Question 1

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 2

Figure 28-2 
-Refer to Figure 28-2.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 3

What does it mean to say that workers and firms have rational expectations?

Accepted Answer

The answer of What does it mean to say that...

Question 4

What impact does expansionary monetary policy have on the short-run Phillips curve if consumers and firms expect the expansionary monetary policy to increase inflation?

Accepted Answer

A) The short-run Phillips curve shifts down. 
B) The short-run Phillips curve shifts up. 
C) The short-run Phillips curve becomes the long-run Phillips curve. 
D) The short-run Phillips curve is not affected by expansionary monetary policy.

Question 5

Ceteris paribus,in the short run following a decrease in the rate of growth in aggregate demand,we would expect to see an increase in the rate of unemployment and a decrease in the rate of inflation.

Accepted Answer

A) True 
 B)False

Question 6

When individuals use all available information about an economic variable to make a decision,expectations are

Accepted Answer

A) underestimates of reality. 
B) accurate. 
C) rational. 
D) overestimates of reality.

Question 7

According to ________,the economy is normally at potential GDP.

Accepted Answer

A) the short-run Phillips curve 
B) the adaptive expectations theory 
C) new Keynesian economists 
D) real business cycle models

Question 8

If the Fed decided to reverse its policy actions implemented during the heart of the recession,the Fed would be acting to try to prevent

Accepted Answer

A) a decrease in unemployment. 
B) an increase in unemployment. 
C) an increase in deflation. 
D) an increase in inflation.

Question 9

Figure 28-1 
-Refer to Figure 28-1.What should the Federal Reserve do if it wants to move from point A to point B in the short-run Phillips curve depicted in the figure above?

Accepted Answer

A) buy treasury bills 
B) sell treasury bills 
C) lower the discount rate 
D) increase the money supply 
E) lower taxes

Question 10

If the current unemployment rate is 5%,under which of the following circumstances would you expect the Fed to use expansionary monetary policy?

Accepted Answer

A) if the natural rate of unemployment is below 5% 
B) if the natural rate of unemployment is above 5% 
C) if the inflation rate is above 5% 
D) if the inflation rate is below 5%

Question 11

According to economists Robert Lucas and Thomas Sargent,when are the gains to accurately forecasting inflation highest?

Accepted Answer

A) when inflation is high and unstable 
B) when inflation is low 
C) when inflation is moderate but stable 
D) when inflation is high and stable

Question 12

An increase in the expected inflation rate will

Accepted Answer

A) shift the short-run Phillips curve to the right. 
B) shift the short-run Phillips curve to the left. 
C) reduce the inflation rate. 
D) reduce the unemployment rate.

Question 13

Forward guidance refers to central banks

Accepted Answer

A) setting long-term interest rates. 
B) telling the public what future monetary policy will be. 
C) simultaneously reducing unemployment and inflation. 
D) engaging in monetary policy to offset the negative side-effects of the government's fiscal policies.

Question 14

Figure 28-4 
-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 15

Evidence shows that for many people,delaying searching for a job for a year or longer after they are laid off will contribute to a deterioration of their job skills,making it harder for them to find employment.This deterioration in job skills and the subsequent retraining that is necessary to obtain employment relates to which type of unemployment?

Accepted Answer

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

Question 16

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 17

A study conducted by Robert Shiller,a Yale Economist,found that a large majority of the public thinks that increases in inflation will not quickly lead to an increase in wages.

Accepted Answer

A) True 
 B)False

Question 18

If the Federal Reserve attempts to continue reducing unemployment by manipulating monetary policy,which of the following would you expect to see?

Accepted Answer

A) The Fed's policies will be deflationary. 
B) The Fed's policies will be inflationary. 
C) The rate of inflation will fall as the Fed tries to reduce the unemployment rate. 
D) The Fed will reduce the natural rate of unemployment.

Question 19

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 20

All of the following have enhanced the Fed's credibility in conducting monetary policy except

Accepted Answer

A) following through with changes it has announced. 
B) revealing the Fed's target for the federal funds rate. 
C) making the minutes of the open market committee meetings public. 
D) discontinuing the policy of announcing whether it considered the economy to be at greater risk of inflation or recession following each FOMC meeting.

Exam 28: Inflation, unemployment, and Federal Reserve Policy