Exam 16: Stabilization in an Integrated World Economy

-Refer to the above figure. Unexpected contractionary monetary policy has caused the aggregate demand curve to shift to AD₂. In the short run

Assuming that the rational expectations hypothesis is NOT in effect, in the short run an expansionary monetary policy should

The rational expectations hypothesis indicates that a monetary policy designed to alter real Gross Domestic Product (GDP)will fail unless

According to the text, the probability of an unemployed person finding a job doubles when

Which of the following curves shows the relationship between the unemployment rate and the rate of change in the price level?

-Use the above figure. This graph is known as

-Refer to the above figure. Suppose the economy is at point B and the central bank adopts contractionary monetary policy. In the short run, this will result in

Which of the following factors strengthens the case for policy activism?

The short run aggregate supply (SRAS)curve shifts left when oil supply shocks occur because

-Refer to the above figure. Government policy that moved the economy from A to B would be accomplished by

-Refer to the above figure. Unexpected contractionary monetary policy has caused the aggregate demand curve to shift to AD₂. In the short run

When the actual unemployment rate is greater than the NAIRU, the inflation rate

If the average interval between firms' price adjustments is relatively short

Under the rational expectations hypothesis, if wages adjust rapidly to new information about intended policy actions, the only time that changes in government policies have real effects is when

Suppose that the inflation rate has been 3 percent per year for several years, and the unemployment rate has been stable at 5 percent. Unanticipated changes in government policy cause the inflation rate to increase to 6 percent. In the short run, we would expect the unemployment rate to

-Refer to the above figure. The rational expectations hypothesis implies that an anticipated increase in aggregate demand from AD₁ to AD₂ will

The theory of new Keynesian inflation dynamics suggests that a fall in aggregate demand would

Some economists suggest that because of the costs of negotiating contracts, printing price lists, etc., it is costly for firms to change prices in response to demand changes. This hypothesis is known as the

Economists Milton Friedman and E.S. Phelps suggested that the apparent trade-off suggested by the Phillips curve could not be exploited by policy makers, because

During a recession, the overall unemployment rate