Exam 28: Inflation, Unemployment, and Federal Reserve Policy

Figure 28-1 -Refer to Figure 28-1. What should the Federal Reserve do if it wants to move from point A to point C in the short-run Phillips curve depicted in the figure above?

If unemployment persists for a long period of time, the natural rate of unemployment rises.

The curve showing the short-run relationship between the unemployment rate and the inflation rate is called

One criticism of the Fed's quantitative easing policy is that low interest rates ________ the return to saving. One key reason people save is to finance their retirement. Retired people typically favor low-risk investments, such as bank certificates of deposit or Treasury bonds. But with the interest rates on these assets reduced to historically low levels, many retired people were forced to either ________ their spending or buy riskier investments.

When individuals use ________ about an economic variable to make a decision, expectations are rational.

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

How would you expect the Fed to respond to a negative supply shock in the economy?

In the short run, the Federal Reserve can affect which of the following?

If people assume that future rates of inflation will follow the pattern of inflation rates in the past, they are said to have

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?

Suppose a presidential candidate makes a statement in a debate whereby he promises that he would encourage the Fed to permanently lower the unemployment rate to 3%. His opponent claims that this type of policy idea is mired in the 1960s and would only cause inflation. Explain what the opponent means.

If actual inflation is greater than expected inflation, what is the relationship between the actual real wage and the expected real wage?

A decrease in the level of cyclical unemployment will shift the long-run Phillips curve.

What is the natural rate of unemployment?

The natural rate of unemployment equals

Which of the following would increase the natural rate of unemployment?

When a central bank works makes joint decisions with the government's Treasury department,

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

In the decade of the ________, A.W. Phillips plotted data for Great Britain which revealed a relationship between rates of changes in wages versus unemployment rates. Economists later discovered other "Phillips Curve" relationships between rates of inflation versus unemployment rates.

Figure 28-1 -Refer to Figure 28-1. Suppose that the economy is currently at point A. If the Federal Reserve engaged in contractionary monetary policy, where would the economy end up in the short run?