Question 1

If the Fed decided to reverse its policy actions implemented during the heart of the recession,the Fed would be acting to try to prevent

Accepted Answer

A)  a decrease in unemployment. 
B)  an increase in unemployment. 
C)  an increase in deflation. 
D)  an increase in inflation.

Question 2

The short-run Phillips curve will shift if there is

Accepted Answer

A)  an increase in the unemployment rate. 
B)  an increase in inflation that is unanticipated. 
C)  a decrease in inflation that is unanticipated. 
D)  a change in inflation expectations.

Question 3

If firms and workers have adaptive expectations,what impact will expansionary monetary policy have on inflation,unemployment,and the Phillips curve?

Accepted Answer

The answer of If firms and workers have adaptive expectations,what...

Question 4

Last year,the unemployment rate was 4 percent and the inflation rate was 3 percent.If the natural rate of unemployment is 3 percent,how do you expect inflation to change?

Accepted Answer

The answer of Last year,the unemployment rate was 4 percent...

Question 5

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

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

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

Question 8

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.

Accepted Answer

The answer of If expectations are adaptive,how will the economy...

Question 9

Figure 28-2
 
-Refer to Figure 28-2.Suppose the economy is at point A in the figure above.Which of the following is true?

Accepted Answer

A)  The expected rate of inflation is 5.5%. 
B)  The current unemployment rate is equal to the natural rate of unemployment. 
C)  The current unemployment rate is 3.8%. 
D)  Actual inflation is 1%. 
E)  The economy will move from A to B.

Question 10

Figure 28-2
 
-Refer to Figure 28-2.The nonaccelerating inflation rate of unemployment,or NAIRU,is associated with which point rate in the figure above?

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  all of the above

Question 11

Ceteris paribus,in the short run following a decrease in the rate of growth in Aggregate Demand,we would expect to see an increase in the rate of unemployment and a decrease in the rate of inflation.

Accepted Answer

A) True 
 B)False

Question 12

CarMax benefitted when the Federal Reserve slashed the federal funds rate to near-zero levels in 2008.Lower interest rates increased demand for its used cars,which would allow Carmax to ________ employment and ________ prices.

Accepted Answer

A)  increase; increase 
B)  increase; decrease 
C)  decrease; increase 
D)  decrease; decrease

Question 13

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

Accepted Answer

A)  expansionary monetary policy is especially effective. 
B)  expansionary monetary policy is ineffective. 
C)  expansionary monetary policy is effective in the short run, but not the long run. 
D)  expansionary monetary policy is effective in the short run and the long run.

Question 14

How would you expect the Fed to respond to a negative supply shock in the economy?

Accepted Answer

The answer of How would you expect the Fed to...

Question 15

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.

Accepted Answer

The answer of Suppose a presidential candidate makes a statement...

Question 16

If the Federal Reserve wants to reduce inflation from 4 percent to 3 percent permanently,how can that goal be achieved,and what impact will that have on employment in the short run and the long run? Support your answer with a graph of the Phillips curve in the short run and the long run.

Accepted Answer

The answer of If the Federal Reserve wants to reduce...

Question 17

The expansionary monetary and fiscal policies of the 1960s resulted in

Accepted Answer

A)  high inflation rates and high rates of unemployment. 
B)  low inflation rates and low rates of unemployment. 
C)  low inflation rates and high rates of unemployment. 
D)  high inflation rates and low rates of unemployment.

Question 18

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

Question 19

Empirical evidence shows that the short-run Phillips curve was vertical during the 1950s and 1960s.

Accepted Answer

A) True 
 B)False

Question 20

Figure 28-1
 
-Refer to Figure 28-1.Suppose that the economy is currently at point A,and the unemployment rate at A is the natural rate.What policy would the Federal Reserve pursue if it wanted the economy to move to point B in the long run?

Accepted Answer

A)  Buy treasury bills. 
B)  Sell treasury bills. 
C)  Raise the discount rate. 
D)  Decrease the money supply. 
E)  No policy will move the economy to point B in the long run.

Exam 17: Inflation, unemployment, and Federal Reserve Policy

If the Fed decided to reverse its policy actions implemented during the heart of the recession,the Fed would be acting to try to prevent

The short-run Phillips curve will shift if there is

If firms and workers have adaptive expectations,what impact will expansionary monetary policy have on inflation,unemployment,and the Phillips curve?

Last year,the unemployment rate was 4 percent and the inflation rate was 3 percent.If the natural rate of unemployment is 3 percent,how do you expect inflation to change?

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

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

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

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.

Figure 28-2 -Refer to Figure 28-2.Suppose the economy is at point A in the figure above.Which of the following is true?

Figure 28-2 -Refer to Figure 28-2.The nonaccelerating inflation rate of unemployment,or NAIRU,is associated with which point rate in the figure above?

Ceteris paribus,in the short run following a decrease in the rate of growth in Aggregate Demand,we would expect to see an increase in the rate of unemployment and a decrease in the rate of inflation.

CarMax benefitted when the Federal Reserve slashed the federal funds rate to near-zero levels in 2008.Lower interest rates increased demand for its used cars,which would allow Carmax to employment and prices.

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

How would you expect the Fed to respond to a negative supply shock in the economy?

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.

If the Federal Reserve wants to reduce inflation from 4 percent to 3 percent permanently,how can that goal be achieved,and what impact will that have on employment in the short run and the long run? Support your answer with a graph of the Phillips curve in the short run and the long run.

The expansionary monetary and fiscal policies of the 1960s resulted in

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

Empirical evidence shows that the short-run Phillips curve was vertical during the 1950s and 1960s.

Figure 28-1 -Refer to Figure 28-1.Suppose that the economy is currently at point A,and the unemployment rate at A is the natural rate.What policy would the Federal Reserve pursue if it wanted the economy to move to point B in the long run?