Exam 14: Macroeconomic Policy: Challenges in a Global Economy

Suppose the economy is at the natural rate of unemployment, but it's an election year and expansionary policies are used to reduce the unemployment rate. If inflation now exceeds expected inflation, real wages have _____ and workers will demand _____ in their nominal wages.

If worker productivity increases enough to offset any wage increase, then product prices can remain stable.

Rating companies gave too few collateralized debt obligations a AAA rating.

When labor demand rises, unemployment _____ and wages _____.

Deflation can be good because it reduces the burden of existing debt.

(Figure: Aggregate Supply and Demand Shifts) The economy is originally at its long-run equilibrium, SRAS₀ and AD₀. Government policymakers signal that they intend to reduce aggregate demand from AD₀ to AD₁. If we assume that individuals have rational expectations, then the shift from SRAS₀ to SRAS₁ will happen

If policymakers are successful at reducing inflationary expectations the

John and Angel are having an argument over future inflation rates. John thinks the rate will be 3%, because inflation has not exceeded that rate in more than a decade. Angel points out that the chairman of the Federal Reserve testified before Congress last week that she thinks the unemployment rate is too far above its natural rate and thus that the economy should be stimulated. John is using _____ expectations and Angel is relying on _____ expectations.

When the cost of health care increases, Medicare payments

According to the equation for the Phillips curve, if nominal wages and labor productivity both increase by 3%, then the inflation rate _____ and unemployment _____.

Suppose the economy is currently in equilibrium, with unemployment equal to the natural rate, and that people form expectations rationally. If the Federal Reserve announces that it is going to decrease the money supply, then the economy will

If policymakers use contractionary policy to reduce inflation, the unemployment rate will be

The decrease in short-run aggregate supply during the Great Recession was caused by

What problems will we face if world demand for U.S. Treasuries falls?

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

Explain how recent increases in productivity drive jobless recoveries.

Adaptive expectations theory describes the use of _____ to form expectations of inflation.

The natural rate of unemployment is the rate at which inflation equals expected inflation, resulting in zero price pressures in the economy.

If policymakers were using the Phillips curve and wished to decrease inflation to near zero, they would

According to the equation for the Phillips curve, if nominal wages and labor productivity both rise by 3%