Exam 14: Expectations: the Basic Tools

Lower money growth tends to cause:

The Fisher effect summarises the effects of:

Suppose there is an increase in government spending. Such a fiscal policy action will cause:

Assume that the inflation rate is positive. Given this information, which of the following is always true?

Assume that the nominal interest rate is equal to 0. Use this information and the information about the payments provided below, rank the following three sequences of payments according to their present value.

With a nominal interest rate of 22%, the present discounted value of $1100 to be received in one year is:

Suppose households feel less optimistic about the future and decide to reduce consumption. This fall in consumer confidence will cause:

Suppose the central bank engages in contractionary monetary policy that results in lower money growth. This lower money growth will cause which of the following in the medium run?

Which of the following explains why the Great Depression did not end sooner?

Suppose the economy is initially operating at the natural level of output. Now, suppose the central bank raises the inflation target by 2.5%. Given this information, we would expect that:

Suppose that the nominal interest rate and expected inflation rate both increase by 3%. These equal increases in the nominal interest rate and expected inflation rate will cause:

The present discounted value of a future payment becomes smaller when:

Assume that expected inflation is zero, then we know that:

An increase in the nominal interest rate, all else held constant, will always cause which of the following?

From 1929 to 1932, U.S. output growth was:

Suppose the Reserve Bank of Australia pursues contractionary monetary policy. This policy move will tend to cause:

Explain what the Fisher effect/Fisher hypothesis represents.

To reduce the nominal interest rate in the short run, what type of policy should the central bank pursue? Explain.

Discuss how a manager of a mining company would use the expected present discounted value to make decisions on whether to purchase machines and equipments to develop a new mine.

A consol bond promises to pay $1500 each year, forever, starting next year. If the nominal interest rate is 6%, the present discounted value of this consol is: