Exam 28: Inflation, Unemployment, and Federal Reserve Policy

During the 1960s, in face of moderate and stable inflation, people tended to form adaptive expectations of future inflation rates.

The expansionary monetary and fiscal policies of the 1960s resulted in ________ inflation rates and ________ rates of unemployment.

Figure 28-7 -Refer to Figure 28-7. Consider the Phillips curves depicted in the graph above. The Fed announces its intention to decrease inflation from 10 percent to 5 percent per year, and it succeeds. If the assumptions of the rational expectations school hold true, and the Fed's announcement is credible, the rate of unemployment will be ________ in the short run.

Figure 28-2 -Refer to Figure 28-2. Suppose the economy is at point A in the figure above. Which of the following is true?

Expansionary monetary policy will result in

A "long-run exploitable Phillips curve" refers to a Phillips curve that in the long run is ________ rather than ________.

Suppose that last year the unemployment rate was 5 percent and the inflation rate was 2.5 percent. If the natural rate of unemployment is 5 percent, how do you expect inflation to change?

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

If changes in inflation are higher than expected,

Real business cycle models argue that fluctuations in real GDP are caused by unanticipated changes in the money supply.

If the long-run aggregate supply curve is vertical,

If the Federal Reserve wants to reduce inflation from 4 percent to 3 percent permanently, how can that goal be achieved, and what impact will that have on employment in the short run and the long run? Support your answer with a graph of the Phillips curve in the short run and the long run.

________ would be the source of a "real" business cycle.

Figure 28-9 -Refer to Figure 28-9. Fed Chairman Paul Volcker's response to high inflation of the late 1970s is depicted in the figure above as a movement from

In a graph of unemployment rates (on the horizontal axis) versus inflation rates (on the vertical axis), the short-run Phillips Curve is

A relationship that depends on the basic behavior of consumers and firms and remains unchanged over long periods is called a ________ relationship.

Two actions by the Fed during Alan Greenspan's term as chairman have been identified as possibly contributing to the financial crisis in 2008. Which of the following was one of those actions?

In the 1960s, many economists and policymakers believed the trade-off between inflation and unemployment was permanent.

If the long-run aggregate supply curve is vertical,

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