The curve shifts Show more What happens to the Phillips curve when the expected rate of inflation rises? The curve shifts to the right The curve shifts to the left The Phillips curve is unaffected The curve becomes horizontal 1.47 points QUESTION 17 The short-run Phillips curve suggests what policy making implications? Passive policy making is more effective than active policy making. Active policy making does not yield any predictable results. Maintaining both the inflation and unemployment rates at low levels is possible if policy makers will rely solely on nondiscretionary policy making. Using discretionary policies it may be possible to achieve just the right unemployment and inflation mix. 1.47 points QUESTION 18 We observe the duration of unemployment falling and wage rates rising. It is likely that aggregate supply has increased. aggregate demand has increased. summer has arrived. the government has initiated expansionary fiscal policy but the policies havent taken effect yet. 1.47 points QUESTION 19 Policymakers attempts to use the Phillips curve to reduce the unemployment rate below the natural rate will be successful since the Phillips curve shows the relationship between the inflation rate and the unemployment rate. will be unsuccessful if monetary policy is used since monetary policy leads to higher prices. will be successful if monetary policy is used. will be unsuccessful since workers expectations adjust to attempts to reduce unemployment below the natural rate. 1.47 points QUESTION 20 Which one of the following would likely reduce the level of structural unemployment? strengthening restrictions on who can be licensed to enter certain professions increasing the minimum wage to encourage more people to work increasing the level of union bargaining power limiting unemployment insurance benefits 1.47 points QUESTION 21 An unexpected decrease in aggregate demand will decrease real GDP but will not affect the rate and duration of unemployment. will decrease the price level. will decrease long-run aggregate supply. will decrease the average duration of unemployment. 1.47 points QUESTION 22 When a person bases her future expectations for the economy on all available current data and her own judgment about future policy effects this is known as rational expectations. irrational expectations. the policy irrelevance proposition. the new classical theory. 1.47 points QUESTION 23 According to the rational expectations hypothesis monetary policy can have real effects on such variables as real Gross Domestic Product (GDP) in the short run when the Federal Reserves open market committee operates as expected in either buying or selling bonds. regardless of whether the policy is anticipated or unanticipated. only when the policy is unsystematic and unanticipated. only when the policy is anticipated. 1.47 points QUESTION 24 Rational expectations theory suggests that short-run stabilization policy should not be attempted. is best achieved with fiscal policy. is best achieved with monetary policy. is equally easy to achieve with monetary or fiscal policy. 1.47 points QUESTION 25 Proponents of the policy irrelevance proposition believe that under the assumption of rational expectations the unemployment rate will go down whenever the Fed announces an anticipated fiscal policy change. equal the natural rate of unemployment in the long run regardless of any monetary policy actions. always be higher in the long run than the natural rate of employment. go up whenever the Fed announces an anticipated monetary policy change. 1.47 points QUESTION 26 For the policy irrelevance theorem to hold people must not persistently make the same mistakes in forecasting the future. know exactly what the Fed is planning to do. know the future perfectly. never make mistakes in their forecasts even when they do not know the future perfectly. 1.47 points QUESTION 27 According to the policy irrelevance proposition the impact of an anticipated expansionary monetary policy will be to increase the price level in the long run. increase the real Gross Domestic Product (GDP) in the long run. decrease the natural rate of unemployment. decrease the price level and the unemployment rate. 1.47 points QUESTION 28 One key assumption lying behind the policy irrelevance proposition is that prices are sticky upward. wages are sticky downward. markets are not purely competitive. the rational expectations hypothesis is correct. 1.47 points QUESTION 29 According to the real business cycle theory an increase in an input price such as oil will increase both real Gross Domestic Product (GDP) and the price level. increase real Gross Domestic Product (GDP) but not change the price level. decrease both real Gross Domestic Product (GDP) and the price level. decrease real Gross Domestic Product (GDP) but increase the price level. 1.47 points QUESTION 30 When stagflation occurs the economy experiences higher inflation rates and higher unemployment rates at the same time. the economy experiences lower inflation rates and higher unemployment rates at the same time. the economy experiences higher inflation rates and lower unemployment rates at the same time. the economy experiences lower inflation rates and lower unemployment rates at the same time. 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