Question 1

All other factors held constant,increased growth in aggregate demand will

Accepted Answer

A) increase inflation. 
B) reduce unemployment. 
C) move the economy to a higher point on the short-run Phillips curve. 
D) All of the above are correct. 
A) increase inflation. 
B) reduce unemployment. 
C) move the economy to a higher point on the short-run Phillips curve. 
D) All of the above are correct.

Question 2

Article Summary
In a July 2015 interview on CNBC,Republican Senator Pat Toomey expressed concern that interest rates remained low and that it was time for the Fed to announce a date for interest rates to rise and to stick with that date.In the interview,Toomey stated "The Fed no longer has credibility,and you can see that.The divergence between the futures markets and the Fed's own projections about what they're going to do about interest rates-this is a huge problem." A member of the Senate banking committee,Toomey has called on the Fed to adopt a rule which would require it to explain how monetary policy would be set,as well as explain to Congress any reasons for deviations from the rule.In a 1977 amendment to the Federal Reserve Act,Congress has mandated that the Fed act to maintain stable prices,maximize employment,and stabilize long-term interest rates.
-Refer to the Article Summary.Senator Pat Toomey brought the Fed's credibility into question when it once again delayed raising interest rates despite several prior announcements alluding to timing for a potential interest rate hike.Prior to this,over the past two decades whenever a change in Fed policy had been announced,the change has ________ taken place,leading to ________ credibility.

Accepted Answer

A) rarely;greater 
B) actually;greater 
C) rarely;less 
D) actually;less 
A) rarely;greater 
B) actually;greater 
C) rarely;less 
D) actually;less

Question 3

Figure 28-1  
-Refer to Figure 28-1.Suppose that the economy is currently at point A.If the Federal Reserve engaged in contractionary monetary policy,where would the economy end up in the short run?

Accepted Answer

A) It would remain at point A. 
B) point B 
C) point C 
D) point D 
E) point E 
A) It would remain at point A. 
B) point B 
C) point C 
D) point D 
E) point E

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A) the inflation rate 
B) the unemployment rate 
C) the growth rate of real GDP in the economy 
D) the natural rate of unemployment 
A) the inflation rate 
B) the unemployment rate 
C) the growth rate of real GDP in the economy 
D) the natural rate of unemployment

Question 6

Why do most economists believe that it is important for a country's central bank to be independent of the rest of the country's central government?

Accepted Answer

The main reason to keep a country's cent

Question 7

A decrease in aggregate demand will

Accepted Answer

A) cause inflation. 
B) decrease unemployment. 
C) move the economy to a lower point on the short-run Phillips curve. 
D) cause the short-run Phillips curve to shift to the right. 
A) cause inflation. 
B) decrease unemployment. 
C) move the economy to a lower point on the short-run Phillips curve. 
D) cause the short-run Phillips curve to shift to the right.

Question 8

Which of the following is not an appropriate policy for a central bank to follow if the economy is plagued with deflation?

Accepted Answer

A) increasing the target interest rate on overnight loans 
B) using expansionary monetary policy to drive down interest rates 
C) consistently pursuing policy to promote the credibility of the central bank 
D) explicitly and credibly targeting inflation 
A) increasing the target interest rate on overnight loans 
B) using expansionary monetary policy to drive down interest rates 
C) consistently pursuing policy to promote the credibility of the central bank 
D) explicitly and credibly targeting inflation

Question 9

What is a "structural" relationship?

Accepted Answer

A) a relationship that depends on the size of firm investments in capital such as buildings and other structures 
B) a relationship that depends on the basic behavior of consumers and firms and remains unchanged over long periods 
C) a relationship between any two variables that is temporary 
D) any relationship that cannot be anticipated 
A) a relationship that depends on the size of firm investments in capital such as buildings and other structures 
B) a relationship that depends on the basic behavior of consumers and firms and remains unchanged over long periods 
C) a relationship between any two variables that is temporary 
D) any relationship that cannot be anticipated

Question 10

In the long run,the Phillips curve is a ________ at ________.

Accepted Answer

A) horizontal line;0% inflation 
B) negatively sloped line;the intersection of aggregate demand and short-run aggregate supply 
C) vertical line;the natural rate of unemployment 
D) None of the above is correct. 
A) horizontal line;0% inflation 
B) negatively sloped line;the intersection of aggregate demand and short-run aggregate supply 
C) vertical line;the natural rate of unemployment 
D) None of the above is correct.

Question 11

In the 1960s,many economists and policymakers believed the trade-off between inflation and unemployment was permanent.

Accepted Answer

A) True 
 B)False

Question 12

An increase in expected inflation will

Accepted Answer

A) increase real wages. 
B) decrease the natural rate of unemployment. 
C) shift the long-run Phillips curve to the right. 
D) None of the above is correct. 
A) increase real wages. 
B) decrease the natural rate of unemployment. 
C) shift the long-run Phillips curve to the right. 
D) None of the above is correct.

Question 13

When a central bank makes joint decisions with the government's Treasury department,

Accepted Answer

A) the central bank risks losing credibility. 
B) the central bank is asserting its independence. 
C) the government enhances its credibility. 
D) the government loses its ability to conduct fiscal policy. 
A) the central bank risks losing credibility. 
B) the central bank is asserting its independence. 
C) the government enhances its credibility. 
D) the government loses its ability to conduct fiscal policy.

Question 14

If rational workers and firms know that the Federal Reserve is following a contractionary monetary policy,they will expect inflation to ________ and will adjust wages so that the real wage ________.

Accepted Answer

A) increase;remains unchanged 
B) decrease;remains unchanged 
C) decrease;increases 
D) increase;decreases 
A) increase;remains unchanged 
B) decrease;remains unchanged 
C) decrease;increases 
D) increase;decreases

Question 15

Which of the following would increase the natural rate of unemployment?

Accepted Answer

A) an increase in the number of younger,less skilled workers in the economy 
B) a reduction in the generosity of unemployment insurance programs 
C) restrictions on the ability of unions to negotiate wage changes with companies 
D) an increase in government-sponsored programs that train unemployed workers so they can find new jobs quickly 
A) an increase in the number of younger,less skilled workers in the economy 
B) a reduction in the generosity of unemployment insurance programs 
C) restrictions on the ability of unions to negotiate wage changes with companies 
D) an increase in government-sponsored programs that train unemployed workers so they can find new jobs quickly

Question 16

Goodyear benefitted when the Federal Reserve ________ in 2008.This Fed action would help increase demand for its tires,which allowed Goodyear to increase employment and increase prices.

Accepted Answer

A) drove down interest rates 
B) increased the discount rate 
C) lowered the required reserve rate 
D) implemented a series of open market sales of Treasury bonds 
A) drove down interest rates 
B) increased the discount rate 
C) lowered the required reserve rate 
D) implemented a series of open market sales of Treasury bonds

Question 17

In the long run,the Phillips curve is a ________ at ________.

Accepted Answer

A) horizontal line;0% inflation 
B) negatively sloped line;the intersection of aggregate demand and short-run aggregate supply 
C) vertical line;the natural rate of unemployment 
D) vertical line;the expected rate of inflation 
A) horizontal line;0% inflation 
B) negatively sloped line;the intersection of aggregate demand and short-run aggregate supply 
C) vertical line;the natural rate of unemployment 
D) vertical line;the expected rate of inflation

Question 18

If the Phillips curve represents a "________ relationship," then the trade-off between unemployment and inflation is permanent.

Accepted Answer

A) structural 
B) frictional 
C) cyclical 
D) dynamic 
A) structural 
B) frictional 
C) cyclical 
D) dynamic

Question 19

With which of the following statements would a "real business cycle" theorist most closely agree?

Accepted Answer

A) "Monetary policies have greatest impact on real GDP when they are anticipated." 
B) "Expansionary monetary policy allows the central bank to control inflation and unemployment simultaneously." 
C) "Wages adjust slowly to changes in inflation as long as expectations are formed rationally." 
D) "Technological shocks to the economy explain deviations of real GDP from its potential level." 
A) "Monetary policies have greatest impact on real GDP when they are anticipated." 
B) "Expansionary monetary policy allows the central bank to control inflation and unemployment simultaneously." 
C) "Wages adjust slowly to changes in inflation as long as expectations are formed rationally." 
D) "Technological shocks to the economy explain deviations of real GDP from its potential level."

Question 20

If the Federal Reserve announces that its target for the federal funds rate is falling from 3 percent to 2.25 percent,how do you expect workers and firms to react?

Accepted Answer

A) As long as the Fed's announcement is credible,workers and firms will decrease their consumption and investment spending,which will decrease aggregate demand and inflation. 
B) As long as the Fed's announcement is credible,workers and firms will increase their consumption and investment spending,which will increase aggregate demand and inflation. 
C) If the Fed's announcement is not credible,workers and firms will not expect inflation to rise so they will increase their consumption and investment spending,which will decrease aggregate demand and increase inflation. 
D) Workers and firms will incorporate the decrease in interest rates into their expectations of inflation,and they will expect inflation to fall as a result of Fed's policy announcement. 
A) As long as the Fed's announcement is credible,workers and firms will decrease their consumption and investment spending,which will decrease aggregate demand and inflation. 
B) As long as the Fed's announcement is credible,workers and firms will increase their consumption and investment spending,which will increase aggregate demand and inflation. 
C) If the Fed's announcement is not credible,workers and firms will not expect inflation to rise so they will increase their consumption and investment spending,which will decrease aggregate demand and increase inflation. 
D) Workers and firms will incorporate the decrease in interest rates into their expectations of inflation,and they will expect inflation to fall as a result of Fed's policy announcement.

Exam 28: Inflation, unemployment, and Federal Reserve Policy

All other factors held constant,increased growth in aggregate demand will

Figure 28-1 -Refer to Figure 28-1.Suppose that the economy is currently at point A.If the Federal Reserve engaged in contractionary monetary policy,where would the economy end up in the short run?

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

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

Why do most economists believe that it is important for a country's central bank to be independent of the rest of the country's central government?

A decrease in aggregate demand will

Which of the following is not an appropriate policy for a central bank to follow if the economy is plagued with deflation?

What is a "structural" relationship?

In the long run,the Phillips curve is a ________ at ________.

In the 1960s,many economists and policymakers believed the trade-off between inflation and unemployment was permanent.

An increase in expected inflation will

When a central bank makes joint decisions with the government's Treasury department,

If rational workers and firms know that the Federal Reserve is following a contractionary monetary policy,they will expect inflation to ________ and will adjust wages so that the real wage ________.

Which of the following would increase the natural rate of unemployment?

Goodyear benefitted when the Federal Reserve ________ in 2008.This Fed action would help increase demand for its tires,which allowed Goodyear to increase employment and increase prices.

In the long run,the Phillips curve is a ________ at ________.

If the Phillips curve represents a "________ relationship," then the trade-off between unemployment and inflation is permanent.

With which of the following statements would a "real business cycle" theorist most closely agree?

If the Federal Reserve announces that its target for the federal funds rate is falling from 3 percent to 2.25 percent,how do you expect workers and firms to react?

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, government Price Setting, and Taxes

Externalities, environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms,the Stock Market,and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology,production,and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, taxes, and the Distribution of Income

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money,banks,and the Federal Reserve System

Monetary Policy

Fiscal Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

In the long run,the Phillips curve is a at .

If rational workers and firms know that the Federal Reserve is following a contractionary monetary policy,they will expect inflation to and will adjust wages so that the real wage .

In the long run,the Phillips curve is a at .