Exam 28: Inflation, unemployment, and Federal Reserve Policy

Growth in aggregate demand will

Last year,the unemployment rate was 4 percent and the inflation rate was 3 percent.If the natural rate of unemployment is 3 percent,how do you expect inflation to change?

The key to understanding the short-run trade-off behind the Phillips curve is that an increase in inflation will decrease unemployment if the inflation is ________ by both workers and firms.

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 28-2 -Refer to Figure 28-2.Suppose the economy is at point C in the figure above.If workers adjust their expectations of inflation,which of the following will be true?

If actual inflation is less than expected inflation,which of the following will be true?

In the long run,the Federal Reserve can control which of the following?

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

According to the short-run Phillips curve,the unemployment rate and the inflation rate are

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

Ceteris paribus,in the short run following a decrease in the rate of growth in Aggregate Demand,we would expect to see an increase in the rate of unemployment and a decrease in the rate of inflation.

Over the past two decades,whenever changes in Fed policy have been announced,

Figure 28-1 -Refer to Figure 28-1.Suppose that the economy is currently at point A on the short-run Phillips curve in the figure above,and the unemployment rate at A is the natural rate.If the economy was to move to point C,which of the following must be true?

In conducting monetary policy,how has the Federal Reserve enhanced its credibility?

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

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

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

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 the Federal Reserve chooses to fight high inflation with contractionary monetary policy and firms and consumers expect this policy to reduce inflation,which of the following would you expect to see?

When will an increase in aggregate demand not result in lower unemployment rates in the short run?