Exam 28: Inflation, unemployment, and Federal Reserve Policy

Figure 28-4 -Refer to Figure 28-4.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 ________.

If firms and workers have rational expectations,including knowledge of the policy being used by the Federal Reserve

Some economists are concerned that by holding its target for the federal funds rate close to zero for three years,the Fed's policy is actually

Assume the actual unemployment rate is equal to the nonaccelerating inflation rate of unemployment (NAIRU)of 5 percent.If the Fed wants to raise the inflation rate permanently from 1 percent to 3 percent,it should ________ the target for the federal funds rate so the economy's equilibrium moves ________ along the short-run Phillips curve.

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.

Models that focus on factors such as technology shocks rather than "monetary" explanations of fluctuations in real GDP are called

Figure 28-2 -Refer to Figure 28-2.At which point is the unemployment rate equal to the natural rate of unemployment?

According to the short-run Phillips curve,if unemployment is 3.2% and inflation is 1.3%,an increase in the inflation rate might result in which of the following?

According to real business cycle models,

A study conducted by Alberto Alesina and Lawrence Summers concluded that countries with highly independent central banks had ________ than countries whose central banks had little independence.

If the economy is producing at potential GDP,

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

A reduction in the rate of inflation is referred to as

What is the relationship between the short-run Phillips curve and the long-run Phillips curve?

Evidence shows that many people who delay searching for a job for a year or longer after they are laid off