Question 1

A study conducted by Robert Shiller,a Yale Economist,found that a large majority of the public thinks that increases in inflation will not quickly lead to an increase in wages.

Accepted Answer

A) True 
 B)False  True

Question 2

Contractionary monetary policy will result in

Accepted Answer

A)  higher interest rates.
B)  increased rates of inflation.
C)  an upward shift in the short-run Phillips curve.
D)  a leftward shift in the long-run Phillips curve.

Question 3

If firms and workers have adaptive expectations,what impact will contractionary monetary policy have on inflation,unemployment,and the Phillips curve?

Accepted Answer

Adaptive expectations exist when firms a...

Question 4

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 B

Question 5

According to the short-run Phillips curve,which of the following would result in high rates of unemployment?

Accepted Answer

A)  strong increases in aggregate supply
B)  a lower inflation rate
C)  strong increases in aggregate demand
D)  a higher inflation rate

Question 6

Suppose that last year the unemployment rate was 5 percent and the inflation rate was 2.5 percent.If the natural rate of unemployment is 5 percent,how do you expect inflation to change?

Accepted Answer

Inflation is stable when the unemploymen...

Question 7

Figure 17-1 
-Refer to Figure 17-1.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 8

An increase in the level of structural unemployment will shift the long-run Phillips curve.

Accepted Answer

A) True 
 B)False

Question 9

According to the "rational expectations" school of thought in macroeconomics,the short-run Phillips curve is ________ in face of anticipated changes in monetary policy.

Accepted Answer

A)  negatively sloped
B)  positively sloped
C)  vertical
D)  horizontal

Question 10

In an effort to discover whether or not workers understand inflation,economist Robert Shiller conducted a survey.When asked about the effect of general inflation on their wages or salary,the most popular response coming from workers was,

Accepted Answer

A)  "My wages usually catch up to rising prices within a year."
B)  "The price increase will create extra profit for my employer....There will be no affect on my pay."
C)  "My wages have always increased by more than the rate of inflation."
D)  None of the above is correct.

Question 11

According to the "rational expectations" school of thought in macroeconomics,the short-run Phillips curve is ________ in face of unanticipated changes in monetary policy.

Accepted Answer

A)  negatively sloped
B)  positively sloped
C)  vertical
D)  horizontal

Question 12

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 expected rate of inflation is 5.5%.
B)  The current unemployment rate is equal to the natural rate of unemployment.
C)  The current unemployment rate is 3.8%.
D)  Actual inflation is 1%.
E)  The economy will move from A to B.

Question 13

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 14

According to the ________ Phillips curve,the unemployment rate and the inflation rate are negatively related.

Accepted Answer

A)  long-run
B)  short-run
C)  long-run and short-run
D)  rational expectations

Question 15

What is the relationship between the short-run Phillips curve and the long-run Phillips curve?

Accepted Answer

Along the short-run Phillips curve,the e...

Question 16

When will a decrease in aggregate demand not result in a lower inflation rate in the short run?

Accepted Answer

A decrease in aggregate demand will not ...

Question 17

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

Accepted Answer

A)  The expected rate of inflation is 3%.
B)  The natural rate of unemployment is 3.8%.
C)  The current unemployment rate is 5%.
D)  The economy is producing at potential GDP.
E)  Expected inflation and actual inflation are the same.

Question 18

Figure 17-2 
-Refer to Figure 17-2.At which point are inflation expectations equal to the actual inflation rate?

Accepted Answer

A)  A
B)  B
C)  C
D)  all of the above

Question 19

If the Federal Reserve announces that its target for the federal funds rate is falling from 3 percent to 2.25 percent,how do you expect workers and firms to react?

Accepted Answer

A)  As long as the Fed's announcement is credible,workers and firms will decrease their consumption and investment spending,which will decrease aggregate demand and inflation.
B)  As long as the Fed's announcement is credible,workers and firms will increase their consumption and investment spending,which will increase aggregate demand and inflation.
C)  If the Fed's announcement is not credible,workers and firms will not expect inflation to rise so they will increase their consumption and investment spending,which will decrease aggregate demand and increase inflation.
D)  Workers and firms will incorporate the decrease in interest rates into their expectations of inflation,and they will expect inflation to fall as a result of Fed's policy announcement.

Question 20

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

Exam 17: Inflation,unemployment,and Federal Reserve Policy

A study conducted by Robert Shiller,a Yale Economist,found that a large majority of the public thinks that increases in inflation will not quickly lead to an increase in wages.

Correct AnswerverifiedTrue

Contractionary monetary policy will result in

Correct AnswerverifiedShow Answer

If firms and workers have adaptive expectations,what impact will contractionary monetary policy have on inflation,unemployment,and the Phillips curve?

Correct AnswerverifiedAdaptive expectations exist when firms a...View AnswerShow Answer

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

Correct AnswerverifiedB

According to the short-run Phillips curve,which of the following would result in high rates of unemployment?

Correct AnswerverifiedShow Answer

Suppose that last year the unemployment rate was 5 percent and the inflation rate was 2.5 percent.If the natural rate of unemployment is 5 percent,how do you expect inflation to change?

Correct AnswerverifiedInflation is stable when the unemploymen...View AnswerShow Answer

Figure 17-1 -Refer to Figure 17-1.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

An increase in the level of structural unemployment will shift the long-run Phillips curve.

Correct AnswerverifiedShow Answer

According to the "rational expectations" school of thought in macroeconomics,the short-run Phillips curve is ________ in face of anticipated changes in monetary policy.

Correct AnswerverifiedShow Answer

In an effort to discover whether or not workers understand inflation,economist Robert Shiller conducted a survey.When asked about the effect of general inflation on their wages or salary,the most popular response coming from workers was,

Correct AnswerverifiedShow Answer

According to the "rational expectations" school of thought in macroeconomics,the short-run Phillips curve is ________ in face of unanticipated changes in monetary policy.

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

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

Correct AnswerverifiedShow Answer

According to the ________ Phillips curve,the unemployment rate and the inflation rate are negatively related.

Correct AnswerverifiedShow Answer

What is the relationship between the short-run Phillips curve and the long-run Phillips curve?

Correct AnswerverifiedAlong the short-run Phillips curve,the e...View AnswerShow Answer

When will a decrease in aggregate demand not result in a lower inflation rate in the short run?

Correct AnswerverifiedA decrease in aggregate demand will not ...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Figure 17-2 -Refer to Figure 17-2.At which point are inflation expectations equal to the actual inflation rate?

Correct AnswerverifiedShow Answer

If the Federal Reserve announces that its target for the federal funds rate is falling from 3 percent to 2.25 percent,how do you expect workers and firms to react?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedB

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True

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Adaptive expectations exist when firms a...
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The curve showing the short-run relationship between the and the is called the Phillips curve.

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B

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Inflation is stable when the unemploymen...
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Along the short-run Phillips curve,the e...
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A decrease in aggregate demand will not ...
View Answer

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B