Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

What can the Federal Reserve do to reduce the natural rate of unemployment?

Accepted Answer

A)  nothing 
B)  follow expansionary monetary policy that will increase inflation 
C)  follow expansionary monetary policy that will reduce inflation 
D)  follow contractionary monetary policy that will increase inflation

Question 3

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 4

If workers and firms ignore inflation or form their inflation expectations adaptively,expansionary monetary policy will lower unemployment permanently.

Accepted Answer

A) True 
 B)False

Question 5

The natural rate of unemployment is fixed and unchanging.

Accepted Answer

A) True 
 B)False

Question 6

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 7

Which of the following would be the source of a "real" business cycle?

Accepted Answer

A)  changes in technology 
B)  anticipated expansionary monetary policy 
C)  unanticipated expansionary monetary policy 
D)  unanticipated contractionary monetary policy

Question 8

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 9

Figure 28-2 
-Refer to Figure 28-2.The nonaccelerating inflation rate of unemployment,or NAIRU,is associated with which point rate in the figure above?

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  all of the above

Question 10

A higher inflation rate can lead to lower unemployment if ________ mistakenly expect the inflation rate to be lower than it turns out to be.

Accepted Answer

A)  workers, but not employers 
B)  employers, but not workers 
C)  both workers and employers 
D)  neither workers nor employers

Question 11

Matt's real wage in 2012 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 12

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.

Question 13

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 14

The expansionary monetary and fiscal policies of the 1960s resulted in

Accepted Answer

A)  high inflation rates and high rates of unemployment. 
B)  low inflation rates and low rates of unemployment. 
C)  low inflation rates and high rates of unemployment. 
D)  high inflation rates and low rates of unemployment.

Question 15

What is the NAIRU?

Accepted Answer

A)  the natural accelerating inflation rate of unemployment 
B)  the nonaccelerating inflation rate of unemployment 
C)  the nongovernmental agency of inflationary rate unions 
D)  the new accrual index of real unemployment

Question 16

Figure 28-1 
-Refer to Figure 28-1.Suppose that the economy is currently at point A,and the unemployment rate at A is the natural rate.What policy would the Federal Reserve pursue if it wanted the economy to move to point B in the long run?

Accepted Answer

A)  Buy treasury bills. 
B)  Sell treasury bills. 
C)  Raise the discount rate. 
D)  Decrease the money supply. 
E)  No policy will move the economy to point B in the long run.

Question 17

The short-run Phillips curve will shift if 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 18

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 19

The long-run aggregate supply curve is ________,while the long-run Phillips curve is ________.

Accepted Answer

A)  positively sloped; negatively sloped 
B)  vertical; negatively sloped 
C)  vertical; also vertical 
D)  positively sloped; positively sloped

Question 20

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

Exam 28: Inflation, unemployment, and Federal Reserve Policy

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

What can the Federal Reserve do to reduce the natural rate of unemployment?

What is the natural rate of unemployment?

If workers and firms ignore inflation or form their inflation expectations adaptively,expansionary monetary policy will lower unemployment permanently.

The natural rate of unemployment is fixed and unchanging.

A decrease in expected inflation will

Which of the following would be the source of a "real" business cycle?

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?

Figure 28-2 -Refer to Figure 28-2.The nonaccelerating inflation rate of unemployment,or NAIRU,is associated with which point rate in the figure above?

A higher inflation rate can lead to lower unemployment if ________ mistakenly expect the inflation rate to be lower than it turns out to be.

Matt's real wage in 2012 is $26.80.If the price level is 104,what is Matt's nominal wage?

If changes in inflation are higher than expected,

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

The expansionary monetary and fiscal policies of the 1960s resulted in

What is the NAIRU?

Figure 28-1 -Refer to Figure 28-1.Suppose that the economy is currently at point A,and the unemployment rate at A is the natural rate.What policy would the Federal Reserve pursue if it wanted the economy to move to point B in the long run?

The short-run Phillips curve will shift if there is

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?

The long-run aggregate supply curve is ,while the long-run Phillips curve is .

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