Exam 28: Inflation, unemployment, and Federal Reserve Policy

Gretchen expects the price level to rise from 104 this year to 108 next year,and she is able to incorporate these expectations into her wage contract.If the price level rises to 106 next year instead of 108,which of the following will occur?

During which of the following time periods did inflation remain above 5 percent every year?

Figure 28-4 -Refer to Figure 28-4.Fed Chairman Paul Volcker's response to high inflation of the late 1970s is depicted in the figure above as a movement from ________.

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

If actual inflation is less than expected inflation,actual real wages will be ________ expected real wages and unemployment will ________.

Proponents of the new classical macroeconomics do not believe which of the following?

Explain why expansionary monetary policy would not result in reduced unemployment rates if workers and firms have rational expectations.

An increase in the inflation rate increases employment only if the increase in inflation is unexpected.

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

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

When unemployment is below its natural rate,the inflation rate will eventually

The natural rate of unemployment is the rate that exists when the economy is producing at potential GDP.

If firms and workers have rational expectations,including knowledge of the policy being used by the Federal Reserve,the short-run Phillips curve will be

When inflation is very low,how do workers and firms adjust their expectations of inflation?

If the Federal Reserve's announcements about upcoming monetary policy decisions are not credible,which of the following would you expect to see?

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

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

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

If the long-run aggregate supply curve is vertical,

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.