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