Question 1

Adaptive expectations theory describes the use of _____ to form expectations of inflation.

Accepted Answer

The adaptive expectations theory suggests that individuals form their expectations of inflation based on past rates of inflation only. They assume that current and future inflation rates will continue to follow similar patterns as in the past.

Question 2

Figure: Aggregate Supply and Demand Shifts (Figure: )The economy is originally at its long-run equilibrium,SRAS₀ and AD₀.Government policymakers signal that they intend to reduce aggregate demand from AD₀ to AD₁.If we assume that individuals have rational expectations,then the speed of the shift from SRAS₀ to SRAS₁ will happen:

Accepted Answer

If individuals have rational expectations, they will anticipate the government's policy to reduce aggregate demand and adjust their behavior accordingly. This means that firms will reduce production and prices will begin to fall almost immediately, causing the SRAS curve to shift leftward toward SRAS₁. Therefore, the speed of the shift from SRAS₀ to SRAS₁ will happen almost immediately.

Question 3

Use the following to answer questions Figure: Understanding Phillips Curves Shifts 2 -(Figure: Understanding Phillips Curves Shifts 2)What would cause an outward shift from Phillips curve PC₁ to Phillips curve PC₀?

Accepted Answer

An increase in the expected inflation rate would cause an outward shift of the Phillips curve, as it implies higher inflation for any given level of unemployment.

Question 4

Statements by members of the Federal Reserve Board of Governors indicate a desire to boost economic growth by increasing the money supply.If unions form expectations rationally,then they will:

Accepted Answer

According to the statement, the Federal Reserve Board of Governors wants to increase the money supply to boost economic growth. This implies that there will be more money in circulation, which could result in inflation. If unions form expectations rationally, they will immediately demand wage increases to keep up with the increasing prices caused by inflation.

Question 5

If rational expectations theory is correct,then any increase in aggregate demand caused by announced expansionary policies:

Accepted Answer

According to rational expectations theory, individuals will immediately adjust their expectations of future inflation based on announced expansionary policies. This means that any increase in aggregate demand caused by these policies will be offset by rising inflationary expectations, causing the short-run aggregate supply curve to shift to the left in the short run. Therefore, choice C is the correct answer.

Question 6

Johnny claims that inflation next year will be 5%,because the inflation rate in the past two years has been 5%.Which theorist would be vindicated by this behavior?

Accepted Answer

The answer of Johnny claims that inflation next year will...

Question 7

Robert Lucas argued that:

Accepted Answer

Lucas argued, based on his theory of rational expectations, that workers and employers would adjust their expectations and behavior in response to macroeconomic policies designed to increase employment, such as inflationary policies. This would ultimately negate the effectiveness of such policies.

Question 8

If rational expectations theory is correct,the Fed's announced policies will be:

Accepted Answer

Rational expectations theory suggests that individuals and firms use all available information to make forecasts, including anticipated policy actions. Therefore, if the Fed's policies are anticipated, they will be ineffective as people will adjust their behavior accordingly, rendering the policies ineffective in both the short run and the long run.

Question 9

The contractionary policies of the Fed under Paul Volcker to reduce inflationary pressures in the economy:

Accepted Answer

Paul Volcker began implementing contractionary policies in the late 1970s and it took nearly a decade for these policies to fully work and bring down inflation. Interest rates were raised to as high as 20% to combat inflation, and unemployment rates initially rose but eventually stabilized around 7.5%.

Question 10

One major conclusion of the rational expectations theory is that:

Accepted Answer

The rational expectations theory suggests that individuals and firms have rational expectations about the future based on all available information, including government policy. Therefore, any attempts by the government to fine-tune the economy through macroeconomic policy will be immediately incorporated into these expectations, leading to no real impact on GDP in the short run.

Question 11

Milton Friedman argued that:

Accepted Answer

The answer of Milton Friedman argued that:
...

Question 12

Jane claims that the inflation rate next year will decrease because the Federal Reserve has announced an intention to increase the federal funds rate.Which theorist would be vindicated by this behavior?

Accepted Answer

The answer of Jane claims that the inflation rate next...

Question 13

According to the rational expectations theory,if the Fed announces that it is going to decrease the money supply,output:

Accepted Answer

Rational expectations theory suggests that people use all available information to anticipate economic changes. If the Fed announces a decrease in the money supply, people will expect lower prices, leading to an immediate fall in the price level while output remains unchanged.

Question 14

Economic expectations formed after individuals make the best possible use of all publicly available information are known as _____ expectations.

Accepted Answer

Rational expectations are formed after individuals make the best possible use of all publicly available information. This is different from adaptive expectations, which assume that individuals base their expectations on past experiences or trends, and judgmental expectations, which are based on subjective beliefs and opinions. Public expectations simply refer to expectations that are publicly known or widely shared, but they may not necessarily be rational.

Question 15

Use the following to answer questions Figure: Understanding Phillips Curves Shifts 2 -(Figure: Understanding Phillips Curves Shifts 2)Which of the following best describes a decision by Congress to move the economy from Phillips curve PC₀ to Phillips curve PC₁?

Accepted Answer

Policymakers implemented contractionary fiscal policy to decrease the expected inflation rate, which shifts the Phillips curve from PC₀ to PC₁.

Question 16

The contribution of rational expectations theory to the long-run model is the understanding that:

Accepted Answer

Rational expectations theory suggests that individuals have a forward-looking view of the economy and make decisions based on their expectations of future economic conditions. This means that if policymakers implement policies that are inconsistent with these expectations, individuals will adjust their behavior to account for the changes, which will lead the economy to return to long-run equilibrium more quickly.

Question 17

Rational expectations theory describes the assumption that people are _____,and adaptive expectations theory describes the assumption that people are _____.

Accepted Answer

Rational expectations theory assumes that people are forward-looking and base their expectations on all available information, while adaptive expectations theory assumes that people are backward-looking and base their expectations on past experiences or trends.

Question 18

John and Angel are having an argument over future inflation rates.John thinks the rate will be 3%,because inflation has not exceeded that rate in more than a decade.Angel points out that the chairman of the Federal Reserve testified before Congress last week that he thinks the unemployment rate is too far above its natural rate and thus that the economy should be stimulated.John is using _____ expectations and Angel is relying on _____ expectations.

Accepted Answer

John is using adaptive expectations because he is basing his prediction on past trends. Angel is using rational expectations because she is incorporating current information, specifically the testimony from the chairman of the Federal Reserve.

Question 19

If policymakers are successful at reducing inflationary expectations:

Accepted Answer

If policymakers are successful at reducing inflationary expectations, individuals will anticipate lower inflation in the future, and this will cause the short-run Phillips curve to shift leftward. This means that for any given level of expected inflation, the economy can achieve a lower level of unemployment. The other choices are incorrect because reducing inflation expectations would not cause the unemployment rate to temporarily fall below its natural rate, cause the inflation rate to rise, or shift the short-run Phillips curve outward.

Question 20

Stagflation is the simultaneous occurrence of ______ unemployment and ______ inflation.

Accepted Answer

Stagflation is characterized by the simultaneous occurrence of rising unemployment and rising inflation, indicating a period of economic stagnation alongside high inflation rates.

Quiz 14: Macroeconomic Policy: Challenges in a Global Economy

Adaptive expectations theory describes the use of _____ to form expectations of inflation.

Use the following to answer questions Figure: Understanding Phillips Curves Shifts 2 -(Figure: Understanding Phillips Curves Shifts 2) What would cause an outward shift from Phillips curve PC₁ to Phillips curve PC₀?

Statements by members of the Federal Reserve Board of Governors indicate a desire to boost economic growth by increasing the money supply.If unions form expectations rationally,then they will:

If rational expectations theory is correct,then any increase in aggregate demand caused by announced expansionary policies:

Johnny claims that inflation next year will be 5%,because the inflation rate in the past two years has been 5%.Which theorist would be vindicated by this behavior?

Robert Lucas argued that:

If rational expectations theory is correct,the Fed's announced policies will be:

The contractionary policies of the Fed under Paul Volcker to reduce inflationary pressures in the economy:

One major conclusion of the rational expectations theory is that:

Milton Friedman argued that:

Jane claims that the inflation rate next year will decrease because the Federal Reserve has announced an intention to increase the federal funds rate.Which theorist would be vindicated by this behavior?

According to the rational expectations theory,if the Fed announces that it is going to decrease the money supply,output:

Economic expectations formed after individuals make the best possible use of all publicly available information are known as _____ expectations.

Use the following to answer questions Figure: Understanding Phillips Curves Shifts 2 -(Figure: Understanding Phillips Curves Shifts 2) Which of the following best describes a decision by Congress to move the economy from Phillips curve PC₀ to Phillips curve PC₁?

The contribution of rational expectations theory to the long-run model is the understanding that:

Rational expectations theory describes the assumption that people are _,and adaptive expectations theory describes the assumption that people are _.

If policymakers are successful at reducing inflationary expectations:

Stagflation is the simultaneous occurrence of unemployment and inflation.

Quiz 14: Macroeconomic Policy: Challenges in a Global Economy

Adaptive expectations theory describes the use of _____ to form expectations of inflation.

Use the following to answer questions Figure: Understanding Phillips Curves Shifts 2 -(Figure: Understanding Phillips Curves Shifts 2) What would cause an outward shift from Phillips curve PC1 to Phillips curve PC0?

Statements by members of the Federal Reserve Board of Governors indicate a desire to boost economic growth by increasing the money supply.If unions form expectations rationally,then they will:

If rational expectations theory is correct,then any increase in aggregate demand caused by announced expansionary policies:

Johnny claims that inflation next year will be 5%,because the inflation rate in the past two years has been 5%.Which theorist would be vindicated by this behavior?

Robert Lucas argued that:

If rational expectations theory is correct,the Fed's announced policies will be:

The contractionary policies of the Fed under Paul Volcker to reduce inflationary pressures in the economy:

One major conclusion of the rational expectations theory is that:

Milton Friedman argued that:

Jane claims that the inflation rate next year will decrease because the Federal Reserve has announced an intention to increase the federal funds rate.Which theorist would be vindicated by this behavior?

According to the rational expectations theory,if the Fed announces that it is going to decrease the money supply,output:

Economic expectations formed after individuals make the best possible use of all publicly available information are known as _____ expectations.

Use the following to answer questions Figure: Understanding Phillips Curves Shifts 2 -(Figure: Understanding Phillips Curves Shifts 2) Which of the following best describes a decision by Congress to move the economy from Phillips curve PC0 to Phillips curve PC1?

The contribution of rational expectations theory to the long-run model is the understanding that:

Rational expectations theory describes the assumption that people are _____,and adaptive expectations theory describes the assumption that people are _____.

If policymakers are successful at reducing inflationary expectations:

Stagflation is the simultaneous occurrence of ______ unemployment and ______ inflation.

Use the following to answer questions Figure: Understanding Phillips Curves Shifts 2 -(Figure: Understanding Phillips Curves Shifts 2) What would cause an outward shift from Phillips curve PC₁ to Phillips curve PC₀?

Use the following to answer questions Figure: Understanding Phillips Curves Shifts 2 -(Figure: Understanding Phillips Curves Shifts 2) Which of the following best describes a decision by Congress to move the economy from Phillips curve PC₀ to Phillips curve PC₁?

Rational expectations theory describes the assumption that people are _,and adaptive expectations theory describes the assumption that people are _.

Stagflation is the simultaneous occurrence of unemployment and inflation.