Question 1

U.S. economy in the early 1980s gave support for the key assumptions of the new Keynesian model.

Accepted Answer

A) True 
 B)False

Question 2

At the beginning of the Reagan administration, AS shifted in spite of the Fed's commitment to lower inflation. What does this imply about the labor market and the validity of the new classical assumptions?

Accepted Answer

The shift indicated the wages must have

Question 3

Activist policy is NOT effective according to which model?

Accepted Answer

A)  standard Keynesian 
B)  new classical 
C)  new Keynesian 
D)  It is effective for all of them. 
A)  standard Keynesian 
B)  new classical 
C)  new Keynesian 
D)  It is effective for all of them.

Question 4

Starting from the natural rate of output on an AS-AD diagram, show and explain how a new classical economist would recommend using monetary policy to lower the equilibrium price.

Accepted Answer

@#IMG-DLM& The Fed should lower the mone

Question 5

In the new classical framework, fiscal policy is ineffective as long as policy is anticipated.

Accepted Answer

A) True 
 B)False

Question 6

Anticipated EMP has ____ effect on output in the new Keynesian model compared to the standard version.

Accepted Answer

A)  a greater 
B)  less of an 
C)  the same 
D)  cannot be determined 
A)  a greater 
B)  less of an 
C)  the same 
D)  cannot be determined

Question 7

If autonomous consumption rises more than expected, then output 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.

Question 8

Central bank independence is the only factor affecting the credibility of anti-inflation policy.

Accepted Answer

A) True 
 B)False

Question 9

Show a graph of AS-AD where expansionary monetary policy that does not meet expectations leads to a reduction in output.

Accepted Answer

@#IMG-DLM& The money supply increase shifts AD to

Question 10

New classical economists tend to favor non-activist policies.

Accepted Answer

A) True 
 B)False

Question 11

Use an AS-AD graph to show difference in the short-run effect of EMP in a standard Keynesian and a new Keynesian model.

Accepted Answer

@#IMG-DLM& EMP shifts AD to the right under both m

Question 12

The new Keynesian model assumes price and wages are flexible.

Accepted Answer

A) True 
 B)False

Question 13

Longer term contracts between firms and suppliers would tend to make EMP less effective.

Accepted Answer

A) True 
 B)False

Question 14

The credibility of an anti-inflation announcement depends on

Accepted Answer

A)  the independence of the central bank. 
B)  past behavior of the central bank. 
C)  government budget deficits. 
D)  all of the above. 
A)  the independence of the central bank. 
B)  past behavior of the central bank. 
C)  government budget deficits. 
D)  all of the above.

Question 15

Credibility of an inflation reduction policy does NOT matter 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

If output starts below the natural rate, and the central bank reduces the interest rate to shift AD and raise output back to the natural rate, what is the difference in the response of AS under the new Keynesian and new Classical models?

Accepted Answer

There is no difference. Once o

Question 17

New Keynesians believe that anticipated policies have some short-term effects due to wage and price stickiness.

Accepted Answer

A) True 
 B)False

Question 18

In Bolivia, the creation of an independent central bank was the key factor in reducing inflation in the late 1980s.

Accepted Answer

A) True 
 B)False

Question 19

Unanticipated monetary policy designed to reduce inflation would lead to a reduction in employment under which model?

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 20

If prices (and wages) are flexible and all policy changes are anticipated, there is no distinction between the long run and the short run.

Accepted Answer

A) True 
 B)False

Exam 26: Rational Expectations Redux: Monetary Policy Implications

U.S. economy in the early 1980s gave support for the key assumptions of the new Keynesian model.

At the beginning of the Reagan administration, AS shifted in spite of the Fed's commitment to lower inflation. What does this imply about the labor market and the validity of the new classical assumptions?

Activist policy is NOT effective according to which model?

Starting from the natural rate of output on an AS-AD diagram, show and explain how a new classical economist would recommend using monetary policy to lower the equilibrium price.

In the new classical framework, fiscal policy is ineffective as long as policy is anticipated.

Anticipated EMP has ____ effect on output in the new Keynesian model compared to the standard version.

If autonomous consumption rises more than expected, then output rises under the

Central bank independence is the only factor affecting the credibility of anti-inflation policy.

Show a graph of AS-AD where expansionary monetary policy that does not meet expectations leads to a reduction in output.

New classical economists tend to favor non-activist policies.

Use an AS-AD graph to show difference in the short-run effect of EMP in a standard Keynesian and a new Keynesian model.

The new Keynesian model assumes price and wages are flexible.

Longer term contracts between firms and suppliers would tend to make EMP less effective.

The credibility of an anti-inflation announcement depends on

Credibility of an inflation reduction policy does NOT matter in which of the following models?

If output starts below the natural rate, and the central bank reduces the interest rate to shift AD and raise output back to the natural rate, what is the difference in the response of AS under the new Keynesian and new Classical models?

New Keynesians believe that anticipated policies have some short-term effects due to wage and price stickiness.

In Bolivia, the creation of an independent central bank was the key factor in reducing inflation in the late 1980s.

Unanticipated monetary policy designed to reduce inflation would lead to a reduction in employment under which model?

If prices (and wages) are flexible and all policy changes are anticipated, there is no distinction between the long run and the short run.

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

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