Question 1

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 2

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 3

Workers and firms are currently expecting the price level to increase from 110 to 114.The Federal Reserve then announces that it will be reducing the growth rate of the money supply.If the Fed's announcement is credible,and firms and workers have rational expectations,describe how the expectations of firms and workers will be affected and how the change in expectations will affect the unemployment rate.

Accepted Answer

The answer of Workers and firms are currently expecting the...

Question 4

If actual inflation is less than expected inflation,actual real wages will be ________ expected real wages and unemployment will ________.

Accepted Answer

A) greater than;rise 
B) greater than;fall 
C) less than;rise 
D) less than;fall

Question 5

Figure 17-1 
-Refer to Figure 17-1.Suppose that the economy is currently at point A.If the Federal Reserve engaged in contractionary monetary policy,where would the economy end up in the short run?

Accepted Answer

A) It would remain at point A. 
B) point B 
C) point C 
D) point D 
E) point E

Question 6

Can the Federal Reserve achieve both low inflation and low levels of unemployment? Explain.

Accepted Answer

The answer of Can the Federal Reserve achieve both low...

Question 7

Figure 17-1 
-Refer to Figure 17-1.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 C in the long run?

Accepted Answer

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

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

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 will follow deflationary monetary policies. 
B) The Fed will follow inflationary monetary policies. 
C) The rate of inflation will fall as Fed tries to reduce the unemployment rate. 
D) The Fed will reduce the natural rate of unemployment.

Question 10

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 11

Refer to the Article Summary.Senator Pat Toomey brought the Fed's credibility into question when it once again delayed raising interest rates despite several prior announcements alluding to timing for a potential interest rate hike.Prior to this,over the past two decades whenever a change in Fed policy had been announced,the change has ________ taken place,leading to ________ credibility.

Accepted Answer

A) rarely;greater 
B) actually;greater 
C) rarely;less 
D) actually;less

Question 12

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 13

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 = 4%.
The natural rate of unemployment = 6%.
Last year's inflation rate = 3%.
This year's inflation rate = 4%.

Accepted Answer

The answer of Use the information below to explain adjustments...

Question 14

Figure 17-2 
-Refer to Figure 17-2.Suppose the economy is at point A.The Fed uses expansionary monetary policy to lower the unemployment rate permanently below the level associated with A.Which of the following will occur?

Accepted Answer

A) Inflation will accelerate in the long run. 
B) Inflationary expectations will decline. 
C) Unemployment will rise above the natural rate. 
D) Unemployment will accelerate in the long run.

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

If expectations are adaptive,how will the economy adjust to a new long-run equilibrium in response to expansionary monetary policy? Support your answer with a graph of the Phillips curve.

Accepted Answer

The answer of If expectations are adaptive,how will the economy...

Question 17

Gretchen expects the price level to rise from 104 this year to 108 next year,and she is able to incorporate these expectations into her wage contract.If the price level rises to 106 next year instead of 108,which of the following will occur?

Accepted Answer

A) Gretchen's real wage will be unchanged. 
B) Gretchen's real wage will fall. 
C) Gretchen's real wage will rise. 
D) Gretchen's real wage may rise or fall,depending on the unemployment rate.

Question 18

In the decade of the ________,A.W.Phillips plotted data for Great Britain which revealed a relationship between rates of changes in wages versus unemployment rates.Economists later discovered other "Phillips Curve" relationships between rates of inflation versus unemployment rates.

Accepted Answer

A) 1930s 
B) 1940s 
C) 1950s 
D) 1960s

Question 19

If strong aggregate demand is pushing the economy beyond potential real GDP,which of the following must be true?

Accepted Answer

A) The economy is at an equilibrium that is on the long-run aggregate supply curve. 
B) The economy is at an equilibrium that is on the long-run Phillips curve. 
C) The economy is at an equilibrium that is not on the long-run Phillips curve. 
D) Expansionary monetary policies will push the economy back to the long-run Phillips curve.

Question 20

According to real business cycle models,

Accepted Answer

A) the long-run Phillips curve is negatively sloped. 
B) the economy is normally operating below the natural rate of unemployment. 
C) unexpected changes in monetary policy are the major source of fluctuations in real GDP. 
D) the economy is normally at potential GDP.

Exam 17: Inflation,unemployment,and Federal Reserve Policy