Exam 17: Inflation, Unemployment, and Federal Reserve Policy

If inflationary expectations on the part of the public increase,the trade-off between inflation and unemployment becomes worse.

During a time when the inflation rate is increasing each year for a number of years,are adaptive expectations or rational expectations likely to give the more accurate forecasts? Briefly explain.

If firms and workers have rational expectations,including knowledge of the policy being used by the Federal Reserve,the short-run Phillips curve will be

If workers and firms expect that inflation will be 3 percent next year,and real wages are not changing over time,by how much will nominal wages increase?

If workers and firms expect that inflation will be 5 percent next year,and real wages are not changing over time,by how much will nominal wages increase?

Lucas and Sargent argue that the short-run trade-off between unemployment and inflation is caused by

The expansionary monetary and fiscal policies of the 1960s resulted in

Workers at a local mining company are paid $25.60 per hour,and they have incorporated a 3 percent annual raise in their contracts to account for expected inflation.Explain how unexpected inflation of 5 percent will affect the real wage and the unemployment rate.

Suppose a presidential candidate makes a statement in a debate whereby he promises that he would encourage the Fed to permanently lower the unemployment rate to 3%.His opponent claims that this type of policy idea is mired in the 1960s and would only cause inflation.Explain what the opponent means.

Figure 17-9 -Refer to Figure 17-9.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.

In the 1960s,many economists and policymakers 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 not trade-off between inflation and unemployment in the long run.

If the Federal Reserve attempts to continue reducing unemployment by manipulating monetary policy,which of the following would you expect to see?

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.

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

Growth in aggregate demand will

If people assume that future rates of inflation will follow the pattern of inflation rates in the past,they are said to have

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 = 4%. The natural rate of unemployment = 6%. Last year's inflation rate = 3%. This year's inflation rate = 4%.

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

An increase in expected inflation will shift the short-run Phillips Curve.

What actions could the Federal Reserve take to achieve consistent growth in real GDP at 4 percent per year?