Question 1

Contractionary monetary policy will result in

Accepted Answer

A)  higher interest rates. 
B)  increased rates of inflation. 
C)  an upward shift in the short-run Phillips curve. 
D)  a leftward shift in the long-run Phillips curve. 
A)  higher interest rates. 
B)  increased rates of inflation. 
C)  an upward shift in the short-run Phillips curve. 
D)  a leftward shift in the long-run Phillips curve.

Question 2

The major criticism of real business cycle models is

Accepted Answer

A)  negative technology shocks are uncommon and can't explain all business cycle fluctuations. 
B)  positive technology shocks actually push real GDP above the economy's potential GDP. 
C)  negative technology shocks actually push real GDP below the economy's potential GDP 
D)  this model relies too heavily on monetary explanations for fluctuations in real GDP. 
A)  negative technology shocks are uncommon and can't explain all business cycle fluctuations. 
B)  positive technology shocks actually push real GDP above the economy's potential GDP. 
C)  negative technology shocks actually push real GDP below the economy's potential GDP 
D)  this model relies too heavily on monetary explanations for fluctuations in real GDP.

Question 3

Where does the short-run Phillips curve intersect the long-run Phillips curve?

Accepted Answer

A)  at the point where the rate of inflation and the unemployment rate are equal 
B)  at the natural rate of inflation 
C)  at the point where actual inflation is equal to expected inflation 
D)  There is no intersection between the short-run and long-run Phillips curves. 
A)  at the point where the rate of inflation and the unemployment rate are equal 
B)  at the natural rate of inflation 
C)  at the point where actual inflation is equal to expected inflation 
D)  There is no intersection between the short-run and long-run Phillips curves.

Question 4

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

Accepted Answer

A)  weak increases in aggregate supply 
B)  a lower inflation rate 
C)  weak increases in aggregate demand 
D)  a higher inflation rate 
A)  weak increases in aggregate supply 
B)  a lower inflation rate 
C)  weak increases in aggregate demand 
D)  a higher inflation rate

Question 5

Figure 28-3  
-Refer to Figure 28-3.If firms and workers have adaptive expectations,an expansionary monetary policy will cause the short-run equilibrium to move from
A) point B to point C.
B) point A to point C.
C) point A to point B.
D) point B to point A.
E) point C to point B.

Accepted Answer

The answer of Figure 28-3  
-Refer to Figure 28-3.If...

Question 6

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

Accepted Answer

A)  buy treasury bills 
B)  sell treasury bills 
C)  lower the discount rate 
D)  increase the money supply 
E)  lower taxes 
A)  buy treasury bills 
B)  sell treasury bills 
C)  lower the discount rate 
D)  increase the money supply 
E)  lower taxes

Question 7

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?

Accepted Answer

A)  It would remain at point A. 
B)  point B 
C)  point C 
D)  point D 
E)  point E 
A)  It would remain at point A. 
B)  point B 
C)  point C 
D)  point D 
E)  point E

Question 8

Even if expectations of inflation are rational,sluggish adjustment of wages and prices will still create a short-run trade-off between inflation and unemployment.

Accepted Answer

A) True 
 B)False

Question 9

Figure 28-2  
-Refer to Figure 28-2.Suppose the economy is at point B.If the Fed increases the money supply so that inflation increases,the economy will ________ in the short run,holding all else constant.

Accepted Answer

A)  eventually move to point A 
B)  stay at point B 
C)  eventually move to point C 
D)  move to point A and then back to point B 
A)  eventually move to point A 
B)  stay at point B 
C)  eventually move to point C 
D)  move to point A and then back to point B

Question 10

Employees at the university have negotiated a 5 percent increase in wages for the next year,based on their inflation expectations.If inflation is actually 4 percent over the next year,which of the following will occur?

Accepted Answer

A)  Unemployment of university employees will fall. 
B)  Real wages for university employees will rise. 
C)  Inflation will be 5 percent the following year. 
D)  The decrease in inflation is expected. 
A)  Unemployment of university employees will fall. 
B)  Real wages for university employees will rise. 
C)  Inflation will be 5 percent the following year. 
D)  The decrease in inflation is expected.

Question 11

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

Accepted Answer

A)  increase; increase 
B)  increase; decrease 
C)  decrease; increase 
D)  decrease; decrease 
A)  increase; increase 
B)  increase; decrease 
C)  decrease; increase 
D)  decrease; decrease

Question 12

Figure 28-2  
-Refer to Figure 28-2.At which point are inflation expectations equal to the actual inflation rate?

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  all of the above 
A)  A 
B)  B 
C)  C 
D)  all of the above

Question 13

The experience of Paul Volcker's fight against inflation during the late 1970s and early 1980s indicates that firms and workers may have

Accepted Answer

A)  had adaptive expectations. 
B)  had rational expectations but didn't trust Fed announcements. 
C)  preferred high unemployment to high inflation. 
D)  Both A and B are correct answers. 
A)  had adaptive expectations. 
B)  had rational expectations but didn't trust Fed announcements. 
C)  preferred high unemployment to high inflation. 
D)  Both A and B are correct answers.

Question 14

The price level in the economy between 2009 and 2010 rose from 100 to 105.Between 2010 and 2011,the price level rose from 105 to 110.25.How does the short-run Phillips curve predict the unemployment rate will change as a result?

Accepted Answer

A)  The unemployment rate will decrease since inflation decreased. 
B)  The unemployment rate will decrease since inflation increased. 
C)  The unemployment rate will increase since inflation increased. 
D)  The unemployment rate would not change since there is no change in the rate of inflation. 
A)  The unemployment rate will decrease since inflation decreased. 
B)  The unemployment rate will decrease since inflation increased. 
C)  The unemployment rate will increase since inflation increased. 
D)  The unemployment rate would not change since there is no change in the rate of inflation.

Question 15

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.

Accepted Answer

If the Fed wants to reduce inflation,it

Question 16

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

Accepted Answer

A)  if expectations are rational 
B)  if changes in monetary policy are unanticipated 
C)  if actual inflation is higher than expected 
D)  if actual inflation is lower than expected 
A)  if expectations are rational 
B)  if changes in monetary policy are unanticipated 
C)  if actual inflation is higher than expected 
D)  if actual inflation is lower than expected

Question 17

If weak aggregate demand is pushing the economy into recession,which of the following must be true?

Accepted Answer

A)  The economy is at an equilibrium that is on the long-run aggregate supply curve. 
B)  The economy is at an equilibrium that is on the long-run Phillips curve. 
C)  The economy is at an equilibrium that is not on the long-run Phillips curve. 
D)  Contractionary monetary policies will push the economy back to the long-run Phillips curve. 
A)  The economy is at an equilibrium that is on the long-run aggregate supply curve. 
B)  The economy is at an equilibrium that is on the long-run Phillips curve. 
C)  The economy is at an equilibrium that is not on the long-run Phillips curve. 
D)  Contractionary monetary policies will push the economy back to the long-run Phillips curve.

Question 18

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?

Accepted Answer

A)  decreasing the money supply to fight the possibility of disinflation 
B)  the decision to keep the federal funds rate at 1 percent from June 2003 to June 2004 
C)  working in concert with the European Central Bank to stabilize the dollar / euro exchange rate 
D)  financing the first Gulf War by printing money and generating rapid inflation 
A)  decreasing the money supply to fight the possibility of disinflation 
B)  the decision to keep the federal funds rate at 1 percent from June 2003 to June 2004 
C)  working in concert with the European Central Bank to stabilize the dollar / euro exchange rate 
D)  financing the first Gulf War by printing money and generating rapid inflation

Question 19

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

Accepted Answer

A)  rational expectations. 
B)  adaptive expectations. 
C)  unstable expectations. 
D)  accommodative expectations. 
A)  rational expectations. 
B)  adaptive expectations. 
C)  unstable expectations. 
D)  accommodative expectations.

Question 20

Figure 28-4  
-Refer to Figure 28-4.A supply shock,such as rising oil prices,would be depicted as a movement from ________.

Accepted Answer

A)  A to D to C 
B)  C to B to A 
C)  C to D to A 
D)  C to E to B 
E)  A to B to C 
A)  A to D to C 
B)  C to B to A 
C)  C to D to A 
D)  C to E to B 
E)  A to B to C

Exam 28: Inflation, unemployment, and Federal Reserve Policy

Contractionary monetary policy will result in

The major criticism of real business cycle models is

Where does the short-run Phillips curve intersect the long-run Phillips curve?

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

Figure 28-3 -Refer to Figure 28-3.If firms and workers have adaptive expectations,an expansionary monetary policy will cause the short-run equilibrium to move from A) point B to point C. B) point A to point C. C) point A to point B. D) point B to point A. E) point C to point B.

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

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?

Even if expectations of inflation are rational,sluggish adjustment of wages and prices will still create a short-run trade-off between inflation and unemployment.

Figure 28-2 -Refer to Figure 28-2.Suppose the economy is at point B.If the Fed increases the money supply so that inflation increases,the economy will ________ in the short run,holding all else constant.

Employees at the university have negotiated a 5 percent increase in wages for the next year,based on their inflation expectations.If inflation is actually 4 percent over the next year,which of the following will occur?

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

Figure 28-2 -Refer to Figure 28-2.At which point are inflation expectations equal to the actual inflation rate?

The experience of Paul Volcker's fight against inflation during the late 1970s and early 1980s indicates that firms and workers may have

The price level in the economy between 2009 and 2010 rose from 100 to 105.Between 2010 and 2011,the price level rose from 105 to 110.25.How does the short-run Phillips curve predict the unemployment rate will change as a result?

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.

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

If weak aggregate demand is pushing the economy into recession,which of the following must be true?

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?

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

Figure 28-4 -Refer to Figure 28-4.A supply shock,such as rising oil prices,would be depicted as a movement from ________.

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, government Price Setting, and Taxes

Externalities, environmental Policy, and Public Goods

Elasticity: The Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: The Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, taxes, and the Distribution of Income

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

CarMax benefitted when the Federal Reserve slashed the federal funds rate to near-zero levels in 2008.Lower interest rates increased demand for its used cars,which would allow Carmax to employment and prices.