Question 1

What is the natural rate of unemployment?

Accepted Answer

A) the unemployment rate that exists when the economy is at potential GDP 
B) the unemployment rate that exists when the economy is at a trough in a business cycle 
C) an unemployment rate of 0% 
D) any unemployment rate that is above the inflation rate

Question 2

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 3

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 4

If workers and firms raise their inflation expectations,

Accepted Answer

A) unemployment will fall. 
B) actual inflation will fall to match expected inflation. 
C) the short-run Phillips curve will be vertical. 
D) the short-run Phillips curve will shift upward.

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

Figure 17-1 
-Refer to Figure 17-1.Suppose that the economy is currently at point A.If the Federal Reserve engaged in expansionary monetary policy,where would the economy end up in the short run?

Accepted Answer

A) It would remain at point A. 
B) point B 
C) point C 
D) point D 
E) point E

Question 7

What is the natural rate of unemployment?

Accepted Answer

A) the unemployment rate that exists when the economy is at potential GDP 
B) the unemployment rate that exists when the economy is at a trough in a business cycle 
C) an unemployment rate of 0% 
D) any unemployment rate that is above the inflation rate

Question 8

If the actual rate of inflation exceeds the expected rate of inflation,the actual real wage is greater than the expected real wage and unemployment falls.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following could increase unemployment and inflation simultaneously?

Accepted Answer

A) an increase in oil prices 
B) expansionary monetary policy 
C) contractionary monetary policy 
D) a decrease in the real wage

Question 10

If expected inflation falls,the long-run Phillips curve will

Accepted Answer

A) shift to the right. 
B) not be affected. 
C) shift to the left. 
D) become negatively sloped.

Question 11

A relationship that depends on the basic behavior of consumers and firms and remains unchanged over long periods is called a ________ relationship.

Accepted Answer

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

Question 12

An increase in the level of structural unemployment will shift the long-run Phillips curve.

Accepted Answer

A) True 
 B)False

Question 13

A study conducted by Alberto Alesina and Lawrence Summers concluded that countries with highly independent central banks had ________ than countries whose central banks had little independence.

Accepted Answer

A) higher unemployment rates 
B) lower unemployment rates 
C) higher inflation rates 
D) lower inflation rates

Question 14

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

Question 15

Matt's real wage in 2014 is $26.80.If the price level is 104,what is Matt's nominal wage?

Accepted Answer

A) $30.80 
B) $27.87 
C) $26.80 
D) $25.77

Question 16

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 17

A decrease in the level of cyclical unemployment will shift the long-run Phillips curve.

Accepted Answer

A) True 
 B)False

Question 18

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 19

If workers and firms raise their inflation expectations,

Accepted Answer

A) unemployment will fall. 
B) actual inflation will fall to match expected inflation. 
C) the short-run Phillips curve will be vertical. 
D) the short-run Phillips curve will shift upward.

Question 20

Figure 17-3 
-Refer to Figure 17-3.The shifts shown in the short-run and long-run Phillips curves between period 1 and period 2 could be explained by

Accepted Answer

A) an increase in the expected inflation rate from 4.0 to 5.5 percent. 
B) an increase in the natural rate of unemployment from 5.5 to 6.8 percent. 
C) either an increase in expected inflation from 4.0 to 5.5 percent or an increase in the natural rate of unemployment from 5.5 to 6.8 percent. 
D) None of the above is correct.

Exam 17: Inflation, unemployment, and Federal Reserve Policy

What is the natural rate of unemployment?

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

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

If workers and firms raise their inflation expectations,

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?

Figure 17-1 -Refer to Figure 17-1.Suppose that the economy is currently at point A.If the Federal Reserve engaged in expansionary monetary policy,where would the economy end up in the short run?

What is the natural rate of unemployment?

If the actual rate of inflation exceeds the expected rate of inflation,the actual real wage is greater than the expected real wage and unemployment falls.

Which of the following could increase unemployment and inflation simultaneously?

If expected inflation falls,the long-run Phillips curve will

A relationship that depends on the basic behavior of consumers and firms and remains unchanged over long periods is called a ________ relationship.

An increase in the level of structural unemployment will shift the long-run Phillips curve.

A study conducted by Alberto Alesina and Lawrence Summers concluded that countries with highly independent central banks had ________ than countries whose central banks had little independence.

Figure 17-2 -Refer to Figure 17-2.At which point is the unemployment rate equal to the natural rate of unemployment?

Matt's real wage in 2014 is $26.80.If the price level is 104,what is Matt's nominal wage?

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.

A decrease in the level of cyclical unemployment will shift the long-run Phillips curve.

Contractionary monetary policy will result in

If workers and firms raise their inflation expectations,

Figure 17-3 -Refer to Figure 17-3.The shifts shown in the short-run and long-run Phillips curves between period 1 and period 2 could be explained by