Question 1

Expansionary monetary policy will result in

Accepted Answer

A) lower interest rates. 
B) decreased rates of inflation. 
C) a decrease in aggregate demand. 
D) All of the above are correct.

Question 2

If the Fed attempts to reach and maintain very low rates of unemployment,we would expect the rate of inflation to rise.

Accepted Answer

A) True 
 B)False

Question 3

A falling price level is called ________ and a fall in the rate of inflation is called ________.

Accepted Answer

A) disinflation; a contraction 
B) a contraction; disinflation 
C) disinflation; deflation 
D) deflation; disinflation

Question 4

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 5

The "rational expectations" school of economists,including Robert Lucas and Thomas Sargent,argue that changes in monetary policy cannot affect unemployment rates in the short run or long run.

Accepted Answer

A) True 
 B)False

Question 6

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 7

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 8

If actual inflation is less than expected inflation,which of the following will be true?

Accepted Answer

A) Real wages will rise. 
B) Real wages will fall. 
C) The Phillips curve will be a vertical line. 
D) The unemployment rate will fall.

Question 9

The price level in the economy between 2016 and 2017 rose from 100 to 105.Between 2017 and 2018,the price level rose from 105 to 110.25.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 would not change since there is no change in the rate of inflation.

Question 10

In the long run,the Phillips curve is a ________ at ________.

Accepted Answer

A) horizontal line; 0% inflation 
B) negatively sloped line; the intersection of aggregate demand and short-run aggregate supply 
C) vertical line; the natural rate of unemployment 
D) vertical line; the expected rate of inflation

Question 11

If weak aggregate demand is pushing the economy into recession,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) Contractionary monetary policies will push the economy back to the long-run Phillips curve.

Question 12

Figure 17-9 
-Refer to Figure 17-9.Fed Chairman Paul Volcker's response to the ________ of the late 1970s is depicted in the figure above as a movement from C to D to A.

Accepted Answer

A) deflation 
B) high unemployment 
C) high inflation 
D) appreciation of the dollar

Question 13

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 14

Article Summary
Since the Fed introduced its annual goal of an inflation target of 2 percent in January 2012,the personal consumption expenditures price index has fallen short of this goal more than 90 percent of the time.This has prompted some analysts and Fed officials to acknowledge that the Fed has lost some of its credibility in achieving its 2 percent target,and has Fed officials again discussing whether to hold off on raising interest rates.Fed Governor Lael Brainard stated that the Fed's failure to increase inflation to its 2 percent target may have influenced how companies and consumers view the inflation outlook,stating "Households and firms have experienced a prolonged period of inflation below our objective,and that may be affecting their perception of underlying inflation." Since expectations influence the actions of companies and consumers,they help determine where inflation actually ends up.Consumers who are accustomed to low inflation will resist paying up for goods and services,and therefore companies will avoid increasing wages,fearing they won't be able to raise prices to cover the added labor costs.It's a vicious circle that can hinder the Fed from achieving its inflation target.
Source: Rich Miller,"Fed Officials Admit They've Lost Some Credibility on Inflation," bloomberg.com,September 13,2017.
-Refer to the Article Summary.If the Federal Reserve's announcements about upcoming monetary policy decisions are not seen as credible,as is mentioned in the article summary regarding the Fed's 2 percent inflation target,which of the following would you expect to see?

Accepted Answer

A) Inflation expectations will accurately reflect actual inflation. 
B) Expansionary monetary policy will result in lower rates of inflation. 
C) Firms and workers will be unable to accurately forecast changes in the rate of inflation. 
D) The Federal Reserve will have more control over the inflation rate.

Question 15

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

Accepted Answer

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

Question 16

If workers accurately predict the rate of inflation,is there a short-run trade-off between inflation and unemployment,as predicted by the Phillips curve? Why or why not?

Accepted Answer

The answer of If workers accurately predict the rate of...

Question 17

Figure 17-9 
-Refer to Figure 17-9.A supply shock,such as rising oil prices,would be depicted as a movement from

Accepted Answer

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

Question 18

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 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 19

According to the "rational expectations" school of thought in macroeconomics,the short-run Phillips curve is ________ in face of anticipated changes in monetary policy.

Accepted Answer

A) negatively sloped 
B) positively sloped 
C) vertical 
D) horizontal

Question 20

The actual real wage is lower than the expected real wage if

Accepted Answer

A) actual inflation is less than expected inflation. 
B) expected inflation is less than actual inflation. 
C) actual unemployment is less than expected unemployment. 
D) actual unemployment is less than actual inflation.

Exam 17: Inflation, Unemployment, and Federal Reserve Policy

Expansionary monetary policy will result in

If the Fed attempts to reach and maintain very low rates of unemployment,we would expect the rate of inflation to rise.

A falling price level is called and a fall in the rate of inflation is called .

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

The "rational expectations" school of economists,including Robert Lucas and Thomas Sargent,argue that changes in monetary policy cannot affect unemployment rates in the short run or long run.

Contractionary monetary policy will result in

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.

If actual inflation is less than expected inflation,which of the following will be true?

The price level in the economy between 2016 and 2017 rose from 100 to 105.Between 2017 and 2018,the price level rose from 105 to 110.25.How does the short-run Phillips curve predict the unemployment rate will change as a result?

In the long run,the Phillips curve is a at .

If weak aggregate demand is pushing the economy into recession,which of the following must be true?

Figure 17-9 -Refer to Figure 17-9.Fed Chairman Paul Volcker's response to the ________ of the late 1970s is depicted in the figure above as a movement from C to D to A.

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 .

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

If workers accurately predict the rate of inflation,is there a short-run trade-off between inflation and unemployment,as predicted by the Phillips curve? Why or why not?

Figure 17-9 -Refer to Figure 17-9.A supply shock,such as rising oil prices,would be depicted as a movement from

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?

According to the "rational expectations" school of thought in macroeconomics,the short-run Phillips curve is ________ in face of anticipated changes in monetary policy.

The actual real wage is lower than the expected real wage if