Exam 17: Inflation,unemployment,and Federal Reserve Policy

Figure 17-7 -Refer to Figure 17-7.Consider the Phillips curves depicted in the graph above.The Fed announces its intention to decrease inflation from 10 percent to 5 percent per year,and it succeeds.If expectations of inflation are not altered by the Fed's announcement,the rate of unemployment will be ________ in the short run.

If expectations are adaptive,how will the economy adjust to a new long-run equilibrium in response to contractionary monetary policy? Support your answer with a graph of the Phillips curve.

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

What impact does expansionary monetary policy have on the short-run Phillips curve if consumers and firms expect the expansionary monetary policy to increase inflation?

The natural rate of unemployment is fixed and unchanging.

In the 1960s,many economists and policy makers considered the trade-off between inflation and unemployment revealed in the Phillips curve to be permanent.This belief was challenged by ________,who argued that there is no trade-off between inflation and unemployment and the long run.

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

Workers at a local mining company are paid $25.60 per hour,and they have incorporated a 3 percent annual raise in their contracts to account for expected inflation.Explain how unexpected inflation of 5 percent will affect the real wage and the unemployment rate.

Figure 17-1 -Refer to Figure 17-1.Suppose that the economy is currently at point A.If the Federal Reserve engaged in expansionary monetary policy,where would the economy end up in the short run?

If the actual rate of inflation exceeds the expected rate of inflation,the actual real wage is greater than the expected real wage and unemployment falls.

Which of the following is an appropriate policy for a central bank to follow if the economy is plagued with deflation?

The price level in the economy between 2014 and 2015 rose from 100 to 110.Between 2015 and 2016,the price level rose from 110 to 121.How does the short-run Phillips curve predict the unemployment rate will change as a result?

Disinflation refers to

In the short run,the Federal Reserve can affect which of the following?

Figure 17-2 -Refer to Figure 17-2.Suppose the Fed used contractionary policy to push short-run equilibrium to point C.If the short-run equilibrium remained at point C long enough,

What impact does expansionary monetary policy have on the short-run Phillips curve if consumers and firms expect the expansionary monetary policy to increase inflation?

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.

The natural rate of unemployment will not change following an increase in ________ unemployment.

A provision of the Dodd-Frank Act of 2010 revised the Federal Reserve Act to

Figure 17-1 -Refer to Figure 17-1.What should the Federal Reserve do if it wants to move from point A to point C in the short-run Phillips curve depicted in the figure above?