Exam 17: Inflation, unemployment, and Federal Reserve Policy

How would you expect the Fed to respond to a negative supply shock in the economy?

If workers and firms expect that inflation will be 3 percent next year,and real wages are not changing over time,by how much will nominal wages increase?

What impact does monetary policy have on the long-run Phillips curve?

Employees at the hospital have negotiated a 3 percent increase in wages for the next year,based on their inflation expectations.If inflation is actually 5 percent over the next year,which of the following will occur?

One problem with deflation is that it can raise the real value of debt.

The experience of Paul Volcker's fight against inflation during the late 1970s and early 1980s indicates that firms and workers

Ceteris paribus,in the short run following a decrease in the rate of growth in Aggregate Demand,we would expect to see an increase in the rate of unemployment and a decrease in the rate of inflation.

When unemployment is below its natural rate,the inflation rate will eventually

Figure 17-2 -Refer to Figure 17-2.Suppose the economy is at point A.The Fed uses expansionary monetary policy to lower the unemployment rate permanently below the level associated with A.Which of the following will occur?

During the 1960s,in face of moderate and stable inflation,people tended to form adaptive expectations of future inflation rates.

According to the short-run Phillips curve,the unemployment rate and the inflation rate are

If expectations are adaptive,how will the economy adjust to a new long-run equilibrium in response to expansionary monetary policy? Support your answer with a graph of the Phillips curve.

According to real business cycle models,

With which of the following statements would a "real business cycle" theorist most closely agree?

Robert Shiller posed the following question to workers: "Imagine that next year the inflation rate unexpectedly doubles.How long would it probably take,in these times,before your income is increased enough so that you can afford the same things as you do today?" Shiller found that ________ percent of the workers he interviewed reported that it would take several years to restore the purchasing power of their wages or that this power would never be restored.

If expected inflation rises,the long-run Phillips curve will

An increase in expected inflation will

If actual inflation is greater than expected inflation,what is the relationship between the actual real wage and the expected real wage?

A study conducted by Alberto Alesina and Lawrence Summers concluded that countries with ________ had lower inflation rates than countries with ________.

Figure 17-7 -Refer to Figure 17-7.Consider the Phillips curves depicted in the graph above.The Fed announces its intention to decrease inflation from 10 percent to 5 percent per year,and it succeeds.If expectations of inflation are not altered by the Fed's announcement,the rate of unemployment will be ________ in the short run.