Question 1

Some economists are concerned that by holding its target for the federal funds rate close to zero for three years,the Fed's policy is actually

Accepted Answer

A)  causing inflation to increase. 
B)  causing unemployment to increase. 
C)  increasing the unemployment rate while lowering the natural rate of unemployment. 
D)  creating deflation.

Question 2

One problem with deflation is that it can raise the real value of debt.

Accepted Answer

A) True 
 B)False

Question 3

Figure 28-2
 
-Refer to Figure 28-2.At which point are inflation expectations equal to the actual inflation rate?

Accepted Answer

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

Question 4

In which of the following situations might you expect expansionary monetary policy to reduce the unemployment rate?

Accepted Answer

A)  if expectations are rational 
B)  if changes in monetary policy are unanticipated 
C)  if actual inflation is higher than expected 
D)  if actual inflation is lower than expected

Question 5

If unemployment persists for a long period of time,the natural rate of unemployment rises.

Accepted Answer

A) True 
 B)False

Question 6

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?

Accepted Answer

A)  Gretchen's real wage will be unchanged. 
B)  Gretchen's real wage will fall. 
C)  Gretchen's real wage will rise. 
D)  Gretchen's real wage may rise or fall, depending on the unemployment rate.

Question 7

Does the short-run Phillips curve have a positive or negative slope? Explain how this slope is derived.

Accepted Answer

The answer of Does the short-run Phillips curve have a...

Question 8

If the rate of inflation in the economy is steady at 5 percent per year,how does the short-run Phillips curve predict that the unemployment rate will be changing,if at all? Does your answer change if inflation in the economy is 0 percent? Illustrate your answer with a Phillips curve.

Accepted Answer

The answer of If the rate of inflation in the...

Question 9

During which of the following time periods did inflation remain above 5 percent every year?

Accepted Answer

A)  1990 through 1999 
B)  1973 through 1982 
C)  1968 through 1971 
D)  1958 through 1962

Question 10

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 11

Can the Federal Reserve achieve both low inflation and low levels of unemployment? Explain.

Accepted Answer

The answer of Can the Federal Reserve achieve both low...

Question 12

Contractionary monetary policy will result in

Accepted Answer

A)  higher interest rates. 
B)  increased rates of inflation. 
C)  an upward shift in the short-run Phillips curve. 
D)  a leftward shift in the long-run Phillips curve.

Question 13

The key to understanding the short-run trade-off behind the Phillips curve is that an increase in inflation will decrease unemployment if the inflation is ________ by both workers and firms.

Accepted Answer

A)  unexpected 
B)  expected 
C)  perfectly predicted 
D)  ignored

Question 14

If the Fed chose to change its policy actions implemented during the heart of the recession faster than the timing suggested by the White House,this would be an indication of the Fed's

Accepted Answer

A)  lack of credibility. 
B)  independence. 
C)  changing its monetary policy target. 
D)  frictional relationship with the White House.

Question 15

Figure 28-2
 
-Refer to Figure 28-2.Suppose the economy is at point C in the figure above.If workers adjust their expectations of inflation,which of the following will be true?

Accepted Answer

A)  The short-run Phillips curve will shift to the right. 
B)  The short-run Phillips curve will shift to the left. 
C)  The economy will move from C to A. 
D)  Workers and firms expect inflation to be 1%. 
E)  The natural rate of unemployment is 6%.

Question 16

Some economists argue that the short-run Phillips curve is not vertical,and that monetary policy can be effective in the short run.Which one of the following is not one of the reasons for this skepticism?

Accepted Answer

A)  Empirical evidence shows workers and firms have rational expectations. 
B)  Contracts with workers and suppliers may hinder firms' abilities to adjust to price changes. 
C)  Wages and prices may not adjust rapidly enough to keep the short-run Phillips curve vertical. 
D)  Individuals may not be able to use information of Fed Policy to make a reliable forecast of inflation.

Question 17

What impact does monetary policy have on the long-run Phillips curve?

Accepted Answer

A)  Monetary policy can only shift the long-run Phillips curve to the left. 
B)  Monetary policy shifts the long-run Phillips curve to the right or left, depending on whether monetary policy is expansionary or contractionary. 
C)  Monetary policy can only shift the long-run Phillips curve to the right. 
D)  Monetary policy has no impact on the long-run Phillips curve.

Question 18

If the Federal Reserve chooses to fight high inflation with contractionary monetary policy and firms and consumers expect this policy to reduce inflation,which of the following would you expect to see?

Accepted Answer

A)  a downward shift of the short-run Phillips curve 
B)  a reduction in the unemployment rate 
C)  a decrease in the long-run aggregate supply curve 
D)  an increase in inflationary expectations

Question 19

A "long-run exploitable Phillips curve" refers to a Phillips curve that in the long run is ________ rather than ________.

Accepted Answer

A)  vertical; horizontal 
B)  upward sloping; vertical 
C)  horizontal; upward sloping 
D)  downward sloping; vertical

Question 20

Figure 28-2
 
-Refer to Figure 28-2.At which point is the unemployment rate equal to the natural rate of unemployment?

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  There is insufficient information on the graph to answer this question.

Exam 17: Inflation, unemployment, and Federal Reserve Policy

Some economists are concerned that by holding its target for the federal funds rate close to zero for three years,the Fed's policy is actually

One problem with deflation is that it can raise the real value of debt.

Figure 28-2 -Refer to Figure 28-2.At which point are inflation expectations equal to the actual inflation rate?

In which of the following situations might you expect expansionary monetary policy to reduce the unemployment rate?

If unemployment persists for a long period of time,the natural rate of unemployment rises.

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?

Does the short-run Phillips curve have a positive or negative slope? Explain how this slope is derived.

If the rate of inflation in the economy is steady at 5 percent per year,how does the short-run Phillips curve predict that the unemployment rate will be changing,if at all? Does your answer change if inflation in the economy is 0 percent? Illustrate your answer with a Phillips curve.

During which of the following time periods did inflation remain above 5 percent every year?

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

Can the Federal Reserve achieve both low inflation and low levels of unemployment? Explain.

Contractionary monetary policy will result in

The key to understanding the short-run trade-off behind the Phillips curve is that an increase in inflation will decrease unemployment if the inflation is ________ by both workers and firms.

If the Fed chose to change its policy actions implemented during the heart of the recession faster than the timing suggested by the White House,this would be an indication of the Fed's

Figure 28-2 -Refer to Figure 28-2.Suppose the economy is at point C in the figure above.If workers adjust their expectations of inflation,which of the following will be true?

Some economists argue that the short-run Phillips curve is not vertical,and that monetary policy can be effective in the short run.Which one of the following is not one of the reasons for this skepticism?

What impact does monetary policy have on the long-run Phillips curve?

If the Federal Reserve chooses to fight high inflation with contractionary monetary policy and firms and consumers expect this policy to reduce inflation,which of the following would you expect to see?

A "long-run exploitable Phillips curve" refers to a Phillips curve that in the long run is rather than .

Figure 28-2 -Refer to Figure 28-2.At which point is the unemployment rate equal to the natural rate of unemployment?