Question

The active monetary policies of the 1960s were based on the short-run implications of the Phillips curve. It was assumed that the ____relationship between unemployment and inflation would hold up in the long run. Recently, the Federal Reserve has moved to more____ monetary policies that reflect the recognition that people adjust their expectations of future inflation. Recent Fed chairmen have taken actions that lead to ____surprises in monetary policy. passive inverse more positive fewer

Answer 1

The active monetary policies of the 1960s were based on an inverse relationship between inflation and unemployment suggested by the Phillips curve. Over time, recognition of people's adaptive expectations resulted in the Federal Reserve employing more passive monetary policies aiming for fewer surprises.

Step-by-step explanation:

The active monetary policies of the 1960s relied on the Phillips curve, which indicated a trade-off between inflation and unemployment.

Policymakers assumed an inverse relationship between unemployment and inflation, hoping this would hold in the long run. However, this approach failed as both inflation and unemployment increased, which led to a shift in the Phillips curve.

Recently, the Federal Reserve adopted more passive monetary policies. These policies acknowledge that people adjust their inflation expectations over time, leading the Fed to aim for fewer surprises in monetary policy to maintain economic stability.