Question 1

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

Accepted Answer

A) flatter 
B) steeper 
C) less stable 
D) more volatile

Question 2

According to economists Robert Lucas and Thomas Sargent,the apparent short-run trade-off between unemployment and inflation in the 1950s and 1960s was the result of

Accepted Answer

A) unexpected changes in monetary policy. 
B) expected changes in monetary policy. 
C) unexpected changes in fiscal policy. 
D) expected changes in fiscal policy.

Question 3

If workers and firms have rational expectations,they understand that ________ monetary policy will raise the inflation rate,so actual inflation ________ expected inflation.

Accepted Answer

A) expansionary; will be equal to 
B) expansionary; will be greater than 
C) contractionary; will be equal to 
D) contractionary; will be less than 
E) expansionary; will be less than

Question 4

Evidence shows that for many people,delaying searching for a job for a year or longer after they are laid off will contribute to a deterioration of their job skills,making it harder for them to find employment.This deterioration in job skills and the subsequent retraining that is necessary to obtain employment relates to which type of unemployment?

Accepted Answer

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

Question 5

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 6

The curve showing the short-run relationship between the ________ and the ________ is called the Phillips curve.

Accepted Answer

A) nominal interest rate; real interest rate 
B) unemployment rate; inflation rate 
C) price level; real GDP 
D) exchange rate; real interest rate

Question 7

Monetary policy has ________ impact on the long-run Phillips curve.

Accepted Answer

A) a positive 
B) a negative 
C) an unpredictable 
D) no

Question 8

Figure 17-6 
-Refer to Figure 17-6.If firms and workers have rational expectations,an expansionary monetary policy will cause the short-run equilibrium to move from

Accepted Answer

A) point B to point C. 
B) point C to point A. 
C) point A to point B. 
D) point B to point A. 
E) point A to point C.

Question 9

If strong aggregate demand is pushing the economy beyond potential real GDP,which of the following must be true?

Accepted Answer

A) The economy is at an equilibrium that is on the long-run aggregate supply curve. 
B) The economy is at an equilibrium that is on the long-run Phillips curve. 
C) The economy is at an equilibrium that is not on the long-run Phillips curve. 
D) Expansionary monetary policies will push the economy back to the long-run Phillips curve.

Question 10

What is the relationship between the short-run Phillips curve and the long-run Phillips curve?

Accepted Answer

The answer of What is the relationship between the short-run...

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

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 13

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

Question 14

Figure 17-2 
-Refer to Figure 17-2.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

Accepted Answer

A) the short-run Phillips curve would shift up. 
B) the short-run Phillips curve would shift down. 
C) the economy would move back to point A. 
D) the economy would stay at point B in the long run.

Question 15

An increase in the expected inflation rate will

Accepted Answer

A) shift the short-run Phillips curve to the right. 
B) shift the short-run Phillips curve to the left. 
C) reduce the inflation rate. 
D) reduce the unemployment rate.

Question 16

In the short run,the Federal Reserve can affect 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) all of the above

Question 17

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 18

Figure 17-9 
-Refer to Figure 17-9.A follower of the new classical macroeconomics would argue that a contractionary monetary policy to lower inflation after a supply shock,like that pursued by Volcker in 1979,would result in a movement from

Accepted Answer

A) A to D to C. 
B) A to B. 
C) C to D to A. 
D) C to A. 
E) A to C.

Question 19

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

Accepted Answer

A) only historical information 
B) only information announced by the Fed 
C) all available information 
D) only information garnered in the private sector

Question 20

If changes in inflation are higher than expected

Accepted Answer

A) the short-run Phillips curve will be positively sloped,but not vertical. 
B) the short-run Phillips curve will be negatively sloped. 
C) the short-run Phillips curve will be vertical. 
D) the long-run Phillips curve will be negatively sloped.

Exam 17: Inflation, Unemployment, and Federal Reserve Policy

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

According to economists Robert Lucas and Thomas Sargent,the apparent short-run trade-off between unemployment and inflation in the 1950s and 1960s was the result of

If workers and firms have rational expectations,they understand that monetary policy will raise the inflation rate,so actual inflation expected inflation.

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?

The curve showing the short-run relationship between the and the is called the Phillips curve.