[Solved] Lucas and Sargent Argue That the Short-Run Trade-Off Between Unemployment

If firms and workers have rational expectations, including knowledge of the policy being used by the Bank of Canada, A)expansionary monetary policy is especially effective. B)expansionary monetary policy is ineffective. C)expansionary monetary policy is effective in the short run, but not the long run. D)expansionary monetary policy is effective in the short run and the long run. E)expansionary monetary policy is ineffective in the short but effective in the long run.

Figure 13.6 Alt text for Figure 13.6: In figure 13.6, a graph shows the short-run and long-run Phillips curves. Long description for Figure 13.6: The x-axis is labelled, unemployment rate percent.The y-axis is labelled, inflation rate percent per year.A straight line labelled, short-run Philips Curve, begins at the top left corner and slopes down to the end of the x-axis.A straight line labelled, long-run Philips Curve is perpendicular to the x-axis, and begins from the x-axis value 5.Long-run Philips Curve intersects the short-run Philips Curve at point A (5, 2), near the bottom of the line and passes through point C (5, 4.8%)near the top end.Point B (3%, 4.8%)is plotted near the left end of the short-run Philips Curve, with the same y-axis value as point C.The points are connected to their respective coordinates on the x and y-axes with dotted lines. -Refer to Figure 13.6.If firms and workers have rational expectations, an expansionary monetary policy will cause the short-run equilibrium to move from A)point B to point C. B)point C to point A. C)point A to point B. D)point B to point A. E)point A to point C.

Figure 13.6 Alt text for Figure 13.6: In figure 13.6, a graph shows the short-run and long-run Phillips curves. Long description for Figure 13.6: The x-axis is labelled, unemployment rate percent.The y-axis is labelled, inflation rate percent per year.A straight line labelled, short-run Philips Curve, begins at the top left corner and slopes down to the end of the x-axis.A straight line labelled, long-run Philips Curve is perpendicular to the x-axis, and begins from the x-axis value 5.Long-run Philips Curve intersects the short-run Philips Curve at point A (5, 2), near the bottom of the line and passes through point C (5, 4.8%)near the top end.Point B (3%, 4.8%)is plotted near the left end of the short-run Philips Curve, with the same y-axis value as point C.The points are connected to their respective coordinates on the x and y-axes with dotted lines. -Refer to Figure 13.6.If firms and workers have adaptive expectations, an expansionary monetary policy will cause the short-run equilibrium to move from A)point B to point C. B)point A to point C. C)point A to point B. D)point B to point A. E)point C to point B.

In which of the following situations might you expect expansionary monetary policy to reduce the unemployment rate? A)if expectations are rational B)if changes in monetary policy are unanticipated C)if actual inflation is higher than expected D)if actual inflation is lower than expected E)if actual inflation is equal to expected inflation

Some economists argue that the short-run Phillips curve is not vertical, and that monetary policy can be effective in the short run.Which one of the following is not one of the reasons for this skepticism? A)Empirical evidence shows workers and firms have rational expectations. B)Contracts with workers and suppliers may hinder firms' abilities to adjust to price changes. C)Wages and prices may not adjust rapidly enough to keep the short-run Phillips curve vertical. D)Individuals may not be able to use information of Bank of Canada policy to make a reliable forecast of inflation. E)Many workers and firms do not make forecasts of inflation at all.

If wages and prices adjust slowly, we would expect expansionary monetary policy to be A)less likely to reduce the natural unemployment rate. B)more likely to reduce inflation. C)more likely to affect the unemployment rate. D)more likely to result in a vertical short-run Phillips curve. E)less likely to affect investment spending.

Models that focus on factors such as technology shocks rather than "monetary" explanations of fluctuations in real GDP are called A)nonmonetary business cycle models. B)real business cycle models. C)rational expectations models. D)short-run macroeconomic models. E)new Keynesian models.

Which of the following would be the source of a "real" business cycle? A)changes in technology B)anticipated expansionary monetary policy C)unanticipated expansionary monetary policy D)unanticipated contractionary monetary policy E)anticipated expansionary fiscal policy

According to real business cycle models, A)the long-run Phillips curve is negatively sloped. B)the economy is normally operating below the natural rate of unemployment. C)unexpected changes in monetary policy are the major source of fluctuations in real GDP. D)the economy is normally at potential GDP. E)the economy is normally experiencing cyclical unemployment.

The major criticism of real business cycle models is A)negative technology shocks are uncommon and can't explain all business cycle fluctuations. B)positive technology shocks actually push real GDP above the economy's potential GDP. C)negative technology shocks actually push real GDP below the economy's potential GDP. D)this model relies too heavily on monetary explanations for fluctuations in real GDP. E)this model does not offer an explanation of how shocks are transmitted from one sector to another.