Exam 14: Macroeconomic Policy: Challenges in a Global Economy

Banks were not worried about making mortgage loans to subprime borrowers because they thought that having the house as collateral protected them from losing money if the borrower defaulted.

One criticism of the rational expectations model is that its assumption of highly competitive labor and product markets,with wages and prices adjusting quickly,does not always occur.

Using the equation for the Phillips curve,suppose that nominal wages increased by 5% and the inflation rate was 3%.What was the rate of increase in labor productivity?

One of the trigger points for the financial crisis of 2008 was that Congress failed to balance the federal budget.

One implication of the Phillips curve when it is unable to shift in the short run,is that:

Use the following to answer questions Figure: Policy Changes in the Short Run -(Figure: Policy Changes in the Short Run)To move the economy in the short run from point b to point a,Fed policymakers implement _______ monetary policy,thereby accepting _______ to reduce ________.

According to the equation for the Phillips curve,if wages increase by 5% and productivity decreases by 2%,then inflation will be:

If policymakers use contractionary policy to reduce inflation,the unemployment rate will be _________.

When labor demand rises,unemployment ________ and wages ________.

The Phillips curve will shift when:

Monetized debt:

Suppose you are a day trader in the stock market.If your objective is to make a profit by buying and selling stock,do you use adaptive or rational expectations? Why?

According to the Phillips curve analysis,the way to solve inflation is to _______ unemployment or _______

Subprime mortgages are home loans to high-quality borrowers at rates 0.25% below the prime rate.

A consequence of trying to keep unemployment below its natural level is ever-accelerating inflation.

An increase in worker productivity would cause the Phillips curve to:

Rational expectations theory describes the assumption that people are _____,and adaptive expectations theory describes the assumption that people are _____.

One major conclusion of the rational expectations theory is that:

The 2007-2009 recession was ______ the previous two recessions,in 1990 and 2001.

Use the following to answer questions Figure: Determining Long Run and Short Run Economic Shifts -(Figure: Determining Long Run and Short Run Economic Shifts)Starting at point j,the economy will move to point ____ in the short run if policymakers successfully reduce aggregate demand.