Question 1

Suppose that last year the unemployment rate was 5 percent and the inflation rate was 2.5 percent.If the natural rate of unemployment is 5 percent,how do you expect inflation to change?

Accepted Answer

The answer of Suppose that last year the unemployment rate...

Question 2

It has been argued that the experience of Paul Volcker's fight against inflation during the late 1970s and early 1980s indicates that firms and workers

Accepted Answer

A) had adaptive expectations by changing their expectations of future inflation only after the current inflation rate had fallen. 
B) had rational expectations and that they trusted Fed announcements. 
C) preferred high unemployment to high inflation. 
D) Both A and B are correct answers.

Question 3

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 4

When unemployment is above its natural rate,the inflation rate will eventually

Accepted Answer

A) increase. 
B) decrease. 
C) move to its natural rate. 
D) become equal to the natural rate of unemployment.

Question 5

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

Accepted Answer

A) flatter 
B) steeper 
C) less stable 
D) Both B and C are correct.

Question 6

Figure 17-2 
-Refer to Figure 17-2.Suppose the economy is at point A in the figure above.Which of the following is 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 long-run Phillips curve will shift to the left. 
D) Actual inflation and expected inflation are the same. 
E) The long-run Phillips curve will shift to the right.

Question 7

The price level in the economy between 2016 and 2017 rose from 100 to 110.Between 2017 and 2018,the price level rose from 110 to 121.How does the short-run Phillips curve predict the unemployment rate will change as a result?

Accepted Answer

A) The unemployment rate will decrease since inflation decreased. 
B) The unemployment rate will decrease since inflation increased. 
C) The unemployment rate will increase since inflation increased. 
D) The unemployment rate will not change since there is no change in the rate of inflation.

Question 8

What action should the Fed take if it wants to move from a point on the short-run Phillips curve representing low unemployment and high inflation to a point representing higher unemployment and lower inflation?

Accepted Answer

The answer of What action should the Fed take if...

Question 9

In a graph of unemployment rates (on the horizontal axis)versus inflation rates (on the vertical axis),the short-run Phillips Curve is

Accepted Answer

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

Question 10

Two actions by the Fed during Alan Greenspan's term as chairman have been identified as possibly contributing to the financial crisis in 2008.Which of the following was one of those actions?

Accepted Answer

A) decreasing the money supply to fight the possibility of disinflation 
B) the decision during 1998 to help save the hedge fund Long Term Capital Management 
C) working in concert with the European Central Bank to stabilize the dollar / euro exchange rate 
D) financing the war in Afghanistan by printing money and generating rapid inflation

Question 11

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

Accepted Answer

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

Question 12

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 the assumptions of the rational expectations school hold true,and the Fed's announcement is credible,the rate of unemployment will be ________ in the short run.

Accepted Answer

A) less than 5.5 percent 
B) 5.5 percent 
C) between 5.5 and 7.5 percent 
D) 7.5 percent

Question 13

A decrease in expected inflation will

Accepted Answer

A) reduce real wages. 
B) increase the natural rate of unemployment. 
C) shift the long-run Phillips curve to the left. 
D) shift the short-run Phillips curve to the left.

Question 14

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 15

If inflation falls from 11% to 5%,there is deflation.

Accepted Answer

A) True 
 B)False

Question 16

At the point where actual inflation is equal to expected inflation

Accepted Answer

A) the short-run Phillips curve is the same as the long-run Phillips curve. 
B) the unemployment rate is zero. 
C) the short-run Phillips curve intersects the long-run Phillips curve. 
D) there is no short-run Phillips curve,as this situation only occurs in the long run.

Question 17

If actual inflation is greater than expected inflation

Accepted Answer

A) real wages rise. 
B) real wages fall. 
C) the Phillips curve is a vertical line. 
D) the unemployment rate rises.

Exam 17: Inflation, Unemployment, and Federal Reserve Policy