Exam 14: Macroeconomic Policy: Challenges in a Global Economy

(Figure: Policy Changes in the Short Run) To move the economy from point a to point b in the short run, policymakers implement _____ monetary policy, thereby accepting _____ to reduce _____.

If workers fail to anticipate inflation increases, their real wages are likely to fall.

According to the original Phillips curve, there is an inverse relationship between money wages and the unemployment level.

One of the problems with deflation is that it

Explain how changing employment practices drive jobless recoveries.

Which action was NOT taken in response to the financial crisis?

The risk of highly leveraged investments is that a small decrease in price can amplify one's losses.

If the rational expectations theory is correct, the Federal Reserve's announced policies will be

According to the equation for the Phillips curve, if wages increase by 5% and productivity decreases by 2%, then inflation will be

The long-run Phillips curve shows

The shift outward in the Phillips curve in the 1970s was caused by the

According to the equation for the Phillips curve, if wages rise by 2%, inflation

Which of these is NOT a cost of using fiscal or monetary policy to address a jobless recovery?

(Figure: Determining Long-Run and Short-Run Economic Shifts) Starting at point J, the economy will move to point _____ in the long run if policymakers reduce aggregate demand.

In effect, the Phillips curve framework implies that to fight inflationary expectations, policymakers must

An increase in worker productivity would cause the Phillips curve to

Who will NOT be hurt if the United States monetizes its debt?

One of the trigger points for the financial crisis of 2007-2009 was that Congress failed to balance the federal budget.

An important implication of the long-run Phillips curve is that monetary and demand-side fiscal policies work well in reducing the natural rate of unemployment.

Wall Street ratings firms had an incentive to give overly glowing ratings to collateralized debt obligations because the firm received a higher fee for giving higher ratings.