Exam 17: Stabilization in an Integrated World Economy

The Federal Reserve is anticipating a contractionary period in the economy. The Fed decides to engage in open market operations to stimulate the economy. This action is

According to New Keynesians, an increase in which of the following will tend to cause the inflation rate to increase?

The Phillips curve shows the relationship between

What types of unemployment will still exist when the economy is at the natural rate of unemployment?

From the late 1980s to 2000, the natural rate of unemployment

During the 1960s, many Keynesian economists felt that by studying the Phillips curve

Suppose the economy has been experiencing zero inflation and 5 percent unemployment for several years. The government decides to lower the unemployment by generating some inflation. Using a graph, show what the short-run effects would be and what would happen in the long run. What would the government have to do to keep the unemployment rate at 3 percent?

-In the above figure, if initial equilibrium is at point A and there is a fully anticipated increase in aggregate demand from AD1 to AD2 due to an anticipated increase in the money supply, then

Small menu costs are a common reason offered for the existence of

According to the policy irrelevance proposition, monetary policy can affect real variables

According to the policy irrelevance proposition

Expansionary fiscal policy can be used to reduce cyclical unemployment by

-Refer to the above figure. Unexpected expansionary monetary policy has caused the aggregate demand curve to shift to AD2. In the long run

The policy irrelevance proposition implies that

According to economists who support passive policymaking

-Refer to the above figure. Suppose the economy is in long-run equilibrium at point A, and the government initiates an expansionary monetary policy to increase aggregate demand. Which of the following is a TRUE statement concerning the differences between what happens when the central bank action is unanticipated and when it is anticipated?

According to New Keynesian economists

The natural rate of unemployment is

If households and businesses correctly anticipate the inflation rate, the unemployment rate

-In the above figure, starting at E1, if there is a supply shock that is permanent, the