Exam 9: An Introduction to the Short Run

The Board of Governors of the Federal Reserve is responsible for dating business cycles.

The long-run model determines ________ output and ________, while the short-run model determines ________ and ________ inflation.

In 1979, the inflation rate reached about 14 percent, due in part to ________. The Board of Governors of the Federal Reserve under ________ decided to ________ interest rates, sending the economy into a ________.

Refer to the following figure when answering the following questions. Figure 9.4: Phillips Curve -Consider the Phillips curve at in Figure 9.4. The economy is:

According to Okun's law, if the Federal Reserve wants to increase unemployment, it should ________ interest rates, which would ________ output.

In 1979, the inflation rate reached about 14 percent. The Federal Reserve ________ interest rates, sending the economy into a(n) ________. When doing so, the Federal Reserve knew this would be the case because of ________.

Defining as current output, as potential output, and as short-run fluctuations, the relationship between the three can be written as .

If , the macroeconomy is:

Refer to the following figure when answering the following questions. Figure 9.2: U.S. Output Fluctuations 1960-2015 -Consider Figure 9.2. In 1989, the U.S. economy experienced an economic ________, and current output was about ________ percent above potential output.

If , the macroeconomy is:

When current output rises above potential output, we hire fewer workers, which reduces the costs of production. The change in inflation will be negative.

According to the text, the slope of the Phillips curve in the United States is about -1/3.

What three premises does the short-run model operate under?

Post-World War II, the deepest recessionary gap occurred during the Volcker-Reagan recession in the early 1980s.

Which of the following is NOT an example of a short-term macroeconomic shock?

Taken together, the Phillips curve and Okun's law imply there is a ________ relationship between ________ and unemployment.

Consider two economies. Economy 1 has a steep Phillips curve and Economy 2 has a gently sloped Phillips curve. If each economy experiences an identical economic expansion, the change in ________ would increase less in Economy ________.

According to the text, which of the following can be used to characterize potential output? i. Assume a perfectly smooth trend is passing through the quarter-to-quarter movements in the real GDP. ii. Take averages of the surrounding actual GDP numbers. iii. Gather current data from statistical agencies, such as the Bureau of Economic Analysis.

What is the best definition of the short term in the short-term model?

You are a staff economist with the Federal Reserve. The chairman says to you, "The rate of change in inflation is too high, and I don't think the Phillips curve is very steep. What should we do to reduce these inflationary increases?" How do you respond?