Exam 17: Inflation, unemployment, and Federal Reserve Policy

Article Summary In a September 2013 speech to the Independent Bankers Association of Texas, Federal Reserve Bank of Dallas president Richard Fisher stated that the Fed's credibility was harmed when it announced the previous week that it would continue its large bond purchasing program. In June, Fed Chairman Ben Bernanke had stated that that the program could begin to be cut back later in the year, and several other Fed officials expressed being open to the announced timing of this policy. Bernanke's change in his announced timeline of the Fed's intentions regarding the bond purchasing program brought criticism that the Fed had misled investors. In his speech, Fisher stated "I disagreed with the decision of the committee and argued against it. Doing nothing at this meeting would increase uncertainty about the future conduct of policy and call the credibility of our communications into question. I believe that is exactly what has occurred, though I take no pleasure in saying so." Fisher has been a long-time opponent of the Fed's bond purchasing program, claiming it is ineffective and may well lead to future inflation, and had been calling for the Fed to begin phasing out this program in September. Source: "Fisher: Standing pat on policy hurt Fed's credibility," Reuters, September 23, 2013. -Refer to the Article Summary.If the Federal Reserve's announcements about upcoming monetary policy decisions are not seen as credible,as Richard Fisher alludes to regarding the announcements about the bond purchasing program,which of the following would you expect to see?

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

An increase in the expected inflation rate will

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

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

When will a decrease in aggregate demand not result in a lower inflation rate in the short run?

The natural rate of unemployment is fixed and unchanging.

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.

An increase in frictional unemployment will

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

Figure 17-2 -Refer to Figure 17-2.Suppose the economy is at point C.If the Fed decreases the money supply so that inflation falls,the economy will ________ in the long run,holding all else constant.

When unemployment is above its natural rate,the inflation rate will eventually

According to the short-run Phillips curve,which of the following would result in high rates of unemployment?

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

Figure 17-2 -Refer to Figure 17-2.Suppose the economy is at point C in the figure above.If workers adjust their expectations of inflation,which of the following will be true?

According to economists Robert Lucas and Thomas Sargent,when are the gains to accurately forecasting inflation highest?

Evidence shows that for many people,delaying searching for a job for a year or longer after they are laid off will contribute to a deterioration of their job skills,making it harder for them to find employment.This deterioration in job skills and the subsequent retraining that is necessary to obtain employment relates to which type of unemployment?

If the economy is producing at potential GDP,

Why do most economists believe that it is important for a country's central bank to be independent of the rest of the country's central government?

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