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

Wages are said to be "sticky downwards" because this promotes good work effort and ensures that workers and firms share the same goals of efficient production and profit maximization.

Worldwide statistics prove that, when economies experience recessions, unemployment rates rise and wages fall.

The figure given below shows the Phillips curves of the U.S. economy during early 1960s to late 1970s.?Figure 14.2 -Refer to Figure 14.2. Following the movement from point A to point B on Phillips curve III, what would cause the Phillips curve to shift up so that 5 percent unemployment is associated with 10 percent inflation?

The figure given below depicts the long run equilibrium in an economy.?Figure 14.1??In the figure:?AD₁ and AD₂: Aggregate demand curves?AS₁ and AS₂: Aggregate supply curves -Refer to Figure 14.1. When the economy moves from point B to point C:

Assume that an unemployed person expects inflation to be 4.5 percent. In reality, inflation turns out to be 2.9 percent. If wage expectations lag behind actual price changes:

To some economists, the "Great moderation" means:

If credible low-money-growth policies were continually pursued by the Fed, nominal wages and prices would eventually fall as the economic agents would expect lower inflation rates over time.

The money supply in an economy increases when, other things equal, _____.

The natural rate of unemployment is defined as the unemployment rate that exists in the absence of:

U.S. economic data from 1955 to 2000 show that both unemployment and inflation rates increased during that period.

The figure given below shows the Phillips curves of the U.S. economy during early 1960s to late 1970s.?Figure 14.2 -Refer to Figure 14.2. If the natural rate of unemployment is 5 percent, which of the following would cause a movement along Phillips curve III from point A to point B?

When aggregate demand declines unexpectedly and wage contracts are fixed, then the average price level will:

The pursuit of low unemployment rates must necessarily result in time-inconsistent government policies.

A recessionary real shock is associated with an outward shift of the short-run Phillips curve and with a leftward shift of the short-run aggregate supply curve.

Government spending can be financed by all of the following, except:

If the actual unemployment rate is below the natural rate of unemployment, then the actual inflation rate must exceed the expected inflation rate, and the economy will be operating along the short-run Phillips curve.

If the public expects the incumbent administration to stimulate the economy shortly before an election:

The shape of the long-run Phillips curve suggests that over a long time horizon there is a magnified trade-off between the unemployment rate and inflation.

The business cycle that results from the election campaign of incumbent politicians is called a:

If the Fed follows a high-growth monetary policy, but workers believe that the policy is time inconsistent, then low-wage contracts will be in force and unemployment will decline.