Exam 17: Inflation, Unemployment, and Federal Reserve Policy

Expansionary monetary policy will result in

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

A falling price level is called ________ and a fall in the rate of inflation is called ________.

The FOMC no longer sets targets for M1 and M2 to meet its goals of price stability and high employment.

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.

Contractionary monetary policy will result in

If the rate of inflation in the economy is steady at 5 percent per year,how does the short-run Phillips curve predict that the unemployment rate will be changing,if at all? Does your answer change if inflation in the economy is 0 percent? Illustrate your answer with a Phillips curve.

If actual inflation is less than expected inflation,which of the following will be true?

The price level in the economy between 2016 and 2017 rose from 100 to 105.Between 2017 and 2018,the price level rose from 105 to 110.25.How does the short-run Phillips curve predict the unemployment rate will change as a result?

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

If weak aggregate demand is pushing the economy into recession,which of the following must be true?

Figure 17-9 -Refer to Figure 17-9.Fed Chairman Paul Volcker's response to the ________ of the late 1970s is depicted in the figure above as a movement from C to D to A.

If workers and firms know that the Federal Reserve is following an expansionary monetary policy,workers and firms will expect inflation to ________ and will adjust wages so that the real wage ________.

Article Summary Since the Fed introduced its annual goal of an inflation target of 2 percent in January 2012,the personal consumption expenditures price index has fallen short of this goal more than 90 percent of the time.This has prompted some analysts and Fed officials to acknowledge that the Fed has lost some of its credibility in achieving its 2 percent target,and has Fed officials again discussing whether to hold off on raising interest rates.Fed Governor Lael Brainard stated that the Fed's failure to increase inflation to its 2 percent target may have influenced how companies and consumers view the inflation outlook,stating "Households and firms have experienced a prolonged period of inflation below our objective,and that may be affecting their perception of underlying inflation." Since expectations influence the actions of companies and consumers,they help determine where inflation actually ends up.Consumers who are accustomed to low inflation will resist paying up for goods and services,and therefore companies will avoid increasing wages,fearing they won't be able to raise prices to cover the added labor costs.It's a vicious circle that can hinder the Fed from achieving its inflation target. Source: Rich Miller,"Fed Officials Admit They've Lost Some Credibility on Inflation," bloomberg.com,September 13,2017. -Refer to the Article Summary.If the Federal Reserve's announcements about upcoming monetary policy decisions are not seen as credible,as is mentioned in the article summary regarding the Fed's 2 percent inflation target,which of the following would you expect to see?

Figure 17-6 -Refer to Figure 17-6.If firms and workers have adaptive expectations,an expansionary monetary policy will cause the short-run equilibrium to move from

If workers accurately predict the rate of inflation,is there a short-run trade-off between inflation and unemployment,as predicted by the Phillips curve? Why or why not?

Figure 17-9 -Refer to Figure 17-9.A supply shock,such as rising oil prices,would be depicted as a movement from

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

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

The actual real wage is lower than the expected real wage if