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The Fed was right to push up interest rates because it needs to 



1. "The U.S. price control program, which was adopted in the second half of 1971, partly suspended the market system, producing distortion and shortages while 89 
suppressing inflation instead of resolving it." The inflation was suppressed rather than resolved because 
a) the permitted price increases were not set low enough 
b) the money supply growth rate was not lowered enough 
c) the penalties for violation of the controls were too light 
d) the market system was partly instead of fully suspended 
2. "The Fed has always acknowledged openly that disinflation involved employment costs. A key message in its officials' speeches during disinflation was that the employment consequences would be reduced once wage and price setters realized that it was absolutely committed to lowering inflation." The rationale behind this key message is that 
a) disinflation takes time 
b) the Phillips curve is asymmetric 
c) it is impossible to avoid prolonged high unemployment during disinflation 
d) unemployment during disinflation is much lower if expectations of inflation fall quickly 
3. "Stockman told the U.S. Chamber of Commerce that 'High interest rates, unacceptable levels of current unemployment, lost output, financial strains and rising bankruptcies in the economy are all unpleasant facts of life, but are all part of the cure, not the problem.'" The rationale for this is that recessions can cure 
	inflation b) cyclical downturns 
	c) real growth imbalances d) anomalous unemployment 

4. "Some economists said the declining unemployment rate partly explains why the Fed has been pursuing a restrictive monetary policy for more than a year." This is because the Fed is worried that 
a) interest rates may start to rise b) it may lose control over money growth 
c) unemployment may fall below the NRU d) unemployment may not continue to fall 
5. "Most estimates suggest that America's natural rate of unemployment is around 6 percent, only slightly higher than it was in the 1960s. Since the current jobless rate is 6.1 percent, this suggests that the Fed was right to push up interest rates this spring - and may even have acted a bit too late." The Fed was right to push up interest rates because it needs to 
a) avoid higher taxes b) head off possible inflation 
c) promote long-term growth d) prevent the economy from reaching the NRU




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