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

The introduction of a new currency is generally sufficient to achieve a permanent reduction in the inflation rate.

The long-run Phillips curve is a horizontal line at the natural rate of unemployment.

In the 1980s, U.S. economists acknowledged that it was not possible to exploit the trade-off suggested by the Philips curve of the 1960s. This realization led to more stable macroeconomic policy, which in turn contributed to:

In the short run, a decline in aggregate demand would be associated with:

When aggregate demand is lower than expected, inventories decline and the rate of unemployment falls.

The figure given below depicts the equilibrium level of real GDP and the price level in an economy, derived from the aggregate demand aggregate supply model.?Figure 14.3 -Refer to Figure 14.3. Consider that the economy initially operates at point A. Therefore, according to the theory of rational expectations, an unanticipated increase in consumer confidence will cause the economy to move along the path:

The Phillips curve is named after the economist A. W. Phillips, who found that there is:

Consider an economy in equilibrium, and assume no change in aggregate demand. An earthquake that destroys many factories across the country would result in a(n):

During the 1970s, real shocks to the U.S. economy caused:

Figure 14.4 -Refer to Figure 14.4. If the adaptive expectations hypothesis holds, and the economy moves from point C to point D because of expansionary fiscal policy, what rate of inflation are people expecting at point D?

Business inventories tend to fall after an unexpected increase in aggregate demand.

Irrespective of whether the inflation rate is high or low, if the inflation rate is above the expected level, the unemployment rate in the economy will remain stable.

A look at macroeconomic data across countries reveals that when economies experience recessions, unemployment rates rise, but wages fall very little, if at all. Which of the following is most likely to support this observation?

If the government fiscal deficit equals $78 billion, government borrowing equals $38 million, and tax revenue equals $92 billion, what is the value of the change in the money supply?

Identify the correct statement.

In the long run, the economy is better off if policymakers exploit the short-run trad-eoff between inflation and the unemployment rate.

Figure 14.4 -Refer to Figure 14.4. Suppose the economy is operating at point A, but the government increases spending because it believes that 6 percent unemployment is unacceptably high. If the adaptive expectations hypothesis holds, in the short run, the economy will move to: