Question 1

During a time when the inflation rate is increasing each year for a number of years,are adaptive expectations or rational expectations likely to give the more accurate forecasts? Briefly explain.

Accepted Answer

Rational expectations are likely to give...

Question 2

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

Accepted Answer

A)  had adaptive expectations.
B)  had rational expectations but didn't trust Fed announcements.
C)  preferred high unemployment to high inflation.
D)  Both A and B are correct answers.E) All of the above
F) A) and C)

Question 3

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 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.E) A) and B)
F) All of the above

Question 5

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 = 4%.
The natural rate of unemployment = 6%.
Last year's inflation rate = 3%.
This year's inflation rate = 4%.

Accepted Answer

If firms and workers have adaptive expec...

Question 6

The expansionary monetary and fiscal policies of the 1960s resulted in

Accepted Answer

A)  high inflation rates and high rates of unemployment.
B)  low inflation rates and low rates of unemployment.
C)  low inflation rates and high rates of unemployment.
D)  high inflation rates and low rates of unemployment.E) B) and C)
F) A) and D)

Question 7

If the Federal Reserve attempts to continue reducing unemployment by manipulating monetary policy,which of the following would you expect to see?

Accepted Answer

A)  The Fed's policies will be deflationary.
B)  The Fed's policies will be inflationary.
C)  The rate of inflation will fall as the Fed tries to reduce the unemployment rate.
D)  The Fed will reduce the natural rate of unemployment.E) A) and C)
F) A) and D)

Question 8

In the 1960s,many economists and policymakers considered the trade-off between inflation and unemployment revealed in the Phillips curve to be permanent.This belief was challenged by ________,who argued that there is not trade-off between inflation and unemployment in the long run.

Accepted Answer

A)  Robert Lucas and Thomas Sargent
B)  Finn Kydland and Edward Prescott
C)  Paul Samuelson and James Tobin
D)  Milton Friedman and Edmund PhelpsE) C) and D)
F) B) and C)

Question 9

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

Question 10

If firms and workers have rational expectations,including knowledge of the policy being used by the Federal Reserve,the short-run Phillips curve will be

Accepted Answer

A)  negatively sloped.
B)  positively sloped.
C)  vertical.
D)  flatter in the long run than it is in the short run.E) B) and D)
F) A) and D)

Question 11

In which of the following situations might you expect expansionary monetary policy to reduce the unemployment rate?

Accepted Answer

A)  if expectations are rational
B)  if changes in monetary policy are anticipated
C)  if actual inflation is higher than expected
D)  if actual inflation is lower than expectedE) A) and D)
F) A) and B)

Question 12

If the unemployment rate in the economy is steady at 4 percent per year,how does the short-run Phillips curve predict that the inflation rate will be changing,if at all? What will happen if the unemployment rate now rises to 7 percent per year? Assume there are no changes to inflation expectations.Provide an appropriate graph to support your discussion.

Accepted Answer

If the unemployment rate is constant at ...

Question 13

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 yearE) B) and D)
F) None of the above

Question 14

If people assume that future rates of inflation will follow the pattern of inflation rates in the past,they are said to have

Accepted Answer

A)  rational expectations.
B)  adaptive expectations.
C)  unstable expectations.
D)  accommodative expectations.E) A) and B)
F) A) and C)

Question 15

Workers at a local mining company are paid $25.60 per hour,and they have incorporated a 3 percent annual raise in their contracts to account for expected inflation.Explain how unexpected inflation of 5 percent will affect the real wage and the unemployment rate.

Accepted Answer

If actual inflation is 3%,a 3% increase ...

Question 16

Suppose a presidential candidate makes a statement in a debate whereby he promises that he would encourage the Fed to permanently lower the unemployment rate to 3%.His opponent claims that this type of policy idea is mired in the 1960s and would only cause inflation.Explain what the opponent means.

Accepted Answer

An increase in the money supply will rai...

Question 17

If workers and firms expect that inflation will be 3 percent next year,and real wages are not changing over time,by how much will nominal wages increase?

Accepted Answer

A)  3 percent
B)  more than 3 percent
C)  less than 3 percent
D)  depends on actual inflation for next yearE) A) and B)
F) A) and C)

Question 18

An increase in expected inflation will shift the short-run Phillips Curve.

Accepted Answer

A) True 
 B)False

Question 19

Figure 17-9 
-Refer to Figure 17-9.A follower of the new classical macroeconomics would argue that ________ like that pursued by Paul Volcker in 1979,would result in a movement from C to A.

Accepted Answer

A)  expansionary monetary policy
B)  contractionary monetary policy
C)  expansionary fiscal policy
D)  contractionary fiscal policyE) None of the above
F) All of the above

Question 20

Growth in aggregate demand will

Accepted Answer

A)  cause deflation.
B)  increase unemployment.
C)  move the economy to a higher point on the short-run Phillips curve.
D)  cause the short-run Phillips curve to shift to the left.E) B) and D)
F) B) and C)

Exam 17: Inflation, Unemployment, and Federal Reserve Policy

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

Correct Answer
verified

Figure 17-9 -Refer to Figure 17-9.A follower of the new classical macroeconomics would argue that ________ like that pursued by Paul Volcker in 1979,would result in a movement from C to A.

Correct Answer
verified

Correct Answer
verified
If the unemployment rate is constant at ...
View Answer

If workers and firms expect that inflation will be 3 percent next year,and real wages are not changing over time,by how much will nominal wages increase?

Correct Answer
verified

The expansionary monetary and fiscal policies of the 1960s resulted in

Correct Answer
verified

In the 1960s,many economists and policymakers considered the trade-off between inflation and unemployment revealed in the Phillips curve to be permanent.This belief was challenged by ________,who argued that there is not trade-off between inflation and unemployment in the long run.

Correct Answer
verified

During a time when the inflation rate is increasing each year for a number of years,are adaptive expectations or rational expectations likely to give the more accurate forecasts? Briefly explain.

Correct Answer
verified
Rational expectations are likely to give...
View Answer

Suppose a presidential candidate makes a statement in a debate whereby he promises that he would encourage the Fed to permanently lower the unemployment rate to 3%.His opponent claims that this type of policy idea is mired in the 1960s and would only cause inflation.Explain what the opponent means.

Correct Answer
verified
An increase in the money supply will rai...
View 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?

Correct Answer
verified

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

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 = 4%. The natural rate of unemployment = 6%. Last year's inflation rate = 3%. This year's inflation rate = 4%.

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

An increase in expected inflation will shift the short-run Phillips Curve.

Correct Answer
verified

Growth in aggregate demand will

Correct Answer
verified

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

Correct Answer
verified

Workers at a local mining company are paid $25.60 per hour,and they have incorporated a 3 percent annual raise in their contracts to account for expected inflation.Explain how unexpected inflation of 5 percent will affect the real wage and the unemployment rate.

Correct Answer
verified
If actual inflation is 3%,a 3% increase ...
View Answer

If people assume that future rates of inflation will follow the pattern of inflation rates in the past,they are said to have

Correct Answer
verified

In which of the following situations might you expect expansionary monetary policy to reduce the unemployment rate?

Correct Answer
verified

If firms and workers have rational expectations,including knowledge of the policy being used by the Federal Reserve,the short-run Phillips curve will be

Correct Answer
verified

If the Federal Reserve attempts to continue reducing unemployment by manipulating monetary policy,which of the following would you expect to see?

Correct Answer
verified

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

Correct Answer
verified

Exam 17: Inflation, Unemployment, and Federal Reserve Policy

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

Correct AnswerverifiedShow Answer

Figure 17-9 -Refer to Figure 17-9.A follower of the new classical macroeconomics would argue that ________ like that pursued by Paul Volcker in 1979,would result in a movement from C to A.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedIf the unemployment rate is constant at ...View AnswerShow Answer

If workers and firms expect that inflation will be 3 percent next year,and real wages are not changing over time,by how much will nominal wages increase?

Correct AnswerverifiedShow Answer

The expansionary monetary and fiscal policies of the 1960s resulted in

Correct AnswerverifiedShow Answer

In the 1960s,many economists and policymakers considered the trade-off between inflation and unemployment revealed in the Phillips curve to be permanent.This belief was challenged by ________,who argued that there is not trade-off between inflation and unemployment in the long run.

Correct AnswerverifiedShow Answer

During a time when the inflation rate is increasing each year for a number of years,are adaptive expectations or rational expectations likely to give the more accurate forecasts? Briefly explain.

Correct AnswerverifiedRational expectations are likely to give...View AnswerShow Answer

Suppose a presidential candidate makes a statement in a debate whereby he promises that he would encourage the Fed to permanently lower the unemployment rate to 3%.His opponent claims that this type of policy idea is mired in the 1960s and would only cause inflation.Explain what the opponent means.

Correct AnswerverifiedAn increase in the money supply will rai...View AnswerShow 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?

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

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 = 4%. The natural rate of unemployment = 6%. Last year's inflation rate = 3%. This year's inflation rate = 4%.

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

An increase in expected inflation will shift the short-run Phillips Curve.

Correct AnswerverifiedShow Answer

Growth in aggregate demand will

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Workers at a local mining company are paid $25.60 per hour,and they have incorporated a 3 percent annual raise in their contracts to account for expected inflation.Explain how unexpected inflation of 5 percent will affect the real wage and the unemployment rate.

Correct AnswerverifiedIf actual inflation is 3%,a 3% increase ...View AnswerShow Answer

If people assume that future rates of inflation will follow the pattern of inflation rates in the past,they are said to have

Correct AnswerverifiedShow Answer

In which of the following situations might you expect expansionary monetary policy to reduce the unemployment rate?

Correct AnswerverifiedShow Answer

If firms and workers have rational expectations,including knowledge of the policy being used by the Federal Reserve,the short-run Phillips curve will be

Correct AnswerverifiedShow Answer

If the Federal Reserve attempts to continue reducing unemployment by manipulating monetary policy,which of the following would you expect to see?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
If the unemployment rate is constant at ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Rational expectations are likely to give...
View Answer

Correct Answer
verified
An increase in the money supply will rai...
View Answer

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
If actual inflation is 3%,a 3% increase ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified