Exam 14: Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Suppose workers expect the inflation rate to be 3.6 percent and they receive a nominal wage increase of 7.5 percent. If the actual inflation rate turns out to be 2.8 percent, workers will receive a lower real wage than expected.

Following an unexpected decline in aggregate demand, once production cutbacks start offsetting rising inventory levels:

The reservation wage is the minimum wage rate that an unemployed worker must receive before employment is accepted.

The long-run Phillips curve indicates that the consequences of trying to reduce unemployment below its natural rate would be:

If workers realize that an increase in nominal wage rates does not necessarily constitute a rise in real wages, then we would expect:

According to the rational expectations view, _____.

In the short run, an expansionary monetary policy by the Fed would:

Contrary to what believers in the Phillips curve would say, U.S. economic data from 1955 to 2000 show evidence of:

If nominal wage rates are contractually determined and cannot change in the short run, then an unexpected increase in the inflation rate will:

One factor that explains the short-run trade-off between inflation and unemployment is labor contracts that fix wages for an extended period of time.

A time-inconsistent monetary policy is one that:

More stable macroeconomic policy does not contribute to less variability in real output.

If the short-run Phillips curve shifts to the right, we can conclude that:

Figure 14.4 -Refer to Figure 14.4. Suppose the rational expectations hypothesis holds, and the Fed implements a fully expected increase in money supply growth. Starting from point C in the short run, the economy will tend to move to:

Suppose the inflation rate has risen 0.5 percent a year for the past three years. Using this experience an individual forecasts a 0.5 percent rise in the coming year's inflation rate. This is an example of:

Critics of the Federal Reserve maintain that, to correct the credibility problem of monetary policy, the Fed should:

What is the difference between the short-run Phillips curve and the long-run Phillips curve?

Which of the following shifts the aggregate supply curve to the left?

When the money supply increases by $5 billion, tax revenues are $10 billion, and government borrowing is $30 billion, government spending must equal:

Since the growth in the money supply is unrelated to government spending, fiscal policy and monetary policy can be conducted independently.