Exam 23: Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Suppose that the Fed announces a low-money-growth policy to control inflation and workers sign low-wage contracts as a result.If instead, the Fed had implemented a high-money-growth policy, which of the following would not occur?

Wage contracts force businesses to adjust wages rather than employment in response to an unexpected change in aggregate demand.

Suppose that the economy has witnessed an 8 percent increase in its money supply over the last few years and the Fed now announces a plan to increase the money supply by 4 percent per year.What will be the public response, assuming that the Fed has a reputation for always implementing its announced plans?

Suppose workers do not believe the Fed will implement its announced monetary policy plans and the Fed wants to achieve low unemployment.In this situation the Fed would be best off:

Following a decline in the inflation rate, once long-term wage contracts are renegotiated and all prices in the economy adjust to their new equilibrium:

The key feature due to which unexpected inflation decreases the unemployment rate is that:

The long run Phillips curve assumes that every unemployed worker who is looking for a job has a constant reservation wage.

The figure given below represents the short run and long run Phillips curve. Figure 14.4 Refer to Figure 14.4.A movement from point A to point C would be associated with an:

The long-run Phillips curve corresponds to the vertical region of the aggregate supply curve.

A recessionary real shock will:

According to the rational expectations view:

The reservation wage is the minimum wage rate that an unemployed worker must receive before employment is accepted.

If the percentage increase in nominal wage rates is less than the percentage increase in the price level, then:

A time-inconsistent monetary policy is one that:

Wages are said to be "sticky downwards" because this promotes good work effort and ensures that workers and firms share the same goals of efficient production and profit maximization.

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 the above observation?

If the public expects the incumbent administration to stimulate the economy shortly before an election:

If workers realize that an increase in nominal wage rates does not necessarily constitute a rise in real wages, then we would expect:

If the short-run Phillips curve shifts to the right, we can conclude that:

Hyperinflation in developing countries is typically the result of: