Question 1

According to the new Keynesian model, expansionary monetary policy can be effective if it is

Accepted Answer

A)  anticipated. 
B)  unanticipated. 
C)  both of the above. 
D)  neither of the above. 
A)  anticipated. 
B)  unanticipated. 
C)  both of the above. 
D)  neither of the above. C

Question 2

In the new Keynesian model, a credible commitment to lower inflation will cause output to rise.

Accepted Answer

A) True 
 B)False  False

Question 3

If output was above the natural rate and the central bank raised interest rates to shift AD left so output fell back to the natural rate, the AS curve would respond by

Accepted Answer

A)  shifting to the right. 
B)  shifting to the left. 
C)  not shifting at all. 
D)  rotating right 
A)  shifting to the right. 
B)  shifting to the left. 
C)  not shifting at all. 
D)  rotating right C

Question 4

New Keynesian economists believe that EMP cannot increase output above the natural rate in the short run.

Accepted Answer

A) True 
 B)False

Question 5

In the new Keynesian framework, disinflation policies are costly in terms of lowered output, since expectations are not rational.

Accepted Answer

A) True 
 B)False

Question 6

One danger of using monetary policy to end a recession is that

Accepted Answer

A)  sticky wages will have the purchasing power eroded. 
B)  prices will rise and workers will demand higher wages. 
C)  it might not be possible for AD to shift enough. 
D)  none of the above. 
A)  sticky wages will have the purchasing power eroded. 
B)  prices will rise and workers will demand higher wages. 
C)  it might not be possible for AD to shift enough. 
D)  none of the above.

Question 7

A large change in expectations can cause EMP to lead to a reduction in output if the shift in _____ is not sufficiently large.

Accepted Answer

A)  IS 
B)  LM 
C)  AD 
D)  none of the above 
A)  IS 
B)  LM 
C)  AD 
D)  none of the above

Question 8

In the new classical framework, anti-inflationary monetary policy could lead to an increase in output if the policy change was more aggressive than expected.

Accepted Answer

A) True 
 B)False

Question 9

If an increase in the federal funds rate is less than what was expected, prices could rise.

Accepted Answer

A) True 
 B)False

Question 10

Under rational expectations, shifts in AS take less time.

Accepted Answer

A) True 
 B)False

Question 11

Unlike new Keynesian models, new classical models assume rational expectations.

Accepted Answer

A) True 
 B)False

Question 12

If an increase in the money supply is less than what was expected, output will rise.

Accepted Answer

A) True 
 B)False

Question 13

Unanticipated policy changes do NOT affect equilibrium output in which of the following models?

Accepted Answer

A)  standard Keynesian 
B)  new classical 
C)  new Keynesian 
D)  Output is unaffected in all of the above. 
A)  standard Keynesian 
B)  new classical 
C)  new Keynesian 
D)  Output is unaffected in all of the above.

Question 14

In the new classical model, if the money supply falls less than expected, then the shift to the _____ by AD will be _____ than the shift to the _____ by AS in the short run.

Accepted Answer

A)  left, greater, right 
B)  left, less, right 
C)  right, greater, left 
D)  right, less, left 
A)  left, greater, right 
B)  left, less, right 
C)  right, greater, left 
D)  right, less, left

Question 15

Anticipated policy changes have no effect on unemployment in which of the following models?

Accepted Answer

A)  standard Keynesian 
B)  new classical 
C)  new Keynesian 
D)  all of the above 
A)  standard Keynesian 
B)  new classical 
C)  new Keynesian 
D)  all of the above

Question 16

What are the implications about the long run under new classical assumptions?

Accepted Answer

The long r

Question 17

What is the major element introduced to macroeconomics models by new classical economists?

Accepted Answer

rational e

Question 18

Compared to the standard IS-LM model, the new Keynesian model implies that policy changes move equilibrium value in the same direction but at different magnitudes.

Accepted Answer

A) True 
 B)False

Question 19

Wages and prices adjustments are slow.

Accepted Answer

A) True 
 B)False

Question 20

If government spending rises less than expected, then the equilibrium price level rises under the

Accepted Answer

A)  new classical model. 
B)  new Keynesian model. 
C)  both of the above. 
D)  none of the above. 
A)  new classical model. 
B)  new Keynesian model. 
C)  both of the above. 
D)  none of the above.

Exam 26: Rational Expectations Redux: Monetary Policy Implications

According to the new Keynesian model, expansionary monetary policy can be effective if it is

In the new Keynesian model, a credible commitment to lower inflation will cause output to rise.

If output was above the natural rate and the central bank raised interest rates to shift AD left so output fell back to the natural rate, the AS curve would respond by

New Keynesian economists believe that EMP cannot increase output above the natural rate in the short run.

In the new Keynesian framework, disinflation policies are costly in terms of lowered output, since expectations are not rational.

One danger of using monetary policy to end a recession is that

A large change in expectations can cause EMP to lead to a reduction in output if the shift in _____ is not sufficiently large.

In the new classical framework, anti-inflationary monetary policy could lead to an increase in output if the policy change was more aggressive than expected.

If an increase in the federal funds rate is less than what was expected, prices could rise.

Under rational expectations, shifts in AS take less time.

Unlike new Keynesian models, new classical models assume rational expectations.

If an increase in the money supply is less than what was expected, output will rise.

Unanticipated policy changes do NOT affect equilibrium output in which of the following models?

In the new classical model, if the money supply falls less than expected, then the shift to the _____ by AD will be _____ than the shift to the _____ by AS in the short run.

Anticipated policy changes have no effect on unemployment in which of the following models?

What are the implications about the long run under new classical assumptions?

What is the major element introduced to macroeconomics models by new classical economists?

Compared to the standard IS-LM model, the new Keynesian model implies that policy changes move equilibrium value in the same direction but at different magnitudes.

Wages and prices adjustments are slow.

If government spending rises less than expected, then the equilibrium price level rises under the

The Financial System

Money

Interest Rates

The Economics of Interest-Rate Fluctuations

The Economics of Interest-Rate Spreads and Yield Curves

Rational Expectations, Efficient Markets, and the Valuation of Corporate Equities

Financial Structure, Transaction Costs, and Asymmetric Information

Bank Management

Innovation and Structure in Banking and Finance

The Economics of Financial Regulation

Financial Derivatives

Financial Crises: Causes and Consequences

Central Bank Form and Function

The Money Supply Process and the Money Multipliers

Monetary Policy Tools

Monetary Policy Targets and Goals

Foreign Exchange

International Monetary Regimes

Money Demand

Is-Lm

Is-Lm in Action

Aggregate Supply and Demand and the Growth Diamond

Monetary Policy Transmission Mechanisms

Inflation and Money

Filters

In the new classical model, if the money supply falls less than expected, then the shift to the ___ by AD will be _ than the shift to the ___ by AS in the short run.