Question 1

Who benefits most from inflation?

Accepted Answer

A)  those not bound by sticky prices 
B)  those who can predict the inflation rate 
C)  those who have entered into long-term contracts 
D)  those engaged in politics 
E)  those who do not anticipate price level changes 
A)  those not bound by sticky prices 
B)  those who can predict the inflation rate 
C)  those who have entered into long-term contracts 
D)  those engaged in politics 
E)  those who do not anticipate price level changes

Question 2

Two alternative theories that hypothesize how people form expectations are ________ expectations
theory and ________ expectations theory.

Accepted Answer

A)  adaptive; rational 
B)  perfect; adaptive 
C)  rational; perfect 
D)  realistic; perfect 
E)  adaptive; realistic 
A)  adaptive; rational 
B)  perfect; adaptive 
C)  rational; perfect 
D)  realistic; perfect 
E)  adaptive; realistic

Question 3

When both long-run and short-run aggregate supply shift leftward,

Accepted Answer

A)  monetary policy is more likely to restore the economy to its prerecession conditions. 
B)  inflation is not a concern. 
C)  the natural rate of unemployment decreases. 
D)  monetary policy can have no effect on the economy, even in the short run. 
E)  monetary policy is much less likely to restore the economy to its prerecession conditions. 
A)  monetary policy is more likely to restore the economy to its prerecession conditions. 
B)  inflation is not a concern. 
C)  the natural rate of unemployment decreases. 
D)  monetary policy can have no effect on the economy, even in the short run. 
E)  monetary policy is much less likely to restore the economy to its prerecession conditions.

Question 4

What are two prominent classes of victims of unexpected inflation?

Accepted Answer

A)  firms and politicians 
B)  workers and lenders 
C)  workers and consumers 
D)  banks and investors 
E)  firms and consumers 
A)  firms and politicians 
B)  workers and lenders 
C)  workers and consumers 
D)  banks and investors 
E)  firms and consumers

Question 5

By shifting aggregate demand, monetary policy can affect ________ and ________.

Accepted Answer

A)  real gross domestic product GDP); unemployment 
B)  real gross domestic product GDP); interest rates 
C)  interest rates; unemployment 
D)  money supply; real gross domestic product GDP) 
E)  money supply; unemployment 
A)  real gross domestic product GDP); unemployment 
B)  real gross domestic product GDP); interest rates 
C)  interest rates; unemployment 
D)  money supply; real gross domestic product GDP) 
E)  money supply; unemployment

Question 6

If inflation is expected,

Accepted Answer

A)  the effects of monetary policy will be amplified. 
B)  prices become sticky. 
C)  the effects of monetary policy will be delayed. 
D)  prices are not sticky. 
E)  the effects of fiscal policy will be amplified. 
A)  the effects of monetary policy will be amplified. 
B)  prices become sticky. 
C)  the effects of monetary policy will be delayed. 
D)  prices are not sticky. 
E)  the effects of fiscal policy will be amplified.

Question 7

If expectations are formed rationally, then

Accepted Answer

A)  activist monetary policy may yield no gains whatsoever. 
B)  monetary policy has real effects in the long run. 
C)  inflation will only hurt lenders and not borrowers. 
D)  inflation will only hurt borrowers and not lenders. 
E)  individuals expect inflation equal to their most recent experience. 
A)  activist monetary policy may yield no gains whatsoever. 
B)  monetary policy has real effects in the long run. 
C)  inflation will only hurt lenders and not borrowers. 
D)  inflation will only hurt borrowers and not lenders. 
E)  individuals expect inflation equal to their most recent experience.

Question 8

Over the past five years, you have recorded the inflation rate to be 3 percent, 4 percent, 3 percent, 4 percent, and 3 percent, respectively. According to adaptive expectations theory, what would market participants expect inflation to be next year, and why?

Accepted Answer

Adaptive expectations theory holds that

Question 9

Refer to the following figure to answer the next questions.
  
- According to the figure, contractionary monetary policy starting at full-employment equilibrium will go from point ________ to point ________ in the short run and then to point ________ in the long
run.

Accepted Answer

A)  A; D; A 
B)  C; B; A 
C)  A; D; C 
D)  C; D; C 
E)  C; D; A 
A)  A; D; A 
B)  C; B; A 
C)  A; D; C 
D)  C; D; C 
E)  C; D; A

Question 10

In the short run, contractionary monetary policy ________ real gross domestic product (GDP),
________ unemployment, and ________ the price level.

Accepted Answer

A)  raises; lowers; raises 
B)  raises; raises; raises 
C)  lowers; lowers; raises 
D)  lowers; raises; lowers 
E)  raises; lowers; lowers 
A)  raises; lowers; raises 
B)  raises; raises; raises 
C)  lowers; lowers; raises 
D)  lowers; raises; lowers 
E)  raises; lowers; lowers

Question 11

One explanation for the length of the Great Recession is that there was a leftward shift in the long-run aggregate supply curve, caused by

Accepted Answer

A)  instability in the housing market. 
B)  new financial regulations. 
C)  decreased consumer confidence. 
D)  sticky prices. 
E)  decay of key infrastructure. 
A)  instability in the housing market. 
B)  new financial regulations. 
C)  decreased consumer confidence. 
D)  sticky prices. 
E)  decay of key infrastructure.

Question 12

When inflation is not a surprise,

Accepted Answer

A)  the Phillips curve is downward sloping. 
B)  activist monetary policy has a real effect on the economy. 
C)  the economy is not at full-employment output. 
D)  it does not affect the unemployment rate. 
E)  the economy is expanding. 
A)  the Phillips curve is downward sloping. 
B)  activist monetary policy has a real effect on the economy. 
C)  the economy is not at full-employment output. 
D)  it does not affect the unemployment rate. 
E)  the economy is expanding.

Question 13

Since the early 1980s, the Federal Reserve has moved toward which type of monetary policy?

Accepted Answer

A)  active 
B)  expansionary 
C)  contractionary 
D)  adaptive 
E)  passive 
A)  active 
B)  expansionary 
C)  contractionary 
D)  adaptive 
E)  passive

Question 14

An active monetary policy that attempts to smooth out the business cycle would involve conducting ________ monetary policy during recessions and ________ monetary policy during expansions.

Accepted Answer

A)  contractionary; contractionary 
B)  expansionary; expansionary 
C)  contractionary; expansionary 
D)  expansionary; contractionary 
E)  countercyclical; expansionary 
A)  contractionary; contractionary 
B)  expansionary; expansionary 
C)  contractionary; expansionary 
D)  expansionary; contractionary 
E)  countercyclical; expansionary

Question 15

Since the 1980s, the Federal Reserve has moved away from ________ monetary policy.

Accepted Answer

A)  adaptive 
B)  active 
C)  expansionary 
D)  passive 
E)  contractionary 
A)  adaptive 
B)  active 
C)  expansionary 
D)  passive 
E)  contractionary

Question 16

Refer to the following figure to answer the next  questions.
  
-According to the figure, if an expansionary monetary policy is fully expected, that policy will cause an economy initially in full-employment equilibrium to move from point

Accepted Answer

A)  A to B. 
B)  A to B and back to A. 
C)  A to B to C. 
D)  A to C and back to A. 
E)  A to C. 
A)  A to B. 
B)  A to B and back to A. 
C)  A to B to C. 
D)  A to C and back to A. 
E)  A to C.

Question 17

Starting at macroeconomic equilibrium at full employment, show the effect of completely expected expansionary monetary policy using an aggregate demand-aggregate supply AD-AS) model and discuss.

Accepted Answer

As shown in the following AD-AS model:

Question 18

________ would be hurt by unexpected inflation.

Accepted Answer

A)  Someone who borrowed money at a fixed interest rate 
B)  A firm who hired a worker on a two-year wage contract 
C)  A worker who signed a two-year wage contract 
D)  A worker whose wage increases with inflation 
E)  A firm that purchased inputs with a two-year contract 
A)  Someone who borrowed money at a fixed interest rate 
B)  A firm who hired a worker on a two-year wage contract 
C)  A worker who signed a two-year wage contract 
D)  A worker whose wage increases with inflation 
E)  A firm that purchased inputs with a two-year contract

Question 19

Which of the following statements about expectations theory is true?

Accepted Answer

A)  Adaptive expectations theory implies that people form expectations on the basis of all available information. 
B)  Rational expectations theory implies that people's expectations of future inflation are based on their most recent experiences. 
C)  Rational expectations theory does not imply that people always predict inflation correctly. 
D)  Adaptive expectations theory identifies prediction errors as random. 
E)  Rational expectations theory was developed before adaptive expectations theory. 
A)  Adaptive expectations theory implies that people form expectations on the basis of all available information. 
B)  Rational expectations theory implies that people's expectations of future inflation are based on their most recent experiences. 
C)  Rational expectations theory does not imply that people always predict inflation correctly. 
D)  Adaptive expectations theory identifies prediction errors as random. 
E)  Rational expectations theory was developed before adaptive expectations theory.

Question 20

The traditional short-run Phillips curve implies that

Accepted Answer

A)  a central bank has no impact on the unemployment rate. 
B)  a central bank has no impact on inflation. 
C)  a central bank can choose higher or lower unemployment rates simply by adjusting the rate of inflation in an economy. 
D)  prices are completely flexible. 
E)  unemployment and inflation are unrelated. 
A)  a central bank has no impact on the unemployment rate. 
B)  a central bank has no impact on inflation. 
C)  a central bank can choose higher or lower unemployment rates simply by adjusting the rate of inflation in an economy. 
D)  prices are completely flexible. 
E)  unemployment and inflation are unrelated.

Who benefits most from inflation?

Two alternative theories that hypothesize how people form expectations are expectations theory and expectations theory.

When both long-run and short-run aggregate supply shift leftward,

What are two prominent classes of victims of unexpected inflation?

By shifting aggregate demand, monetary policy can affect and .

If inflation is expected,

If expectations are formed rationally, then

Over the past five years, you have recorded the inflation rate to be 3 percent, 4 percent, 3 percent, 4 percent, and 3 percent, respectively. According to adaptive expectations theory, what would market participants expect inflation to be next year, and why?

Refer to the following figure to answer the next questions. - According to the figure, contractionary monetary policy starting at full-employment equilibrium will go from point to point in the short run and then to point in the long run.

In the short run, contractionary monetary policy real gross domestic product (GDP), unemployment, and the price level.

One explanation for the length of the Great Recession is that there was a leftward shift in the long-run aggregate supply curve, caused by

When inflation is not a surprise,

Since the early 1980s, the Federal Reserve has moved toward which type of monetary policy?

An active monetary policy that attempts to smooth out the business cycle would involve conducting monetary policy during recessions and monetary policy during expansions.

Since the 1980s, the Federal Reserve has moved away from ________ monetary policy.

Refer to the following figure to answer the next questions. -According to the figure, if an expansionary monetary policy is fully expected, that policy will cause an economy initially in full-employment equilibrium to move from point

Starting at macroeconomic equilibrium at full employment, show the effect of completely expected expansionary monetary policy using an aggregate demand-aggregate supply AD-AS) model and discuss.

________ would be hurt by unexpected inflation.

Which of the following statements about expectations theory is true?

The traditional short-run Phillips curve implies that

Five Foundations of Economics

Model Building and Gains From Trade

The Market at Work: Supply and Demand

Market Outcomes and Tax Incidence

Price Controls

Introduction to Macroeconomics and Gross Domestic Product

Unemployment

The Price Level and Inflation

Savings, Interest Rates, and the Market for Loanable Funds

Financial Markets and Securities

Economic Growth and the Wealth of Nations

Growth Theory

The Aggregate Demandaggregate Supply Model

The Great Recession, the Great Depression, and Great Macroeconomic Debates

Federal Budgets: the Tools of Fiscal Policy

Fiscal Policy

Money and the Federal Reserve

International Trade

International Finance

Filters

Exam 18: Monetary Policy Learning Objectives

Who benefits most from inflation?

Two alternative theories that hypothesize how people form expectations are ________ expectations theory and ________ expectations theory.

When both long-run and short-run aggregate supply shift leftward,

What are two prominent classes of victims of unexpected inflation?

By shifting aggregate demand, monetary policy can affect ________ and ________.

If inflation is expected,

If expectations are formed rationally, then

Over the past five years, you have recorded the inflation rate to be 3 percent, 4 percent, 3 percent, 4 percent, and 3 percent, respectively. According to adaptive expectations theory, what would market participants expect inflation to be next year, and why?

Refer to the following figure to answer the next questions. - According to the figure, contractionary monetary policy starting at full-employment equilibrium will go from point ________ to point ________ in the short run and then to point ________ in the long run.

In the short run, contractionary monetary policy ________ real gross domestic product (GDP), ________ unemployment, and ________ the price level.

One explanation for the length of the Great Recession is that there was a leftward shift in the long-run aggregate supply curve, caused by

When inflation is not a surprise,

Since the early 1980s, the Federal Reserve has moved toward which type of monetary policy?

An active monetary policy that attempts to smooth out the business cycle would involve conducting ________ monetary policy during recessions and ________ monetary policy during expansions.

Since the 1980s, the Federal Reserve has moved away from ________ monetary policy.

Refer to the following figure to answer the next questions. -According to the figure, if an expansionary monetary policy is fully expected, that policy will cause an economy initially in full-employment equilibrium to move from point

Starting at macroeconomic equilibrium at full employment, show the effect of completely expected expansionary monetary policy using an aggregate demand-aggregate supply AD-AS) model and discuss.

________ would be hurt by unexpected inflation.

Which of the following statements about expectations theory is true?

The traditional short-run Phillips curve implies that

Five Foundations of Economics

Model Building and Gains From Trade

The Market at Work: Supply and Demand

Market Outcomes and Tax Incidence

Price Controls

Introduction to Macroeconomics and Gross Domestic Product

Unemployment

The Price Level and Inflation

Savings, Interest Rates, and the Market for Loanable Funds

Financial Markets and Securities

Economic Growth and the Wealth of Nations

Growth Theory

The Aggregate Demandaggregate Supply Model

The Great Recession, the Great Depression, and Great Macroeconomic Debates

Federal Budgets: the Tools of Fiscal Policy

Fiscal Policy

Money and the Federal Reserve

International Trade

International Finance

Filters

Two alternative theories that hypothesize how people form expectations are expectations theory and expectations theory.

By shifting aggregate demand, monetary policy can affect and .

Refer to the following figure to answer the next questions. - According to the figure, contractionary monetary policy starting at full-employment equilibrium will go from point to point in the short run and then to point in the long run.

In the short run, contractionary monetary policy real gross domestic product (GDP), unemployment, and the price level.

An active monetary policy that attempts to smooth out the business cycle would involve conducting monetary policy during recessions and monetary policy during expansions.