Exam 12: Monetary Policy and the Phillips Curve

Refer to the following figure when answering the following questions. Figure 12.9: Change in Inflation by Quarter -Consider Figure 12.9. You are Federal Reserve chairman Greenspan and today's date is the second quarter of 1997 (1997.2). Given the information you have, using the Phillips curve, to stabilize the economy you would ________ interest rates, risking ________.

Which of the following statements is NOT true?

Refer to the following figure when answering the following questions. Figure 12.2: IS-MP Curve -Consider Figure 12.2. If the Fed lowers interest rates and there are no aggregate demand shocks, the economy moves from point ________ to ________.

Refer to the following figure when answering the following questions. Figure 12.11: Change in Inflation by Month -Consider Figure 12.11. You are Federal Reserve chairman Volcker and today's date is the first quarter of 1980 (1980.1). You suggest the appropriate policy would be to ________. In the second quarter of 1981, you consider your performance, and you conclude that you ________; using the Phillips curve, you see the country is now ________.

An inverted yield curve is usually the result of:

What is the main policy tool available to the Federal Reserve?

According to the Phillips curve, if current output equals potential output:

Between 2009 and 2015, the federal funds rate was roughly equal to:

In the Phillips curve, the term ________ reflects ________.

The Phillips curve assumes that inflation expectations are:

Based on the reasoning of the original version of the Phillips curve, conventional wisdom of the 1960s was that:

Figure 12.16: Output -Consider Figure 12.16. Explain how misunderstanding potential real GDP can lead to the wrong monetary policy.

According to the quantity theory of money, an increase in GDP ________ inflation, and the Phillips curve demonstrates that inflation ________ with rising GDP. This is because the quantity theory is a ________ theory of price behavior.

The economywide rate of inflation is given by:

A key assumption of the short-run model is:

Refer to the following figure when answering the following questions. Figure 12.10: Output Gap: 1990-2000 -Consider Figure 12.10, which shows the output gap from 1990 to 2000, by quarter. If this is all the information you have, during the period 1997.1-1999.4, from the Phillips curve, you would conclude that:

Firms alter their prices based on:

Figure 12.19: Change in Inflation ( $\Delta$ $\pi$ ): 2007-2012 -Consider Figure 12.19, which shows the change in inflation from 2007.08-2012.05. If you are Ben Bernanke, Fed chairman, during this period, what is your primary concern during the period, roughly, 2008.08-2009.12? What would you do to remedy this situation? What curve are you likely to consider when you make your policy decision?

One of the remarkable things about the 2001 recession was the:

In the Phillips curve, represents a change in government spending.