Question 1

According to the short-run Phillips curve,which of the following would result in high rates of unemployment?

Accepted Answer

A) strong increases in aggregate supply 
B) a lower inflation rate 
C) strong increases in aggregate demand 
D) a higher inflation rate

Question 2

The price level in the economy between 2014 and 2015 rose from 100 to 110.Between 2015 and 2016,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 3

If the Federal Reserve announces that its target for the federal funds rate is rising from 4 percent to 4.25 percent,how do you expect workers and firms to react?

Accepted Answer

A) As long as the Fed's announcement is credible,workers and firms will increase their consumption and investment spending,which will increase aggregate demand and inflation. 
B) As long as the Fed's announcement is credible,workers and firms will reduce their consumption and investment spending,which will reduce aggregate demand and reduce inflation. 
C) If the Fed's announcement is not credible,workers and firms will not expect inflation to fall so they will reduce their consumption and investment spending,which will increase aggregate demand and reduce inflation. 
D) Workers and firms will incorporate the increase in interest rates into their expectations of inflation,and they will expect inflation to rise as a result of Fed's policy announcement.

Question 4

Workers at a local mining company are paid $25.60 per hour,and they have incorporated a 3 percent annual raise in their contracts to account for expected inflation.Explain how unexpected inflation of 5 percent will affect the real wage and the unemployment rate.

Accepted Answer

The answer of Workers at a local mining company are...

Question 5

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 6

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 7

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 8

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 9

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 10

Employees at the university have negotiated a 5 percent increase in wages for the next year,based on their inflation expectations.If inflation is actually 4 percent over the next year,which of the following will occur?

Accepted Answer

A) Unemployment of university employees will fall. 
B) Real wages for university employees will rise. 
C) Inflation will be 5 percent the following year. 
D) The decrease in inflation is expected.

Question 11

The curve showing the short-run relationship between the ________ and the ________ is called the Phillips curve.

Accepted Answer

A) nominal interest rate;real interest rate 
B) unemployment rate;inflation rate 
C) price level;real GDP 
D) exchange rate;real interest rate

Question 12

If the current unemployment rate is 5%,under which of the following circumstances would you expect the Fed to use contractionary 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 13

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 14

If the economy experiences a(n)________,inflation will rise and real GDP will fall.

Accepted Answer

A) negative supply shock 
B) positive supply shock 
C) increase in short-run aggregate supply 
D) decrease in aggregate demand

Question 15

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.

Accepted Answer

The answer of If the unemployment rate in the economy...

Question 16

The unemployment rate that exists when the economy is at potential GDP is called

Accepted Answer

A) the natural rate of unemployment. 
B) cyclical unemployment. 
C) deflation-based unemployment. 
D) zero-rate unemployment.

Question 17

With which of the following statements would a "real business cycle" theorist most closely agree?

Accepted Answer

A) "Monetary policies have the greatest impact on real GDP when they are anticipated." 
B) "Expansionary monetary policy allows the central bank to control inflation and unemployment simultaneously." 
C) "Wages adjust rapidly to changes in inflation as long as expectations are formed rationally." 
D) "Technological shocks to the economy affect only aggregate demand in the short run."

Exam 28: Inflation, unemployment, and Federal Reserve Policy