Question 1

During a time when the inflation rate is increasing each year for a number of years,are adaptive expectations or rational expectations likely to give the more accurate forecasts? Briefly explain.

Accepted Answer

The answer of During a time when the inflation rate...

Question 2

Alejandro expects the price level to rise from 105 this year to 108 next year.If the price level rises to 110 next year instead of 108,which of the following will occur?

Accepted Answer

A) Alejandro's real wage remains unchanged. 
B) Alejandro's real wage falls. 
C) Alejandro's real wage rises. 
D) Alejandro's real wage may rise or fall,depending on the unemployment rate.

Question 3

Figure 17-6 
-Refer to Figure 17-6.If firms and workers have adaptive expectations,an expansionary monetary policy will cause the short-run equilibrium to move from

Accepted Answer

A) point B to point C. 
B) point A to point C. 
C) point A to point B. 
D) point B to point A. 
E) point C to point B.

Question 4

A decrease in cyclical unemployment will

Accepted Answer

A) shift the long-run Phillips curve to the left. 
B) decrease the natural rate of unemployment. 
C) shift the short-run Phillips curve to the left. 
D) All of the above are correct. 
E) None of the above is correct.

Question 5

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 6

Figure 17-9 
-Refer to Figure 17-9.Fed Chairman Paul Volcker's response to high inflation of the late 1970s is depicted in the figure above as a movement from

Accepted Answer

A) A to D to C. 
B) C to B to A. 
C) C to D to A. 
D) C to E to B. 
E) A to B to C.

Question 7

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.

Question 8

In face of a negative supply shock,the Fed may avoid a rise in unemployment only if it is willing to increase the rate of inflation.

Accepted Answer

A) True 
 B)False

Question 9

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 10

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 11

If actual inflation is less than expected inflation,what is the relationship between the actual real wage and the expected real wage?

Accepted Answer

A) The actual real wage is lower than the expected real wage. 
B) The actual real wage is higher than the expected real wage. 
C) The actual real wage is equal to the expected real wage. 
D) The relationship between the actual real wage and the expected real wage cannot be predicted.

Question 12

If rational workers and firms know that the Federal Reserve is following a contractionary monetary policy,they will expect inflation to ________ and will adjust wages so that the real wage ________.

Accepted Answer

A) increase;remains unchanged 
B) decrease;remains unchanged 
C) decrease;increases 
D) increase;decreases

Question 13

Growth in aggregate demand will

Accepted Answer

A) cause deflation. 
B) increase unemployment. 
C) move the economy to a higher point on the short-run Phillips curve. 
D) cause the short-run Phillips curve to shift to the left.

Question 14

In conducting monetary policy,how has the Federal Reserve enhanced its credibility?

Accepted Answer

A) by not following through with changes it has announced 
B) by revealing the Fed's target for the federal funds rate 
C) by keeping the minutes of the open market committee meetings confidential 
D) by marketing and increased expenditure on advertising

Question 15

Monetary policy can

Accepted Answer

A) shift the short-run trade-off between inflation and unemployment if it affects expected inflation. 
B) shift the long-run trade-off between inflation and unemployment through changes in cyclical unemployment. 
C) shift neither the short-run nor long-run Phillips curve trade-offs between inflation and unemployment. 
D) shift both the short-run and long-run trade-offs between inflation and unemployment if changes in policy are credible.

Question 16

If workers and firms expect that inflation will be 5 percent next year,and real wages are not changing over time,by how much will nominal wages increase?

Accepted Answer

A) 5 percent 
B) more than 5 percent 
C) less than 5 percent 
D) depends on actual inflation for next year

Question 17

Which of the following could decrease unemployment and inflation simultaneously?

Accepted Answer

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

Question 18

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 19

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

Accepted Answer

A) "Monetary policies have 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 slowly to changes in inflation as long as expectations are formed rationally." 
D) "Technological shocks to the economy explain deviations of real GDP from its potential level."

Question 20

According to the short-run Phillips curve,the unemployment rate and the inflation rate are

Accepted Answer

A) unrelated. 
B) positively related. 
C) negatively related. 
D) unaffected by monetary policy.

Exam 17: Inflation,unemployment,and Federal Reserve Policy