary monetary policy?

Accepted Answer

A) if the natural rate of unemployment is below 5% 
B) if the natural rate of unemployment is above 5% 
C) if the inflation rate is above 5% 
D) if the inflation rate is below 5% 
A) if the natural rate of unemployment is below 5% 
B) if the natural rate of unemployment is above 5% 
C) if the inflation rate is above 5% 
D) if the inflation rate is below 5%

Question 5

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.

Accepted Answer

A) positive 
B) negative 
C) zero 
D) infinite 
A) positive 
B) negative 
C) zero 
D) infinite

Question 6

If firms and workers have adaptive expectations,what impact will contractionary monetary policy have on inflation,unemployment,and the Phillips curve?

Accepted Answer

Adaptive expectations exist when firms a

Question 7

The major criticism of real business cycle models is

Accepted Answer

A) negative technology shocks are uncommon and can't explain all business cycle fluctuations. 
B) positive technology shocks actually push real GDP above the economy's potential GDP. 
C) negative technology shocks actually push real GDP below the economy's potential GDP 
D) this model relies too heavily on monetary explanations for fluctuations in real GDP. 
A) negative technology shocks are uncommon and can't explain all business cycle fluctuations. 
B) positive technology shocks actually push real GDP above the economy's potential GDP. 
C) negative technology shocks actually push real GDP below the economy's potential GDP 
D) this model relies too heavily on monetary explanations for fluctuations in real GDP.

Question 8

Under Alan Greenspan,the Fed strived to hit its goals of price stability and high employment through

Accepted Answer

A) setting targets for the federal funds rate of interest. 
B) setting targets for rates of growth in the M1 and M2 money supplies. 
C) practicing discretionary monetary policy,reacting to counter-changes in the level of unemployment during recessions and booms. 
D) strict adherence to rules based strategies. 
A) setting targets for the federal funds rate of interest. 
B) setting targets for rates of growth in the M1 and M2 money supplies. 
C) practicing discretionary monetary policy,reacting to counter-changes in the level of unemployment during recessions and booms. 
D) strict adherence to rules based strategies.

Question 9

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.

Accepted Answer

The supply shock will shift the short-ru

Question 10

Why is the credibility of the Fed's policy announcements particularly important?

Accepted Answer

The credibility of policy announcements

Question 11

What is the natural rate of unemployment?

Accepted Answer

A) the unemployment rate that exists when the economy is at potential GDP 
B) the unemployment rate that exists when the economy is at a trough in a business cycle 
C) an unemployment rate of 0% 
D) any unemployment rate that is above the inflation rate 
A) the unemployment rate that exists when the economy is at potential GDP 
B) the unemployment rate that exists when the economy is at a trough in a business cycle 
C) an unemployment rate of 0% 
D) any unemployment rate that is above the inflation rate

Question 12

Ceteris paribus,an increase in the current or actual rate of inflation will cause

Accepted Answer

A) the short-run Phillips curve to shift upward. 
B) the unemployment rate to decrease (a movement along the short-run Phillips curve). 
C) the long-run Phillips curve to shift leftward. 
D) expectations of future inflation rates to be revised downward. 
A) the short-run Phillips curve to shift upward. 
B) the unemployment rate to decrease (a movement along the short-run Phillips curve). 
C) the long-run Phillips curve to shift leftward. 
D) expectations of future inflation rates to be revised downward.

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

With which of the following statements would a "real business cycle" theorist most closely agree?

Accepted Answer

A) "Monetary policies have greatest impact on real GDP when they are anticipated." 
B) "Expansionary monetary policy allows the central bank to control inflation and unemployment simultaneously." 
C) "Wages adjust slowly to changes in inflation as long as expectations are formed rationally." 
D) "Technological shocks to the economy explain deviations of real GDP from its potential level." 
A) "Monetary policies have greatest impact on real GDP when they are anticipated." 
B) "Expansionary monetary policy allows the central bank to control inflation and unemployment simultaneously." 
C) "Wages adjust slowly to changes in inflation as long as expectations are formed rationally." 
D) "Technological shocks to the economy explain deviations of real GDP from its potential level."

Question 15

What impact does expansionary monetary policy have on the short-run Phillips curve if consumers and firms expect the expansionary monetary policy to increase inflation?

Accepted Answer

A) The short-run Phillips curve shifts down. 
B) The short-run Phillips curve shifts up. 
C) The short-run Phillips curve becomes the long-run Phillips curve. 
D) The short-run Phillips curve is not affected by expansionary monetary policy. 
A) The short-run Phillips curve shifts down. 
B) The short-run Phillips curve shifts up. 
C) The short-run Phillips curve becomes the long-run Phillips curve. 
D) The short-run Phillips curve is not affected by expansionary monetary policy.

Question 16

Figure 17-1  
-Refer to Figure 17-1.Suppose that the economy is currently at point A on the short-run Phillips curve in the figure above,and the unemployment rate at A is the natural rate.If the economy was to move to point C,which of the following must be true?

Accepted Answer

A) The economy is producing a level of GDP equal to potential GDP. 
B) Aggregate demand must have decreased. 
C) Equilibrium GDP at point C must be above potential GDP. 
D) The Fed conducted contractionary policy to cause the move. 
E) The Fed sold treasury bills to cause the move. 
A) The economy is producing a level of GDP equal to potential GDP. 
B) Aggregate demand must have decreased. 
C) Equilibrium GDP at point C must be above potential GDP. 
D) The Fed conducted contractionary policy to cause the move. 
E) The Fed sold treasury bills to cause the move.

Question 17

What impact does expansionary monetary policy have on the short-run Phillips curve if consumers and firms expect the expansionary monetary policy to increase inflation?

Accepted Answer

A) The short-run Phillips curve shifts down. 
B) The short-run Phillips curve shifts up. 
C) The short-run Phillips curve becomes the long-run Phillips curve. 
D) The short-run Phillips curve is not affected by expansionary monetary policy. 
A) The short-run Phillips curve shifts down. 
B) The short-run Phillips curve shifts up. 
C) The short-run Phillips curve becomes the long-run Phillips curve. 
D) The short-run Phillips curve is not affected by expansionary monetary policy.

Question 18

Figure 17-5  
-Refer to Figure 17-5.Consider the Phillips curves shown in the above graph.We can conclude from this graph that

Accepted Answer

A) the natural rate of unemployment in this economy is 5.5 percent. 
B) the expected rate of inflation in this economy is 10 percent. 
C) ceteris paribus,a fall in the rate of inflation to 5 percent will increase unemployment to 7.5 percent in the short run. 
D) All of the above are correct. 
A) the natural rate of unemployment in this economy is 5.5 percent. 
B) the expected rate of inflation in this economy is 10 percent. 
C) ceteris paribus,a fall in the rate of inflation to 5 percent will increase unemployment to 7.5 percent in the short run. 
D) All of the above are correct.

Question 19

If workers and firms lower their inflation expectations

Accepted Answer

A) unemployment will rise. 
B) actual inflation will fall to match expected inflation. 
C) the short-run Phillips curve will be vertical. 
D) the short-run Phillips curve will shift downward. 
A) unemployment will rise. 
B) actual inflation will fall to match expected inflation. 
C) the short-run Phillips curve will be vertical. 
D) the short-run Phillips curve will shift downward.

Question 20

A decrease in aggregate demand will

Accepted Answer

A) cause inflation. 
B) decrease unemployment. 
C) move the economy to a lower point on the short-run Phillips curve. 
D) cause the short-run Phillips curve to shift to the right. 
A) cause inflation. 
B) decrease unemployment. 
C) move the economy to a lower point on the short-run Phillips curve. 
D) cause the short-run Phillips curve to shift to the right.

In the long run,the Phillips curve is a at .

Figure 17-1 -Refer to Figure 17-1.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?

Figure 17-9 -Refer to Figure 17-9.A(n)________ would be depicted as a movement from A to D to C.

If the current unemployment rate is 5%,under which of the following circumstances would you expect the Fed to use contractionary monetary policy?

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.

If firms and workers have adaptive expectations,what impact will contractionary monetary policy have on inflation,unemployment,and the Phillips curve?

The major criticism of real business cycle models is

Under Alan Greenspan,the Fed strived to hit its goals of price stability and high employment through

Why is the credibility of the Fed's policy announcements particularly important?

What is the natural rate of unemployment?

Ceteris paribus,an increase in the current or actual rate of inflation will cause

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

With which of the following statements would a "real business cycle" theorist most closely agree?

What impact does expansionary monetary policy have on the short-run Phillips curve if consumers and firms expect the expansionary monetary policy to increase inflation?

Figure 17-1 -Refer to Figure 17-1.Suppose that the economy is currently at point A on the short-run Phillips curve in the figure above,and the unemployment rate at A is the natural rate.If the economy was to move to point C,which of the following must be true?

What impact does expansionary monetary policy have on the short-run Phillips curve if consumers and firms expect the expansionary monetary policy to increase inflation?

Figure 17-5 -Refer to Figure 17-5.Consider the Phillips curves shown in the above graph.We can conclude from this graph that

If workers and firms lower their inflation expectations

A decrease in aggregate demand will

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

In the long run,the Phillips curve is a ________ at ________.

Figure 17-1 -Refer to Figure 17-1.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?

Figure 17-9 -Refer to Figure 17-9.A(n)________ would be depicted as a movement from A to D to C.

If the current unemployment rate is 5%,under which of the following circumstances would you expect the Fed to use contractionary monetary policy?

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.

If firms and workers have adaptive expectations,what impact will contractionary monetary policy have on inflation,unemployment,and the Phillips curve?

The major criticism of real business cycle models is

Under Alan Greenspan,the Fed strived to hit its goals of price stability and high employment through

Why is the credibility of the Fed's policy announcements particularly important?

What is the natural rate of unemployment?

Ceteris paribus,an increase in the current or actual rate of inflation will cause

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

With which of the following statements would a "real business cycle" theorist most closely agree?

What impact does expansionary monetary policy have on the short-run Phillips curve if consumers and firms expect the expansionary monetary policy to increase inflation?

Figure 17-1 -Refer to Figure 17-1.Suppose that the economy is currently at point A on the short-run Phillips curve in the figure above,and the unemployment rate at A is the natural rate.If the economy was to move to point C,which of the following must be true?

What impact does expansionary monetary policy have on the short-run Phillips curve if consumers and firms expect the expansionary monetary policy to increase inflation?

Figure 17-5 -Refer to Figure 17-5.Consider the Phillips curves shown in the above graph.We can conclude from this graph that

If workers and firms lower their inflation expectations

A decrease in aggregate demand will

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

In the long run,the Phillips curve is a at .