Question 1

Explain why expansionary monetary policy would not result in reduced unemployment rates if workers and firms have rational expectations.

Accepted Answer

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Question 2

The short-run Phillips curve will not shift unless there is

Accepted Answer

A) an increase in the unemployment rate. 
B) an increase in inflation that is unanticipated. 
C) a decrease in inflation that is unanticipated. 
D) a change in inflation expectations.

Question 3

Where does the short-run Phillips curve intersect the long-run Phillips curve?

Accepted Answer

A) at the point where the rate of inflation and the unemployment rate are equal 
B) at the natural rate of inflation 
C) at the point where actual inflation is equal to expected inflation 
D) There is no intersection between the short-run and long-run Phillips curves.

Question 4

If people assume that future rates of inflation will ________,they are said to have adaptive expectations.

Accepted Answer

A) be higher than inflation rates of the past 
B) follow the pattern of inflation rates in the past 
C) be lower than inflation rates of the past 
D) not be related to inflation rates of the past

Question 5

The curve showing the short-run relationship between the unemployment rate and the inflation rate is called

Accepted Answer

A) the monetary policy curve. 
B) the Phillips curve. 
C) the Sargent curve. 
D) the unemployment curve.

Question 6

Which of the following best explains the negative slope of the short-run Phillips curve?

Accepted Answer

A) Weak growth in aggregate demand keeps the economy below potential GDP,so unemployment rises but inflation falls. 
B) Aggregate demand grows so quickly that the inflation rate rises as unemployment rises. 
C) Long-run aggregate supply increases quickly enough that inflation falls as unemployment also falls. 
D) Short-run aggregate supply increases at the same pace as aggregate demand increases so that inflation and unemployment do not change.

Question 7

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 8

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 9

If the economy experiences a negative supply shock,which of the following will be true?

Accepted Answer

A) Inflation will rise,and real GDP will fall. 
B) Inflation will rise,and real GDP will rise. 
C) Inflation will fall,and real GDP will fall. 
D) Inflation will fall,and real GDP will rise.

Question 10

Figure 17-9 
-Refer to Figure 17-9.A(n)________ would be depicted as a movement from A to D to C.

Accepted Answer

A) supply shock,such as rising oil prices, 
B) increase in aggregate demand 
C) implementation of contractionary monetary policy 
D) increase in short-run aggregate supply

Question 11

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 12

Use the information below to explain adjustments that move the economy to a long-run equilibrium.Assume that firms and workers have adaptive expectations.
The current unemployment rate = 7%.
The natural rate of unemployment = 5.5%.
Last year's inflation rate = 5%.
This year's inflation rate = 4%.

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Question 13

The price level in the economy between 2012 and 2013 rose from 100 to 110.Between 2013 and 2014,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 14

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?

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Question 15

Figure 17-1 
-Refer to Figure 17-1.Suppose that the economy is currently at point A on the short-run Phillips curve in the figure above,and the unemployment rate at A is the natural rate.If the economy was to move to point B,which of the following must be true?

Accepted Answer

A) The economy is producing a level of GDP equal to potential GDP. 
B) Aggregate demand must have increased. 
C) Equilibrium GDP at point B must be below potential GDP. 
D) The Fed conducted expansionary policy to cause the move. 
E) The Fed purchased treasury bills to cause the move.

Question 16

If the unemployment rate in the economy is steady at 4 percent per year,how does the short-run Phillips curve predict that the inflation rate will be changing,if at all? What will happen if the unemployment rate now rises to 7 percent per year? Assume there are no changes to inflation expectations.Provide an appropriate graph to support your discussion.

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Question 17

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 18

If firms and workers have adaptive expectations,what impact will contractionary monetary policy have on inflation,unemployment,and the Phillips curve?

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The answer of If firms and workers have adaptive expectations,what...

Question 19

If people assume that future rates of inflation will follow the pattern of inflation rates in the past,they are said to have

Accepted Answer

A) rational expectations. 
B) adaptive expectations. 
C) unstable expectations. 
D) accommodative expectations.

Question 20

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?

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

Exam 17: Inflation, unemployment, and Federal Reserve Policy