Question 1

Figure 28-2 
-Refer to Figure 28-2. Suppose the economy is at point B. If the Fed increases the money supply so that inflation increases, the economy will ________ in the short run, holding all else constant.

Accepted Answer

A)   eventually move to point A
B)   stay at point B
C)   eventually move to point C
D)   move to point A and then back to point B

Question 2

When inflation is very low, how do workers and firms adjust their expectations of inflation?

Accepted Answer

A)   They rapidly adjust their expectations of inflation upward.
B)   They rapidly adjust their expectations of inflation downward.
C)   They tend to ignore inflation.
D)   They are more aggressive in asking for wage and price increases.

Question 3

Figure 28-3 
-Refer to Figure 28-3. The shifts shown in the short-run and long-run Phillips curves between period 1 and period 2 could be explained by

Accepted Answer

A)   an increase in the expected inflation rate from 4.0 to 5.5 percent.
B)   an increase in the natural rate of unemployment from 5.5 to 6.8 percent.
C)   either an increase in expected inflation from 4.0 to 5.5 percent or an increase in the natural rate of unemployment from 5.5 to 6.8 percent.
D)   None of the above is correct.

Question 4

Where does the short-run Phillips curve intersect the long-run Phillips curve?

Accepted Answer

A)   at the point where the rate of inflation and the unemployment rate are equal
B)   at the natural rate of inflation
C)   at the point where actual inflation is equal to expected inflation
D)   There is no intersection between the short-run and long-run Phillips curves.

Question 5

Figure 28-2 
-Refer to Figure 28-2. Suppose the economy is at point A in the figure above. Which of the following is true?

Accepted Answer

A)   The short-run Phillips curve will shift to the right.
B)   The short-run Phillips curve will shift to the left.
C)   The long-run Phillips curve will shift to the left.
D)   Actual inflation and expected inflation are the same.
E)   The long-run Phillips curve will shift to the right.

Question 6

What is the natural rate of unemployment?

Accepted Answer

A)   the unemployment rate that exists when the economy is at potential GDP
B)   the unemployment rate that exists when the economy is at a trough in a business cycle
C)   an unemployment rate of 0%
D)   any unemployment rate that is above the inflation rate

Question 7

An increase in the expected inflation rate will

Accepted Answer

A)   shift the short-run Phillips curve to the right.
B)   shift the short-run Phillips curve to the left.
C)   reduce the inflation rate.
D)   reduce the unemployment rate.

Question 8

If workers and firms ignore inflation or form their inflation expectations adaptively, expansionary monetary policy will lower unemployment permanently.

Accepted Answer

A) True 
 B)False

Question 9

Growth in aggregate demand will

Accepted Answer

A)   cause deflation.
B)   increase unemployment.
C)   move the economy to a higher point on the short-run Phillips curve.
D)   cause the short-run Phillips curve to shift to the left.

Question 10

Figure 28-9 
-Refer to Figure 28-9. Fed Chairman Paul Volcker's response to the ________ of the late 1970s is depicted in the figure above as a movement from C to D to A.

Accepted Answer

A)   deflation
B)   high unemployment
C)   high inflation
D)   appreciation of the dollar

Question 11

What is the NAIRU?

Accepted Answer

A)   the natural accelerating inflation rate of unemployment
B)   the nonaccelerating inflation rate of unemployment
C)   the nongovernmental agency of inflationary rate unions
D)   the new accrual index of real unemployment

Question 12

Figure 28-9 
-Refer to Figure 28-9. A supply shock, such as rising oil prices, would be depicted as a movement from

Accepted Answer

A)   A to D to C.
B)   C to B to A.
C)   C to D to A.
D)   C to E to B.
E)   A to B to C.

Question 13

In face of a negative supply shock, the Fed may avoid a rise in unemployment only if it is willing to increase the rate of inflation.

Accepted Answer

A) True 
 B)False

Question 14

Parker Hannifin benefitted when the Federal Reserve ________ in 2008. This Fed action would help increase demand for its machinery components, which allowed Parker Hannifin to increase employment and increase prices.

Accepted Answer

A)   drove down interest rates
B)   increased the discount rate
C)   lowered the required reserve rate
D)   implemented a series of open market sales of Treasury bonds

Question 15

If actual inflation is less than expected inflation, actual real wages will be ________ expected real wages and unemployment will ________.

Accepted Answer

A)   greater than; rise
B)   greater than; fall
C)   less than; rise
D)   less than; fall

Question 16

In the long run, the Federal Reserve can control which of the following?

Accepted Answer

A)   the inflation rate
B)   the unemployment rate
C)   the growth rate of real GDP in the economy
D)   the natural rate of unemployment

Question 17

A study conducted by Alberto Alesina and Lawrence Summers concluded that countries with highly independent central banks had ________ than countries whose central banks had little independence.

Accepted Answer

A)   higher unemployment rates
B)   lower unemployment rates
C)   higher inflation rates
D)   lower inflation rates

Exam 28: Inflation, Unemployment, and Federal Reserve Policy

A study conducted by Alberto Alesina and Lawrence Summers concluded that countries with highly independent central banks had ________ than countries whose central banks had little independence.

Correct Answer
verified

When inflation is very low, how do workers and firms adjust their expectations of inflation?

Correct Answer
verified

Figure 28-2 -Refer to Figure 28-2. Suppose the economy is at point B. If the Fed increases the money supply so that inflation increases, the economy will ________ in the short run, holding all else constant.

Correct Answer
verified

Growth in aggregate demand will

Correct Answer
verified

An increase in the expected inflation rate will

Correct Answer
verified

Figure 28-3 -Refer to Figure 28-3. The shifts shown in the short-run and long-run Phillips curves between period 1 and period 2 could be explained by

Correct Answer
verified

Figure 28-9 -Refer to Figure 28-9. A supply shock, such as rising oil prices, would be depicted as a movement from

Correct Answer
verified

Where does the short-run Phillips curve intersect the long-run Phillips curve?

Correct Answer
verified

What is the natural rate of unemployment?

Correct Answer
verified

If workers and firms ignore inflation or form their inflation expectations adaptively, expansionary monetary policy will lower unemployment permanently.

Correct Answer
verified

If actual inflation is less than expected inflation, actual real wages will be expected real wages and unemployment will .

Correct Answer
verified

In face of a negative supply shock, the Fed may avoid a rise in unemployment only if it is willing to increase the rate of inflation.

Correct Answer
verified

In the long run, the Federal Reserve can control which of the following?

Correct Answer
verified

What is the NAIRU?

Correct Answer
verified

Figure 28-2 -Refer to Figure 28-2. Suppose the economy is at point A in the figure above. Which of the following is true?

Correct Answer
verified

Parker Hannifin benefitted when the Federal Reserve ________ in 2008. This Fed action would help increase demand for its machinery components, which allowed Parker Hannifin to increase employment and increase prices.

Correct Answer
verified

Figure 28-9 -Refer to Figure 28-9. Fed Chairman Paul Volcker's response to the ________ of the late 1970s is depicted in the figure above as a movement from C to D to A.

Correct Answer
verified

Exam 28: Inflation, Unemployment, and Federal Reserve Policy

A study conducted by Alberto Alesina and Lawrence Summers concluded that countries with highly independent central banks had ________ than countries whose central banks had little independence.

Correct AnswerverifiedShow Answer

When inflation is very low, how do workers and firms adjust their expectations of inflation?

Correct AnswerverifiedShow Answer

Figure 28-2 -Refer to Figure 28-2. Suppose the economy is at point B. If the Fed increases the money supply so that inflation increases, the economy will ________ in the short run, holding all else constant.

Correct AnswerverifiedShow Answer

Growth in aggregate demand will

Correct AnswerverifiedShow Answer

An increase in the expected inflation rate will

Correct AnswerverifiedShow Answer

Figure 28-3 -Refer to Figure 28-3. The shifts shown in the short-run and long-run Phillips curves between period 1 and period 2 could be explained by

Correct AnswerverifiedShow Answer

Figure 28-9 -Refer to Figure 28-9. A supply shock, such as rising oil prices, would be depicted as a movement from

Correct AnswerverifiedShow Answer

Where does the short-run Phillips curve intersect the long-run Phillips curve?

Correct AnswerverifiedShow Answer

What is the natural rate of unemployment?

Correct AnswerverifiedShow Answer

If workers and firms ignore inflation or form their inflation expectations adaptively, expansionary monetary policy will lower unemployment permanently.

Correct AnswerverifiedShow Answer

If actual inflation is less than expected inflation, actual real wages will be ________ expected real wages and unemployment will ________.

Correct AnswerverifiedShow Answer

In face of a negative supply shock, the Fed may avoid a rise in unemployment only if it is willing to increase the rate of inflation.

Correct AnswerverifiedShow Answer

In the long run, the Federal Reserve can control which of the following?

Correct AnswerverifiedShow Answer

What is the NAIRU?

Correct AnswerverifiedShow Answer

Figure 28-2 -Refer to Figure 28-2. Suppose the economy is at point A in the figure above. Which of the following is true?

Correct AnswerverifiedShow Answer

Parker Hannifin benefitted when the Federal Reserve ________ in 2008. This Fed action would help increase demand for its machinery components, which allowed Parker Hannifin to increase employment and increase prices.

Correct AnswerverifiedShow Answer

Figure 28-9 -Refer to Figure 28-9. Fed Chairman Paul Volcker's response to the ________ of the late 1970s is depicted in the figure above as a movement from C to D to A.

Correct AnswerverifiedShow Answer

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If actual inflation is less than expected inflation, actual real wages will be expected real wages and unemployment will .

Correct Answer
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Correct Answer
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