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Exam 17: Inflation, unemployment, and Federal Reserve Policy

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Question 71

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Over the past two decades,whenever changes in Fed policy have been announced,

A) the changes have actually taken place.
B) a majority of lawmakers did not believe the changes would actually take place.
C) the changes have rarely taken place.
D) Congress has taken steps to negate the changes more than 50 percent of the time.

E) A) and B)
F) A) and C)

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Question 72

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A reduction in the rate of inflation is referred to as

A) unemployment.
B) recession.
C) disinflation.
D) deflation.

E) All of the above
F) None of the above

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Question 73

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The experience of Paul Volcker's fight against inflation during the late 1970s and early 1980s indicates that firms and workers may have

Assume the actual unemployment rate is equal to the nonaccelerating inflation rate of unemployment (NAIRU) of 5 percent.If the Fed wants to raise the inflation rate permanently from 1 percent to 3 percent,it should ________ the target for the federal funds rate so the economy's equilibrium moves ________ along the short-run Phillips curve.

Employees at the university have negotiated a 5 percent increase in wages for the next year,based on their inflation expectations.If inflation is actually 6 percent over the next year,which of the following will occur?

Figure 28-2 -Refer to Figure 28-2.Suppose the economy is at point C.If the Fed decreases the money supply so that inflation falls,the economy will ________ in the long run,holding all else constant.

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

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.

Growth in aggregate demand will

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

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.

What is a "structural" relationship?

Figure 28-4 -Refer to Figure 28-4.Fed Chairman Paul Volcker's response to high inflation of the late 1970s is depicted in the figure above as a movement from ________.

Figure 28-4 -Refer to Figure 28-4.A follower of the new classical macroeconomics would argue that a contractionary monetary policy to lower inflation after a supply shock,like that pursued by Volcker in 1979,would result in a movement from ________.

A decrease in the level of cyclical unemployment will shift the long-run Phillips curve.