Question 1

The "rational expectations" school of economists, including Robert Lucas and Thomas Sargent, argue that changes in monetary policy cannot affect unemployment rates in the short run or long run.

Accepted Answer

A) True 
 B)False

Question 2

Figure 28-1 
-Refer to Figure 28-1. Suppose that the economy is currently at point A on the short-run Phillips curve in the figure above, and the unemployment rate at A is the natural rate. If the economy was to move to point C, which of the following must be true?

Accepted Answer

A)   The economy is producing a level of GDP equal to potential GDP.
B)   Aggregate demand must have decreased.
C)   Equilibrium GDP at point C must be above potential GDP.
D)   The Fed conducted contractionary policy to cause the move.
E)   The Fed sold treasury bills to cause the move.

Question 3

Figure 28-3 
-Refer to Figure 28-3. The shifts shown in the short-run and long-run Phillips curves between period 1 and period 2 could be explained by

Accepted Answer

A)   an increase in the expected inflation rate from 4.0 to 5.5 percent.
B)   an increase in the natural rate of unemployment from 5.5 to 6.8 percent.
C)   either an increase in expected inflation from 4.0 to 5.5 percent or an increase in the natural rate of unemployment from 5.5 to 6.8 percent.
D)   None of the above is correct.

Question 4

Lucas and Sargent argue that the short-run trade-off between unemployment and inflation is caused by

Accepted Answer

A)   workers and firms using Fed policy to predict inflation.
B)   workers and firms using all the information available to predict inflation.
C)   workers and firms rapidly adjusting wages and prices in response to changes in expectations.
D)   workers and firms being fooled by unexpected changes in monetary policy.

Question 5

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

Accepted Answer

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

Question 6

If the economy is producing ________, unemployment is at its natural rate.

Accepted Answer

A)   at potential GDP
B)   above potential GDP
C)   at an inflation rate of zero
D)   at an unemployment rate of zero

Question 7

Matt's real wage in 2018 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 8

If firms and workers have rational expectations, including knowledge of the policy being used by the Federal Reserve

Accepted Answer

A)   expansionary monetary policy is especially effective.
B)   expansionary monetary policy is ineffective.
C)   expansionary monetary policy is effective in the short run, but not the long run.
D)   expansionary monetary policy is effective in the short run and the long run.

Question 9

If inflationary expectations on the part of the public increase, the trade-off between inflation and unemployment becomes worse.

Accepted Answer

A) True 
 B)False

Question 10

Figure 28-5 
-Refer to Figure 28-5. Consider the Phillips curves shown in the above graph. We can conclude from this graph that

Accepted Answer

A)   the natural rate of unemployment in this economy is 5.5 percent.
B)   the expected rate of inflation in this economy is 10 percent.
C)   ceteris paribus, a fall in the rate of inflation to 5 percent will increase unemployment to 7.5 percent in the short run.
D)   All of the above are correct.

Question 11

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 = 7%.
The natural rate of unemployment = 5.5%.
Last year's inflation rate = 5%.
This year's inflation rate = 4%.

Accepted Answer

If firms and workers have adaptive expec...

Question 12

Shondra's real wage in 2018 is $18.50. If the price level is 106, what is Shondra's nominal wage?

Accepted Answer

A)   $19.61
B)   $18.61
C)   $18.50
D)   $17.44

Question 13

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 14

If actual inflation is less than expected inflation, which of the following will be true?

Accepted Answer

A)   Real wages will rise.
B)   Real wages will fall.
C)   The Phillips curve will be a vertical line.
D)   The unemployment rate will fall.

Question 15

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 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 by the Federal Reserve will move the economy to point C in the long run.

Question 16

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 17

Evidence shows that many people who delay searching for a job for a year or longer after they are laid off

Accepted Answer

A)   find it more difficult to find new employment than if they had searched for a new job soon after they were laid off.
B)   find it easier to find new employment than if they had searched for a new job soon after they were laid off.
C)   find that they have little to no chance to find new employment after being unemployed for so long.
D)   find that the extra unemployment benefits they receive during their extended period of unemployment more than make up for the difficulty in finding a job once they decide to re-enter the workforce.

Question 18

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 19

According to the short-run Phillips curve, if unemployment is 2.4% and inflation is 3.7%, a decrease in the inflation rate might result in which of the following?

Accepted Answer

A)   an increase in the unemployment rate to 3.4%
B)   a decrease in the unemployment rate to 3.0%
C)   a return to the original inflation rate of 3.7%
D)   Both B and C are correct answers.

Question 20

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

Exam 28: Inflation, Unemployment, and Federal Reserve Policy

According to the short-run Phillips curve, if unemployment is 2.4% and inflation is 3.7%, a decrease in the inflation rate might result in which of the following?

Correct Answer
verified

Evidence shows that many people who delay searching for a job for a year or longer after they are laid off

Correct Answer
verified

If firms and workers have rational expectations, including knowledge of the policy being used by the Federal Reserve

Correct Answer
verified

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 C in the long run?

Correct Answer
verified

If changes in inflation are higher than expected

Correct Answer
verified

Matt's real wage in 2018 is $26.80. If the price level is 104, what is Matt's nominal wage?

Correct Answer
verified

If the economy is producing ________, unemployment is at its natural rate.

Correct Answer
verified

Figure 28-5 -Refer to Figure 28-5. Consider the Phillips curves shown in the above graph. We can conclude from this graph that

Correct Answer
verified

Shondra's real wage in 2018 is $18.50. If the price level is 106, what is Shondra's nominal wage?

Correct Answer
verified

Correct Answer
verified

Lucas and Sargent argue that the short-run trade-off between unemployment and inflation is caused by

Correct Answer
verified

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 = 7%. The natural rate of unemployment = 5.5%. Last year's inflation rate = 5%. This year's inflation rate = 4%.

Correct Answer
verified
If firms and workers have adaptive expec...
View Answer

If inflationary expectations on the part of the public increase, the trade-off between inflation and unemployment becomes worse.

Correct Answer
verified

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

Correct Answer
verified

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 .

Correct Answer
verified

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

Correct Answer
verified

If actual inflation is less than expected inflation, which of the following will be true?

Correct Answer
verified

Figure 28-3 -Refer to Figure 28-3. The shifts shown in the short-run and long-run Phillips curves between period 1 and period 2 could be explained by

Correct Answer
verified

The "rational expectations" school of economists, including Robert Lucas and Thomas Sargent, argue that changes in monetary policy cannot affect unemployment rates in the short run or long run.

Correct Answer
verified

Figure 28-1 -Refer to Figure 28-1. Suppose that the economy is currently at point A on the short-run Phillips curve in the figure above, and the unemployment rate at A is the natural rate. If the economy was to move to point C, which of the following must be true?

Correct Answer
verified

Exam 28: Inflation, Unemployment, and Federal Reserve Policy

According to the short-run Phillips curve, if unemployment is 2.4% and inflation is 3.7%, a decrease in the inflation rate might result in which of the following?

Correct AnswerverifiedShow Answer

Evidence shows that many people who delay searching for a job for a year or longer after they are laid off

Correct AnswerverifiedShow Answer

If firms and workers have rational expectations, including knowledge of the policy being used by the Federal Reserve

Correct AnswerverifiedShow Answer

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 C in the long run?

Correct AnswerverifiedShow Answer

If changes in inflation are higher than expected

Correct AnswerverifiedShow Answer

Matt's real wage in 2018 is $26.80. If the price level is 104, what is Matt's nominal wage?

Correct AnswerverifiedShow Answer

If the economy is producing ________, unemployment is at its natural rate.

Correct AnswerverifiedShow Answer

Figure 28-5 -Refer to Figure 28-5. Consider the Phillips curves shown in the above graph. We can conclude from this graph that

Correct AnswerverifiedShow Answer

Shondra's real wage in 2018 is $18.50. If the price level is 106, what is Shondra's nominal wage?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Lucas and Sargent argue that the short-run trade-off between unemployment and inflation is caused by

Correct AnswerverifiedShow Answer

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 = 7%. The natural rate of unemployment = 5.5%. Last year's inflation rate = 5%. This year's inflation rate = 4%.

Correct AnswerverifiedIf firms and workers have adaptive expec...View AnswerShow Answer

If inflationary expectations on the part of the public increase, the trade-off between inflation and unemployment becomes worse.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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 ________.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If actual inflation is less than expected inflation, which of the following will be true?

Correct AnswerverifiedShow Answer

Figure 28-3 -Refer to Figure 28-3. The shifts shown in the short-run and long-run Phillips curves between period 1 and period 2 could be explained by

Correct AnswerverifiedShow Answer

The "rational expectations" school of economists, including Robert Lucas and Thomas Sargent, argue that changes in monetary policy cannot affect unemployment rates in the short run or long run.

Correct AnswerverifiedShow Answer

Figure 28-1 -Refer to Figure 28-1. Suppose that the economy is currently at point A on the short-run Phillips curve in the figure above, and the unemployment rate at A is the natural rate. If the economy was to move to point C, which of the following must be true?

Correct AnswerverifiedShow Answer

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Correct Answer
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Correct Answer
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If firms and workers have adaptive expec...
View Answer

Correct Answer
verified

Correct Answer
verified

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 .

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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