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

According to the theory of rational expectations, expansionary fiscal policy that is anticipated will:

Following a decline in the inflation rate, once long-term wage contracts are renegotiated and all prices in the economy adjust to their new equilibrium:

Assume that a low-wage contract is in force in the society, and the central bank follows a low-money-growth policy. Which of the following will be observed?

Which of the following factors have not contributed to the "Great Moderation" of real GDP in the U.S. over the past 20 years?

If nominal wages are contractually fixed and cannot change in the short run, then an unexpected decline in the inflation rate will reduce business revenues and lower the unemployment rate.

Suppose workers do not believe the Fed will implement its announced monetary policy plans and the Fed wants to achieve low unemployment. In this situation the Fed would be best off:

Wage contracts force businesses to adjust wages rather than employment in response to an unexpected change in aggregate demand.

A recessionary real shock will:

A sudden technological breakthrough in an economy would:

Consider a nation experiencing the relationship illustrated by the short-run Phillips curve. An increase in both unemployment and inflation in this nation over the next ten years can be explained by:

According to the long-run Phillips curve, which of the following will be the end result of an expansionary monetary policy when unemployment is at its natural rate?

Suppose that an increase in aggregate demand causes an unplanned depletion in business inventories. Which of the following situations will result from this?

The only difference between adaptive and rational expectations is that the theory of adaptive expectations assumes economic agents to be irrational.

The long-run Phillips curve assumes that every unemployed worker who is looking for a job has a constant reservation wage.

Suppose the inflation rate has been 6 percent over the past four years. If the Federal Reserve announces an increase in the growth of the money supply, adaptive expectations would predict an inflation rate of 6 percent.

Assume that taxes are constant. If the government borrows $17 billion in new funds and has a budget deficit of $35 billion, then the central bank has to:

Suppose that the Fed announces a low-money-growth policy to control inflation and workers sign low-wage contracts as a result. If instead, the Fed had implemented a high-money-growth policy, which of the following would not occur?

In the presence of Regulation Q, when interest rates would rise, _____.

Other things equal, the higher the fiscal deficit, the higher the required increase in base money.

Suppose that a labor union negotiates an increase in wages of 4 percent for the coming year because annual inflation for the past five years has been 4 percent. The expectations formed by the union are: