Econ Chapter 27

According to the short−run Phillips​ curve, the unemployment rate and the inflation rate are Part 2

negatively related.

If firms and workers have adaptive​ expectations, an expansionary monetary policy will cause the​ short-run equilibrium to move from

point A to point B.

If firms and workers have rational​ expectations, an expansionary monetary policy will cause the​ short-run Phillips curve to move from

point A to point C.

Refer to the figure. Suppose that the economy is currently at point A. If the Federal Reserve engaged in contractionary monetary​ policy, where would the economy end up in the short​ run?

point B

A decrease in expected inflation will

shift the short-run Phillips curve to the left

What is the natural rate of​ unemployment?

the unemployment rate that exists when the economy is at potential GDP

Suppose the Fed used expansionary policy to push​ short-run equilibrium to point B. If the​ short-run equilibrium remained at point B long​ enough,

the​ short-run Phillips curve would shift up.

In the long​ run, the Phillips curve is a​ ________ at​ ________.

vertical​ line; the natural rate of unemployment

At which point are inflation expectations equal to the actual inflation​ rate?

A

Refer to the figure. 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

If actual inflation is less than expected​ inflation, what is the relationship between the actual real wage and the expected real​ wage?

The actual real wage is higher than the expected real wage.

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.

Suppose the economy is at point A in the figure. Which of the following is true​?

The current unemployment rate is equal to the natural rate of unemployment.

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

They tend to ignore inflation.

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.

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

greater​ than; rise

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

the inflation rate