Exam 28: Inflation, Unemployment, and Federal Reserve Policy

In conducting monetary policy, how has the Federal Reserve enhanced its credibility?

The price level in the economy between 2012 and 2013 rose from 100 to 110. Between 2013 and 2014, the price level rose from 110 to 121. How does the short-run Phillips curve predict the unemployment rate will change as a result?

Figure 28-2 -Refer to Figure 28-2. Suppose the economy is at point B in the figure above. Which of the following is true?

Under Alan Greenspan, the Fed strived to hit its goals of price stability and high employment through

One criticism of the Fed's quantitative easing policy is that a prolonged period of low interest rates could lead to speculative bubbles. Some economists argued that as interest rates fell and prices of long-term Treasury bonds rose, financial markets were experiencing a "Treasury bubble." These economists worried that investors, banks, other financial firms, and pension funds were underestimating the likelihood that long-term interest rates would eventually ________, causing substantial ________ in the prices of Treasury bonds.

The ________ curves are both vertical.

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

According to the short-run Phillips curve, if unemployment is 3.2% and inflation is 1.3%, an increase in the inflation rate might result in which of the following?

If workers and firms know that the Federal Reserve is following an expansionary monetary policy, workers and firms will expect inflation to ________ and will adjust wages so that the real wage ________.

An increase in frictional unemployment will

Lucas and Sargent argue that the short-run trade-off between unemployment and inflation is caused by

If workers and firms raise their inflation expectations,

All other factors held constant, increased growth in aggregate demand will

Proponents of the new classical macroeconomics do not believe which of the following?

Figure 28-9 -Refer to Figure 28-9. A follower of the new classical macroeconomics would argue that ________ like that pursued by Paul Volcker in 1979, would result in a movement from C to A.

If firms and workers have rational expectations, including knowledge of the policy being used by the Federal Reserve

If actual inflation is greater than expected inflation,

If actual inflation is less than expected inflation, which of the following will be true?

Employees at the university have negotiated a 5 percent increase in wages for the next year, based on their inflation expectations. If inflation is actually 6 percent over the next year, which of the following will occur?

What impact does expansionary monetary policy have on the short-run Phillips curve if consumers and firms expect the expansionary monetary policy to increase inflation?