ECON CHAPTER 17
Suppose that the economy is currently at point A. If the Federal Reserve engaged in expansionary monetary policy, where would the economy end up in the short run?
point C
In the long run, the Federal Reserve can control which of the following?
the inflation rate
What is the natural rate of unemployment?
the unemployment rate that exists when the economy is at potential GDP
At the point where actual inflation is equal to expected inflation,
the short-run Phillips curve intersects the long-run Phillips curve.
Suppose the Fed used contractionary policy to push short-run equilibrium to point C. If the short-run equilibrium remained at point C long enough,
the short-run Phillips curve would shift down.
At which point is the unemployment rate equal to the natural rate of unemployment?
A
If actual inflation is less than expected inflation, which of the following will be true?
Real wages will rise.
If actual inflation is greater than expected inflation, what is the relationship between the actual real wage and the expected real wage?
The actual real wage will be lower than the expected real wage.
According to the shortminus−run Phillips curve, which of the following would result in low rates of unemployment?
a higher inflation rate
If people assume that future rates of inflation will follow the pattern of inflation rates in the past, they are said to have
adaptive expectations.
A higher inflation rate can lead to lower unemployment if ________ mistakenly expect the inflation rate to be lower than it turns out to be.
both workers and employers
If firms and workers have rational expectations, including knowledge of the policy being used by the Federal Reserve
expansionary monetary policy is ineffective.
A decrease in expected inflation will
shift the short−run Phillips curve to the left.
In the long run, the Phillips curve is a ________ at ________.
vertical line; the natural rate of unemployment
If workers and firms know that the Federal Reserve is following an expansionary monetary policy, workers and firms will expect inflation to ________ and will adjust wages so that the real wage ________.
increase; remains unchanged
