EBK ECONOMICS TODAY
18th Edition
ISBN: 9780133920116
Author: Miller
Publisher: YUZU
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Chapter 17, Problem 1CTQ
To determine
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What policy actions should the Fed take, acting from a Keynesian viewpoint,
with inflation and unemployment is inversely related, to move up the Phillips
Curve in a recessionary economy and decrease unemployment?
increase taxes
sell securities in the OMO (Open Market Operations)
O buy securities in the Open Market Operations (OMO)
If wages and prices adjust slowly, we would expect expansionary monetary policy to be
less likely to reduce the natural unemployment rate.
more likely to reduce inflation.
more likely to affect the unemployment rate.
more likely to result in a vertical short-run Phillips curve.
Explain how the expected inflation rate affects the short-run Phillips curve. Be sure to mention the role played by the money wage rate.
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- Draw the Fed model (i.e. the IS-MP, and the Phillips curves). Suppose that the Federal Reserve lowers the interest rate. Discuss the implications for output and unemployment.arrow_forwardWhy are inflation expectations so important to modern monetary policy? What are several ways that central banks try to manage inflation expectations?arrow_forwardTrue or false? An increase in inflation expectations shifts the short-run Phillips curve right and has no effect on the long-run Phillips curve.arrow_forward
- The "rational expectations" school of economists, including Robert Lucas and Thomas Sargent, argue that changes in monetary policy cannot affect unemployment rates in the short run or long run. True Falsearrow_forwardConsidering the efforts put forward by the Fed during the last recessionary crisis and prior, are there still any tools available to the Fed to utilize as we move from deflation into an inflationary period?arrow_forwardIf firms and workers have adaptive expectations, what impact will contractionary monetary policy have on inflation, unemployment, and the Phillips curve? If expectations are adaptive, how will the economy adjust to a new, long-run equilibrium in response to contractionary monetary policy?arrow_forward
- The following graph plots a short-run Phillips curve for a hypothetical economy. Show the short-run effect of a contractionary monetary policy by dragging the point along the short-run Phillips curve (SRPC) or shifting the curve to the appropriate position. Now, show the long-run effect of a contractionary monetary policy by dragging either the short-run Phillips curve (SRPC), the long-run Phillips curve (LRPC), or both. As anticipated, inflation (rises/falls) and the short-run Phillips curve shifts (downward/upward) , highlighting the cost of fighting inflation, which is (higher unemployment in the long run/temporary unemployment/lower unemployment) . Which of the following examples represents a cost of inflation? Check all that apply. -An unintended redistribution of wealth from borrowers to lenders -A general decrease in purchasing power -Increased variability of relative prices -A coffee shop’s costs to reprint its menu to reflect fluctuating pricesarrow_forwardNow go to FRED and search for PCEPI. This is the price index that receives the most attention from the Federal Reserve in terms of fulfilling the nominal part of their dual mandate. Calculate the most recent rate of inflation (12 months) using PCEPI to the nearest two decimal places and compare to the Fed's implicit target of inflation = 2%. Is inflation too high, too low, or just right (circle your answer)? TPCE Too high Too low Just rightarrow_forward"As the economy moves upward along its aggregate supply curve, the economy also moves upward along its short-run Phillips curve." Is the previous statement correct or incorrect?arrow_forward
- In response to the Great Recession, the Federal Reserve had to take drastic and largely untested measures to stabilize both the financial system and macroeconomy. These measures caused the monetary base to increase from approximately $850 billion to over $4 trillion. Indicate whether each school of macroeconomic thought—classical, Keynesian, monetarist, real business cycle, and secular stagnationist—would support the Fed’s actions.arrow_forwardtrue or false Suppose that the central bank lost credibility in the sense that people no longer believe its inflation target (that is, inflation expectations are not `anchored’). In this case, both short-run output and long-run output do not increase in response to a permanently higher inflation target.arrow_forwardA movement to the right along a given short-run Phillips Curve could be caused by? Answer only if ? correct. Type answer only. Iarrow_forward
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