Exam 28: Inflation, Unemployment, and Federal Reserve Policy

If firms and workers have adaptive expectations, what impact will contractionary monetary policy have on inflation, unemployment, and the Phillips curve?

Figure 28-9 -Refer to Figure 28-9. A follower of the new classical macroeconomics would argue that a contractionary monetary policy to lower inflation after a supply shock, like that pursued by Volcker in 1979, would result in a movement from

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

The natural rate of unemployment will not change following an increase in ________ unemployment.

In face of rational expectations regarding changes in monetary policy, the short-run Phillips Curve may be vertical.

Which of the following is an appropriate policy for a central bank to follow if the economy is plagued with deflation?

Disinflation refers to

A study conducted by Robert Shiller, a Yale Economist, found that a large majority of the public thinks that increases in inflation will not quickly lead to an increase in wages.

According to economists Robert Lucas and Thomas Sargent, the apparent short-run trade-off between unemployment and inflation in the 1950s and 1960s was the result of

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.

If people assume that future rates of inflation will ________, they are said to have adaptive expectations.

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 expectations of inflation are not altered by the Fed's announcement, the rate of unemployment will be ________ in the short run.

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

Employees at the hospital have negotiated a 3 percent increase in wages for the next year, based on their inflation expectations. If inflation is actually 5 percent over the next year, which of the following will occur?

Figure 28-1 -Refer to Figure 28-1. Suppose that the economy is currently at point A, and the unemployment rate at A is the natural rate. What policy would the Federal Reserve pursue if it wanted the economy to move to point B in the long run?

Workers and firms are currently expecting the price level to increase from 110 to 114. The Federal Reserve then announces that it will be reducing the growth rate of the money supply. If the Fed's announcement is credible, and firms and workers have rational expectations, describe how the expectations of firms and workers will be affected and how the change in expectations will affect the unemployment rate.

If the Fed chose to change its policy actions implemented during the heart of the recession faster than the timing suggested by the White House, this would be an indication of the Fed's

Parker Hannifin benefitted when the Federal Reserve slashed the federal funds rate to near-zero levels in 2008. Lower interest rates increased demand for its machinery components, which would allow Parker Hannifin to ________ employment and ________ prices.

When individuals use all available information about an economic variable to make a decision, expectations are

According to the short-run Phillips curve, if unemployment is 2.4% and inflation is 3.7%, a decrease in the inflation rate might result in which of the following?