Exam 28: Inflation, Unemployment, and Federal Reserve Policy

Figure 28-5 -Refer to Figure 28-5. Consider the Phillips curves shown in the above graph. We can conclude from this graph that

Use the following information to draw a graph showing the short-run and long-run Phillips curves, and be sure your graph shows the point where the short-run and long-run Phillips curves intersect. Natural rate of unemployment = 4 percent Current rate of unemployment = 5 percent Expected inflation rate = 3 percent Current inflation rate = 2 percent

If the Fed decided to reverse its policy actions implemented during the heart of the recession, the Fed would be acting to try to prevent

Figure 28-6 -Refer to Figure 28-6. If firms and workers have rational expectations, an expansionary monetary policy will cause the short-run equilibrium to move from

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

What action should the Fed take if it wants to move from a point on the short-run Phillips curve representing low unemployment and high inflation to a point representing higher unemployment and lower inflation?

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

Some economists argue that the short-run Phillips curve is not vertical, and that monetary policy can be effective in the short run. Which one of the following is not one of the reasons for this skepticism?

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 strong aggregate demand is pushing the economy beyond potential real GDP, which of the following must be true?

The short-run Phillips curve is ________ than the long-run Phillips curve.

All of the following have enhanced the Fed's credibility in conducting monetary policy except

If expectations are adaptive, how will the economy adjust to a new long-run equilibrium in response to contractionary monetary policy? Support your answer with a graph of the Phillips curve.

Figure 28-9 -Refer to Figure 28-9. A(n) ________ would be depicted as a movement from A to D to C.

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

If expectations are adaptive, how will the economy adjust to a new long-run equilibrium in response to expansionary monetary policy? Support your answer with a graph of the Phillips curve.

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

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

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 = 7%. The natural rate of unemployment = 5.5%. Last year's inflation rate = 5%. This year's inflation rate = 4%.

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.