Exam 28: Inflation, unemployment, and Federal Reserve Policy

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.

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

Figure 28-2 -Refer to Figure 28-2.Suppose the Fed used expansionary policy to push short-run equilibrium to point B.If the short-run equilibrium remained at point B long enough

The long-run aggregate supply curve is ________,while the long-run Phillips curve is ________.

Figure 28-6 -Refer to Figure 28-6.If firms and workers have rational expectations,an expansionary monetary policy will cause the short-run equilibrium to move from

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

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

If workers and firms raise their inflation expectations

In August 1979,President Jimmy Carter appointed ________ as chairman of the Board of Governors of the Federal Reserve System.

Ceteris paribus,an increase in the current or actual rate of inflation will cause

Use the information below to explain adjustments that move the economy to a long-run equilibrium.Assume that firms and workers have adaptive expectations. The current unemployment rate = 7%. The natural rate of unemployment = 5.5%. Last year's inflation rate = 5%. This year's inflation rate = 4%.

The FOMC no longer sets targets for M1 and M2 to meet its goals of price stability and high employment.

When individuals use ________ about an economic variable to make a decision,expectations are rational.

The major criticism of real business cycle models is

A decrease in expected inflation will

Models that focus on factors other than changes in the money supply to explain fluctuations in real GDP are called

Workers at a local construction company are paid $32.50 per hour,and they have incorporated a 4 percent annual raise in their contracts to account for expected inflation.Explain how unexpected inflation of 2 percent will affect the real wages earned by these workers and the unemployment rate of these workers.

Figure 28-9 -Refer to Figure 28-9.A supply shock,such as rising oil prices,would be depicted as a movement from

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?