Question 1

Monetary policymakers are unsure about the effects of an interest rate change on exchange rates. What type of lag is this?

Accepted Answer

effectiveness lag

Question 2

The lag for monetary policymakers obtaining information about unemployment is called

Accepted Answer

A)  data lag. 
B)  legislative lag. 
C)  implementation lag. 
D)  recognition lag. 
A)  data lag. 
B)  legislative lag. 
C)  implementation lag. 
D)  recognition lag. A

Question 3

Implementation lag in monetary policy is more of a problem with discount lending than for open market operations.

Accepted Answer

A) True 
 B)False  True

Question 4

When policy makers want to get out of a recession, they might respond with

Accepted Answer

A)  EMP. 
B)  borrowing from other countries. 
C)  lowering taxes. 
D)  none of the above. 
A)  EMP. 
B)  borrowing from other countries. 
C)  lowering taxes. 
D)  none of the above.

Question 5

Implementation lag is a more serious problem for monetary policy than fiscal policy.

Accepted Answer

A) True 
 B)False

Question 6

Inflation arising from a rise in the price of imported input goods like copper is an example of

Accepted Answer

A)  demand-pull inflation. 
B)  cost-push inflation. 
C)  both of the above. 
D)  neither of the above. 
A)  demand-pull inflation. 
B)  cost-push inflation. 
C)  both of the above. 
D)  neither of the above.

Question 7

The uncertain effects of bond purchases and sales on the federal funds rate are examples of effectiveness lags for monetary policy.

Accepted Answer

A) True 
 B)False

Question 8

Draw a graph showing the short- and long-run effects of an increase in the money supply.

Accepted Answer

@#IMG-DLM& An increase in the money supply shifts

Question 9

A monetary policymaker using a Taylor Rule could cause persistently increasing inflation if

Accepted Answer

A)  the estimate of the equilibrium real federal funds rate is too high. 
B)  the inflation target is too high. 
C)  the estimate of potential GDP is too high. 
D)  all of the above. 
A)  the estimate of the equilibrium real federal funds rate is too high. 
B)  the inflation target is too high. 
C)  the estimate of potential GDP is too high. 
D)  all of the above.

Question 10

An increase in the money supply does not increase the natural rate of output.

Accepted Answer

A) True 
 B)False

Question 11

When workers negotiate higher wages but monetary policy is accommodative, the resulting decrease in equilibrium output is due to a shift in _____, while the long-run return to the natural rate of output is due to a shift in

Accepted Answer

A)  AD, AD. 
B)  AD, AS. 
C)  AS, AD. 
D)  AS, AS. 
A)  AD, AD. 
B)  AD, AS. 
C)  AS, AD. 
D)  AS, AS.

Question 12

Recognition lag is a particularly difficult problem for which variable?

Accepted Answer

A)  potential GDP 
B)  interest rates 
C)  unemployment rate 
D)  none of the above 
A)  potential GDP 
B)  interest rates 
C)  unemployment rate 
D)  none of the above

Question 13

Unions temporarily gain additional bargaining power. Show the short-run impact on an AS-AD graph. Also show the long-run result, if monetary policy is not accommodative.

Accepted Answer

@#IMG-DLM& The increase in wages shift A

Question 14

If the monetary policymaker keeps trying to keep unemployment exceptionally low

Accepted Answer

A)  output will stay below the natural rate. 
B)  prices will continually rise. 
C)  real interest rates will remain high. 
D)  all of the above. 
A)  output will stay below the natural rate. 
B)  prices will continually rise. 
C)  real interest rates will remain high. 
D)  all of the above.

Question 15

Effectiveness lags are a problem for monetary policymakers due to the uncertain effect of _____ changes on

Accepted Answer

A)  tax rate, consumption 
B)  interest rate, investment 
C)  lending, productivity 
D)  all of the above 
A)  tax rate, consumption 
B)  interest rate, investment 
C)  lending, productivity 
D)  all of the above

Question 16

There is often pressure on central banks to raise output and reduce unemployment in the short run. Explain how this creates a time consistency problem.

Accepted Answer

The long-run goals of a centra

Question 17

A decrease in gas prices leads to cost-push inflation.

Accepted Answer

A) True 
 B)False

Question 18

There is no limit on the supply of money.

Accepted Answer

A) True 
 B)False

Question 19

Only increases in government spending can lead to continually rising inflation.

Accepted Answer

A) True 
 B)False

Question 20

A currency appreciation leads to demand-pull inflation.

Accepted Answer

A) True 
 B)False

Exam 25: Inflation and Money

Monetary policymakers are unsure about the effects of an interest rate change on exchange rates. What type of lag is this?

The lag for monetary policymakers obtaining information about unemployment is called

Implementation lag in monetary policy is more of a problem with discount lending than for open market operations.

When policy makers want to get out of a recession, they might respond with

Implementation lag is a more serious problem for monetary policy than fiscal policy.

Inflation arising from a rise in the price of imported input goods like copper is an example of

The uncertain effects of bond purchases and sales on the federal funds rate are examples of effectiveness lags for monetary policy.

Draw a graph showing the short- and long-run effects of an increase in the money supply.

A monetary policymaker using a Taylor Rule could cause persistently increasing inflation if

An increase in the money supply does not increase the natural rate of output.

When workers negotiate higher wages but monetary policy is accommodative, the resulting decrease in equilibrium output is due to a shift in _____, while the long-run return to the natural rate of output is due to a shift in

Recognition lag is a particularly difficult problem for which variable?

Unions temporarily gain additional bargaining power. Show the short-run impact on an AS-AD graph. Also show the long-run result, if monetary policy is not accommodative.

If the monetary policymaker keeps trying to keep unemployment exceptionally low

Effectiveness lags are a problem for monetary policymakers due to the uncertain effect of _____ changes on

There is often pressure on central banks to raise output and reduce unemployment in the short run. Explain how this creates a time consistency problem.

A decrease in gas prices leads to cost-push inflation.

There is no limit on the supply of money.

Only increases in government spending can lead to continually rising inflation.

A currency appreciation leads to demand-pull inflation.

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

Rational Expectations Redux: Monetary Policy Implications

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