Question 1

In a survey,Robert Shiller found that most workers believe that an increase in inflation will lead quickly to an increase in wages.

Accepted Answer

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Question 2

In an effort to discover whether or not workers understand inflation,economist Robert Shiller conducted a survey. When asked about the effect of general inflation on their wages or salary,the most popular response coming from workers was:

Accepted Answer

Many workers believe that inflation primarily benefits employers by increasing profits, without affecting their wages, which reflects a common misconception about the relationship between inflation and wages.

Question 3

The natural rate of unemployment equals

Accepted Answer

The natural rate of unemployment is the combination of structural and frictional unemployment. It represents the long-term equilibrium rate of unemployment in an economy, and is not affected by cyclical fluctuations. Therefore, it does not include cyclical unemployment (which is the fluctuation of unemployment around the natural rate due to changes in economic activity).

Question 4

Workers at a local construction company are paid $32.50 per hour,and they have incorporated a 4 percent annual raise in their contracts to account for expected inflation.Explain how unexpected inflation of 2 percent will affect the real wages earned by these workers and the unemployment rate of these workers.

Accepted Answer

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Question 5

If the unemployment rate in the economy is steady at 4 percent per year,how does the short-run Phillips curve predict that the inflation rate will be changing,if at all? What will happen if the unemployment rate now rises to 7 percent per year? Assume there are no changes to inflation expectations.Provide an appropriate graph to support your discussion.

Accepted Answer

The answer of If the unemployment rate in the economy...

Question 6

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

Accepted Answer

If actual inflation is greater than expected inflation, prices are rising faster than anticipated. This means that the purchasing power of money is decreasing at a faster rate than expected. As a result, the actual real wage, which is the nominal wage adjusted for inflation, will be lower than the expected real wage. Essentially, workers will be able to purchase fewer goods and services than they initially anticipated with their wages, leading to a decrease in their real purchasing power.

Question 7

A relationship that depends on the basic behavior of consumers and firms and remains unchanged over long periods is called a ________ relationship.

Accepted Answer

A structural relationship is one that remains stable and unchanged over a long period of time, based on the fundamental behavior of consumers and firms. This implies that it is not subject to cyclical or temporary changes and is more fundamental in nature. Frictional relationships are those that can change due to external factors such as market conditions or policy changes, while dynamic relationships involve ongoing changes and adaptations between parties.

Question 8

When will a decrease in aggregate demand not result in a lower inflation rate in the short run?

Accepted Answer

The answer of When will a decrease in aggregate demand...

Question 9

In the 1960s,many economists and policymakers believed the trade-off between inflation and unemployment was permanent.

Accepted Answer

This belief was known as the Phillips curve theory, which was based on empirical data from the post-World War II era. The theory suggested that policymakers could achieve lower unemployment rates by accepting higher levels of inflation, and vice versa. However, this trade-off was not permanent and the Phillips curve relationship broke down in the 1970s with the emergence of stagflation.

Question 10

Robert Shiller posed the following question to workers: "Imagine that next year the inflation rate unexpectedly doubles. How long would it probably take,in these times,before your income is increased enough so that you can afford the same things as you do today?" Shiller found that ________ percent of the workers he interviewed reported that it would take several years to restore the purchasing power of their wages or that this power would never be restored.

Accepted Answer

The answer of Robert Shiller posed the following question to...

Question 11

If changes in inflation are higher than expected,

Accepted Answer

The short-run Phillips curve is negatively sloped, indicating an inverse relationship between inflation and unemployment. If inflation is higher than expected, it typically results in lower unemployment in the short run, maintaining the negative slope.

Question 12

All other factors held constant,increased growth in aggregate demand will

Accepted Answer

Increased growth in aggregate demand will lead to higher prices and thus increase inflation (choice A). The increase in demand will lead firms to increase production, which in turn will lead to increased employment, reducing unemployment (choice B). As the economy moves to a higher point on the short-run Phillips curve, it will face a higher tradeoff between inflation and unemployment (choice C). Thus, all of the above choices are correct.

Question 13

What can the Federal Reserve do to reduce the natural rate of unemployment?

Accepted Answer

The Federal Reserve cannot directly reduce the natural rate of unemployment through monetary policy. The natural rate of unemployment is determined by factors such as the structure of the labor market and the level of frictional and structural unemployment, not by monetary policy actions.

Question 14

What is the natural rate of unemployment?

Accepted Answer

The natural rate of unemployment is the unemployment rate that exists when the economy is at potential GDP, meaning that all resources are being used efficiently and there is no cyclical unemployment. It is also sometimes called the "full employment" rate.

Question 15

An increase in frictional unemployment will

Accepted Answer

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...

Question 16

What action should the Fed take if it wants to move from a point on the short-run Phillips curve representing low unemployment and high inflation to a point representing higher unemployment and lower inflation?

Accepted Answer

The answer of What action should the Fed take if...

Question 17

The natural rate of unemployment will not change following an increase in ________ unemployment.

Accepted Answer

Cyclical unemployment is associated with the ups and downs of the business cycle, not with the natural rate of unemployment, which is considered to be the sum of frictional and structural unemployment.

Question 18

Ceteris paribus,in the short run following an increase in the rate of growth in Aggregate Demand,we would expect to see an increase in the rate of inflation and an increase in the rate of unemployment.

Accepted Answer

In the short run, an increase in Aggregate Demand typically leads to higher inflation and lower unemployment, not higher unemployment, due to increased production and hiring to meet demand.

Question 19

If the actual rate of inflation exceeds the expected rate of inflation,the actual real wage is greater than the expected real wage and unemployment falls.

Accepted Answer

If the actual rate of inflation exceeds the expected rate of inflation, it means prices are rising faster than people anticipated. This reduces the purchasing power of money and causes the actual real wage to be lower than the expected real wage. In turn, this can lead to an increase in unemployment as firms may reduce their workforce or cut back on hiring if they face higher wage costs.

Question 20

The expansionary monetary and fiscal policies of the 1960s resulted in ________ inflation rates and ________ rates of unemployment.

Accepted Answer

The expansionary monetary and fiscal policies led to an increase in aggregate demand, causing prices to rise and inflation to increase. The high aggregate demand also created job opportunities, leading to low rates of unemployment. Therefore, the correct answer would be high inflation rates and low rates of unemployment, which is best represented by option D.

Quiz 17: Inflation, unemployment, and Federal Reserve Policy