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

In the short run, an expansionary monetary policy by the Fed would:

According to the theory of rational expectations, the economy always remains at the natural rate of unemployment, irrespective of policy changes.

One factor that explains the short-run tradeoff between inflation and unemployment is labor contracts that fix wages for an extended period of time.

Which of the following was sanctioned by the Zimbabwe government in January 2009 as a substitute currency?

Which of the following gives the Fed a credibility problem because the Fed may change its planned policies in light of new economic developments?

Which of the following factors have not contributed to the "Great Moderation" of real GDP in the U.S.over the past 20 years?

The figure given below shows the Phillips curves of the U.S.economy during early 1960s to late 1970s. Figure 14.2 Refer to Figure 14.2.Following the movement from point A to point B on Phillips curve III, what would cause the Phillips curve to shift up so that 5 percent unemployment is associated with 10 percent inflation?

The figure given below depicts the long run equilibrium in an economy. Figure 14.1 In the figure: AD₁ and AD₂: Aggregate demand curves AS₁ and AS₂: Aggregate supply curves Refer to Figure 14.1.When the economy moves from point B to point C:

The pursuit of low unemployment rates must necessarily result in time-inconsistent government policies.

Critics of the Federal Reserve maintain that, to correct the credibility problem of monetary policy, the Fed should:

The money supply increases when, other things equal:

One of the most important factors in determining the natural rate of unemployment is demographic change, such as a change in the age of the labor force.

According to the regulation Q, the maximum interest rate that the U.S.banks could pay on deposits were limited by the Federal Reserve.This reduced volatility in the financial markets and largely benefited the U.S.banks.

The figure given below shows the Phillips curves of the U.S.economy during early 1960s to late 1970s. Figure 14.2 Refer to Figure 14.2.Phillips curve II is associated with the late 1980s in the United States and indicates that 5 percent unemployment was consistent with 4 percent inflation.Which curve would be associated with the late 1970s in the United States?

Suppose workers expect the inflation rate to be 3.6 percent and they receive a nominal wage increase of 7.5 percent.If the actual inflation rate turns out to be 2.8 percent, workers will receive a lower real wage than expected.

The figure given below represents the short run and long run Phillips curve. Figure 14.4 Refer to Figure 14.4.If the adaptive expectations hypothesis holds, and the economy moves from point C to point D because of expansionary fiscal policy, what rate of inflation are people expecting at point D?

Business inventories tend to fall after an unexpected increase in aggregate demand.

Which of the following will be a short run impact of a pre-election expansionary fiscal policy, public expectations remaining constant?

A decline in aggregate demand is analogous to an upward movement along the short-run Phillips curve.

The actual rate of inflation is equal to the expected rate of inflation along the: