Question 1

Figure 28-4
 
-In the short run,the Federal Reserve can affect which of the following?

Accepted Answer

A)   the inflation rate
B)   the unemployment rate
C)   the growth rate of real GDP in the economy
D)   all of the above

Question 2

If actual inflation is greater than expected inflation,

Accepted Answer

A)   real wages rise.
B)   real wages fall.
C)   the Phillips curve is a vertical line.
D)   the unemployment rate rises.

Question 3

Two actions by the Fed during Alan Greenspan's term as chairman have been identified as possibly contributing to the financial crisis in 2008.Which of the following was one of those actions?

Accepted Answer

A)   decreasing the money supply to fight the possibility of disinflation
B)   the decision during 1998 to help save the hedge fund Long Term Capital Management
C)   working in concert with the European Central Bank to stabilize the dollar / euro exchange rate
D)   financing the war in Afghanistan by printing money and generating rapid inflation

Question 4

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 5

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 6

Between July 2010 and July 2011,the Phillips curve data indicated that a rightward shift of the short-run Phillips curve may have begun.If so,this would indicate that

Accepted Answer

A)   the Federal Reserve is attempting to lower the inflation rate.
B)   the federal government has implemented a contractionary fiscal policy.
C)   lower unemployment rates will now be accompanied by lower inflation rates.
D)   workers and firms are expecting the inflation rate to increase.

Question 7

If the Federal Reserve chooses to fight high unemployment with expansionary monetary policy and firms and consumers expect this policy to increase inflation,which of the following would you expect to see?

Accepted Answer

A)   an upward shift of the short-run Phillips curve
B)   a downward shift of the short-run Phillips curve
C)   a decrease in the long-run aggregate supply curve
D)   Both B and C are correct answers.

Question 8

In a survey,Robert Shiller found that most workers believe that an increase in inflation will lead quickly to an increase in wages.

Accepted Answer

A) True 
 B)False

Question 9

Figure 28-4
 
-When unemployment is above its natural rate,the inflation rate will eventually

Accepted Answer

A)   increase.
B)   decrease.
C)   move to its natural rate.
D)   become equal to the natural rate of unemployment.

Question 10

Figure 28-4
 
-A decrease in aggregate demand will

Accepted Answer

A)   cause inflation.
B)   decrease unemployment.
C)   move the economy to a lower point on the short-run Phillips curve.
D)   cause the short-run Phillips curve to shift to the right.

Question 11

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

Expansionary monetary policy increases t...

Question 12

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 will move the economy to point C in the long run.

Question 13

If the actual rate of inflation exceeds the expected rate of inflation,the actual real wage is greater than the expected real wage and unemployment falls.

Accepted Answer

A) True 
 B)False

Question 14

Figure 28-1
 
-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 decrease in the demand for labor in the economy
D)   Both A and C are correct answers.

Question 15

Which of the following is an appropriate policy for a central bank to follow if the economy is plagued with deflation?

Accepted Answer

A)   increasing the target interest rate on overnight loans
B)   using contractionary monetary policy to drive up interest rates
C)   consistently pursuing policy to promote the credibility of the central bank
D)   gradually raising the required reserve rate

Question 16

Figure 28-7
 
-Refer to Figure 28-7. Fed Chairman Paul Volcker's response to the ________ of the late 1970s is depicted in the figure above as a movement from C to D to A.

Accepted Answer

A)   deflation
B)   high unemployment
C)   high inflation
D)   appreciation of the dollar

Question 17

If the economy experiences a ________,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 18

The actual real wage is lower than the expected real wage if

Accepted Answer

A)   actual inflation is less than expected inflation.
B)   expected inflation is less than actual inflation.
C)   actual unemployment is less than expected unemployment.
D)   actual unemployment is less than actual inflation.

Question 19

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 20

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

Accepted Answer

Rational expectations means that workers...

Exam 17: Inflation, unemployment, and Federal Reserve Policy

If the actual rate of inflation exceeds the expected rate of inflation,the actual real wage is greater than the expected real wage and unemployment falls.

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If the Federal Reserve chooses to fight high unemployment with expansionary monetary policy and firms and consumers expect this policy to increase inflation,which of the following would you expect to see?

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Figure 28-4 -A decrease in aggregate demand will

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The actual real wage is lower than the expected real wage if

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Figure 28-7 -Refer to Figure 28-7. Fed Chairman Paul Volcker's response to the ________ of the late 1970s is depicted in the figure above as a movement from C to D to A.

Correct AnswerverifiedShow Answer

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?

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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.

Correct AnswerverifiedShow Answer

Where does the short-run Phillips curve intersect the long-run Phillips curve?

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Which of the following is an appropriate policy for a central bank to follow if the economy is plagued with deflation?

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedExpansionary monetary policy increases t...View AnswerShow Answer

Figure 28-4 -When unemployment is above its natural rate,the inflation rate will eventually

Correct AnswerverifiedShow Answer

Figure 28-4 -In the short run,the Federal Reserve can affect which of the following?

Correct AnswerverifiedShow Answer

Figure 28-1 -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

Between July 2010 and July 2011,the Phillips curve data indicated that a rightward shift of the short-run Phillips curve may have begun.If so,this would indicate that

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedRational expectations means that workers...View AnswerShow Answer

Two actions by the Fed during Alan Greenspan's term as chairman have been identified as possibly contributing to the financial crisis in 2008.Which of the following was one of those actions?

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?

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If actual inflation is greater than expected inflation,

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In a survey,Robert Shiller found that most workers believe that an increase in inflation will lead quickly to an increase in wages.

Correct AnswerverifiedShow Answer

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Expansionary monetary policy increases t...
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Rational expectations means that workers...
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