Question 1

Figure 17-9 
-Refer to Figure 17-9.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 2

Empirical evidence shows that the short-run Phillips curve was vertical during the 1950s and 1960s.

Accepted Answer

A) True 
 B)False

Question 3

What actions could the Federal Reserve take to achieve consistent growth in real GDP at 4 percent per year?

Accepted Answer

A)  The Fed could increase the growth rate of the money supply by 1% each year until the inflation rate was exactly equal to 4 percent.
B)  The Fed could maintain a growth rate of the money supply of 4 percent,regardless of whether inflation was rising or falling in the economy.
C)  The Fed could follow contractionary monetary policy that would reduce the federal funds rate to zero so investment will rise consistently.
D)  The Fed has no direct control over real GDP in the long run,so there are no actions it could take to achieve that goal.

Question 4

The natural rate of unemployment is the rate that exists when the economy is producing at potential GDP.

Accepted Answer

A) True 
 B)False

Question 5

Forward guidance refers to central banks

Accepted Answer

A)  setting long-term interest rates.
B)  telling the public what future monetary policy will be.
C)  simultaneously reducing unemployment and inflation.
D)  engaging in monetary policy to offset the negative side-effects of the government's fiscal policies.

Question 6

Shondra's real wage in 2016 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 7

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 8

Does the short-run Phillips curve have a positive or negative slope? Explain how this slope is derived.

Accepted Answer

The short-run Phillips curve has a negat...

Question 9

What impact does monetary policy have on the long-run Phillips curve?

Accepted Answer

A)  Monetary policy can only shift the long-run Phillips curve to the left.
B)  Monetary policy shifts the long-run Phillips curve to the right or left,depending on whether monetary policy is expansionary or contractionary.
C)  Monetary policy can only shift the long-run Phillips curve to the right.
D)  Monetary policy has no impact on the long-run Phillips curve.

Question 10

In the long run,the Phillips curve is a ________ at ________.

Accepted Answer

A)  horizontal line;0% inflation
B)  negatively sloped line;the intersection of aggregate demand and short-run aggregate supply
C)  vertical line;the natural rate of unemployment
D)  vertical line;the expected rate of inflation

Question 11

Even if expectations of inflation are rational,sluggish adjustment of wages and prices will still create a short-run trade-off between inflation and unemployment.

Accepted Answer

A) True 
 B)False

Question 12

Fed Chairman Alan Greenspan managed to keep the rate of inflation low as the economy was growing at a brisk pace by setting and hitting low money supply growth rate targets.

Accepted Answer

A) True 
 B)False

Question 13

If the long-run aggregate supply curve is vertical,

Accepted Answer

A)  the economy stays at the natural rate of inflation in the long run.
B)  the short-run Phillips curve must be vertical.
C)  unemployment and inflation are positively related in the long run.
D)  the trade-off between unemployment and inflation cannot be permanent.

Question 14

If the current unemployment rate is 5%,under which of the following circumstances would you expect the Fed to use expansionary 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 15

If expected inflation falls,the long-run Phillips curve will

Accepted Answer

A)  shift to the right.
B)  not be affected.
C)  shift to the left.
D)  become negatively sloped.

Question 16

What action should the Fed take if it wants to move from a point on the short-run Phillips curve representing low unemployment and high inflation to a point representing higher unemployment and lower inflation?

Accepted Answer

The Fed would undertake a contractionary...

Question 17

The long-run aggregate supply curve is ________,while the long-run Phillips curve is ________.

Accepted Answer

A)  positively sloped;negatively sloped
B)  vertical;negatively sloped
C)  vertical;also vertical
D)  positively sloped;positively sloped

Question 18

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 19

Figure 17-2 
-Refer to Figure 17-2.Suppose the economy is at point A in the figure above.Which of the following is true?

Accepted Answer

A)  The short-run Phillips curve will shift to the right.
B)  The short-run Phillips curve will shift to the left.
C)  The long-run Phillips curve will shift to the left.
D)  Actual inflation and expected inflation are the same.
E)  The long-run Phillips curve will shift to the right.

Question 20

What can the Federal Reserve do to increase the natural rate of unemployment?

Accepted Answer

A)  nothing
B)  follow expansionary monetary policy that will increase inflation
C)  follow contractionary monetary policy that will reduce inflation
D)  follow contractionary monetary policy that will increase inflation

Exam 17: Inflation,unemployment,and Federal Reserve Policy

If the current unemployment rate is 5%,under which of the following circumstances would you expect the Fed to use expansionary monetary policy?

Correct AnswerverifiedShow Answer

Forward guidance refers to central banks

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What action should the Fed take if it wants to move from a point on the short-run Phillips curve representing low unemployment and high inflation to a point representing higher unemployment and lower inflation?

Correct AnswerverifiedThe Fed would undertake a contractionary...View AnswerShow Answer

Empirical evidence shows that the short-run Phillips curve was vertical during the 1950s and 1960s.

Correct AnswerverifiedShow Answer

Figure 17-2 -Refer to Figure 17-2.Suppose the economy is at point A in the figure above.Which of the following is true?

Correct AnswerverifiedShow Answer

What actions could the Federal Reserve take to achieve consistent growth in real GDP at 4 percent per year?

Correct AnswerverifiedShow Answer

Figure 17-9 -Refer to Figure 17-9.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

Even if expectations of inflation are rational,sluggish adjustment of wages and prices will still create a short-run trade-off between inflation and unemployment.

Correct AnswerverifiedShow Answer

What impact does monetary policy have on the long-run Phillips curve?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Fed Chairman Alan Greenspan managed to keep the rate of inflation low as the economy was growing at a brisk pace by setting and hitting low money supply growth rate targets.

Correct AnswerverifiedShow Answer

Shondra's real wage in 2016 is $18.50.If the price level is 106,what is Shondra's nominal wage?

Correct AnswerverifiedShow Answer

What can the Federal Reserve do to increase the natural rate of unemployment?

Correct AnswerverifiedShow Answer

The natural rate of unemployment is the rate that exists when the economy is producing at potential GDP.

Correct AnswerverifiedShow Answer

If the long-run aggregate supply curve is vertical,

Correct AnswerverifiedShow Answer

The long-run aggregate supply curve is ________,while the long-run Phillips curve is ________.

Correct AnswerverifiedShow Answer

When unemployment is above its natural rate,the inflation rate will eventually

Correct AnswerverifiedShow Answer

If expected inflation falls,the long-run Phillips curve will

Correct AnswerverifiedShow Answer

In the long run,the Phillips curve is a ________ at ________.

Correct AnswerverifiedShow Answer

Does the short-run Phillips curve have a positive or negative slope? Explain how this slope is derived.

Correct AnswerverifiedThe short-run Phillips curve has a negat...View AnswerShow Answer

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The Fed would undertake a contractionary...
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The long-run aggregate supply curve is ,while the long-run Phillips curve is .

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In the long run,the Phillips curve is a at .

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The short-run Phillips curve has a negat...
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