Exam 30: Inflation Expectations and Stabilization Policies

. In the self-correction mechanism, due to an increase in aggregate demand, the economy moves from point a to point b. The short-run aggregate supply eventually shifts _____ and the economy shifts to the _____.

In the late 1960s, Milton Friedman and Edmund Phelps identified a major flaw in how economists were looking at the Phillips curve data. Economists were:

(Figure: Expectations 0) In the figure, what is the cause of the movement from point b to c?

When businesses and workers start to expect higher inflation:

During a period of rapidly rising prices, an economy typically would be operating in what portion of its simple Phillips curve?

As a former chair of the Federal Reserve's board of governors, Paul Volcker pursued a _____ monetary policy, which:

The view that past correlations may not apply in the future because policy changes may impact expectations and behavior is consistent with:

Which of the following is NOT likely to happen if the public expects an inflation rate of 8% when the actual rate is 4%?

The natural rate theory is based on the hypothesis that:

(Figure: Demand Shock Alpha) The movement shown in the figure will only increase the unemployment rate if:

(Figure: Expectations A) In the figure, what is the inflation rate at point c?

Wages are most likely to rise during an economic _____ and are most likely to fall during an economic:

According to the expectations-augmented Phillips curve, when unexpected inflation is positive, unemployment will be:

The simple Phillips curve model was _____ with what occurred during the Great Recession because:

Unemployment is higher than the natural rate when:

Which of the following is NOT consistent with the natural rate hypothesis?

Policymakers want to collect 10% more in sales tax revenue next year, and so they raise the sales tax rate by 10% from 5% to 5.5%. Which of the following assessments would be consistent with rational expectations? Next year, sales tax revenue will:

What is nominal GDP targeting?

How is the unexpected inflation rate measured on the expectations-augmented Phillips curve?

Expecting the future to be like the recent past is an approach to forming expectations that economists call _____ expectations.