Question 1

The Taylor rule has stabilizing effects on

Accepted Answer

A)  output. 
B)  interest rates. 
C)  inflation. 
D)  all of the above. 
E)  only a and c. 
A)  output. 
B)  interest rates. 
C)  inflation. 
D)  all of the above. 
E)  only a and c. E

Question 2

The sequence that brings an economy back toward equilibrium from a boom includes

Accepted Answer

A)  an increase in inflation that works its way into expectations. 
B)  higher inflationary expectations that reduce aggregate demand. 
C)  actual GDP converging to its potential even before inflation subsides completely. 
D)  all of the above. 
E)  none of the above. 
A)  an increase in inflation that works its way into expectations. 
B)  higher inflationary expectations that reduce aggregate demand. 
C)  actual GDP converging to its potential even before inflation subsides completely. 
D)  all of the above. 
E)  none of the above. D

Question 3

In an economy described collectively by a macroeconomic policy curve of the formYˆ =  − π − π *), an expectations-augmented

Accepted Answer

A)  lower inflation increasing nominal interest rates. 
B)  higher inflation increasing nominal interest rates. 
C)  lower inflation decreasing nominal interest rates. 
D)  higher inflation decreasing nominal interest rates. 
E)  changes in real variables and not adjustments in prices. 
A)  lower inflation increasing nominal interest rates. 
B)  higher inflation increasing nominal interest rates. 
C)  lower inflation decreasing nominal interest rates. 
D)  higher inflation decreasing nominal interest rates. 
E)  changes in real variables and not adjustments in prices. C

Question 4

A decision on the part of the FOMC to lower interest rates must necessarily be followed by

Accepted Answer

A)  Fed open market purchases, which lower the money supply and reduce interest rates. 
B)  Fed open market purchases, which increase the money supply and reduce interest rates. 
C)  Fed open market sales, which lower the money supply and reduce interest rates. 
D)  Fed open market sales, which increase the money supply and reduce interest rates. 
E)  Fed open market purchases, which increase the money supply and increase interest rates. 
A)  Fed open market purchases, which lower the money supply and reduce interest rates. 
B)  Fed open market purchases, which increase the money supply and reduce interest rates. 
C)  Fed open market sales, which lower the money supply and reduce interest rates. 
D)  Fed open market sales, which increase the money supply and reduce interest rates. 
E)  Fed open market purchases, which increase the money supply and increase interest rates.

Question 5

Recovery from a period of stagflation will be

Accepted Answer

A)  longer than recovery from a recession with the same gap between actual and potential GDP and no inflation. 
B)  almost identical to recovery from a recession with the same gap between actual and potential GDP and no inflation. 
C)  shorter than recovery from a recession with the same gap between actual and potential GDP and no inflation. 
D)  any of the above depending on circumstances defined within the domestic economy. 
E)  any of the above depending on situations that, from the perspective of writing policy, are entirely random and unpredictable. 
A)  longer than recovery from a recession with the same gap between actual and potential GDP and no inflation. 
B)  almost identical to recovery from a recession with the same gap between actual and potential GDP and no inflation. 
C)  shorter than recovery from a recession with the same gap between actual and potential GDP and no inflation. 
D)  any of the above depending on circumstances defined within the domestic economy. 
E)  any of the above depending on situations that, from the perspective of writing policy, are entirely random and unpredictable.

Question 6

The Federal Reserve, like other central banks, considers the role of monetary policy to be one of

Accepted Answer

A)  maintaining low and stable inflation. 
B)  achieving a targeted level of real GDP and unemployment over the long run. 
C)  maintaining a constant level of long-run monetary growth, thus keeping inflation in check. 
D)  influencing real GDP and unemployment in the short run. 
E)  both a and d. 
A)  maintaining low and stable inflation. 
B)  achieving a targeted level of real GDP and unemployment over the long run. 
C)  maintaining a constant level of long-run monetary growth, thus keeping inflation in check. 
D)  influencing real GDP and unemployment in the short run. 
E)  both a and d.

Question 7

The Taylor principle describes Fed behavior that nominal
Interest rates _ .

Accepted Answer

A)  raises, by the same amount as inflation 
B)  lowers, by less than the amount of inflation 
C)  lowers, by more than the amount of inflation 
D)  raises, by less than the amount of inflation 
E)  raises, by more than the amount of inflation 
A)  raises, by the same amount as inflation 
B)  lowers, by less than the amount of inflation 
C)  lowers, by more than the amount of inflation 
D)  raises, by less than the amount of inflation 
E)  raises, by more than the amount of inflation

Question 8

Of the following statements regarding macroeconomic performance since 1960, which is not true?

Accepted Answer

A)  The 1980s and 1900s are the longest peacetime expansions the United States has experienced. 
B)  Since the mid-1980s, real GDP fluctuations have fallen substantially. 
C)  The period from the late 1960s through the mid-1980s is characterized by both high inflation and large GDP fluctuations. 
D)  Since the mid-1980s, both inflation and real GDP fluctuations have fallen substantially. 
E)  The period from the late 1960s through the mid-1980s is characterized by low inflation and large GDP fluctuations. 
A)  The 1980s and 1900s are the longest peacetime expansions the United States has experienced. 
B)  Since the mid-1980s, real GDP fluctuations have fallen substantially. 
C)  The period from the late 1960s through the mid-1980s is characterized by both high inflation and large GDP fluctuations. 
D)  Since the mid-1980s, both inflation and real GDP fluctuations have fallen substantially. 
E)  The period from the late 1960s through the mid-1980s is characterized by low inflation and large GDP fluctuations.

Question 9

Given a monetary policy rule of the form r = p + 0.5Y^ + 0.5p - p*) + 0.03, a negative aggregate demand shock resulting in a -5 percent GDP gap leads the Fed to

Accepted Answer

A)  lower nominal interest rates by 5 percent. 
B)  lower the real interest rate target by 2.5 percent. 
C)  lower nominal interest rates by 2.5 percent. 
D)  lower the inflation target by 2.5 percent. 
E)  wait and see if the shock turned out to be a permanent change. 
A)  lower nominal interest rates by 5 percent. 
B)  lower the real interest rate target by 2.5 percent. 
C)  lower nominal interest rates by 2.5 percent. 
D)  lower the inflation target by 2.5 percent. 
E)  wait and see if the shock turned out to be a permanent change.

Question 10

Previous variables used by the Fed for monetary policy since 1970 include all of the following except

Accepted Answer

A)  money supply growth rates. 
B)  nominal interest rates. 
C)  average long-term inflation rates. 
D)  business cycle fluctuations. 
E)  none of the above; each has been used at some time during the past three decades. 
A)  money supply growth rates. 
B)  nominal interest rates. 
C)  average long-term inflation rates. 
D)  business cycle fluctuations. 
E)  none of the above; each has been used at some time during the past three decades.

Question 11

For a macroeconomic policy curve of the forY ˆ higher inflation means

Accepted Answer

A)  lower aggregate demand because the Fed raises interest rates according to its policy rule. 
B)  higher aggregate demand because higher interest rates produce higher levels of net exports. 
C)  higher aggregate demand because higher interest rates increase personal consumption. 
D)  b and c. 
E)  none of the above. 
A)  lower aggregate demand because the Fed raises interest rates according to its policy rule. 
B)  higher aggregate demand because higher interest rates produce higher levels of net exports. 
C)  higher aggregate demand because higher interest rates increase personal consumption. 
D)  b and c. 
E)  none of the above.

Question 12

Since the mid-1980s, the FOMC's chief policy focus has been the behavior of

Accepted Answer

A)  the growth rate of the money supply. 
B)  the federal funds rate. 
C)  margin requirements on stock purchases. 
D)  the discount rate. 
E)  reserve requirements. 
A)  the growth rate of the money supply. 
B)  the federal funds rate. 
C)  margin requirements on stock purchases. 
D)  the discount rate. 
E)  reserve requirements.

Question 13

Recovery from a recession can be expected to be quicker

Accepted Answer

A)  the more sensitive inflation is to economic conditions. 
B)  the more heavily recent inflationary experiences are incorporated into the computation of inflationary expectations. 
C)  the more responsive interest rates are to changes in inflation. 
D)  all of the above. 
E)  none of the above. 
A)  the more sensitive inflation is to economic conditions. 
B)  the more heavily recent inflationary experiences are incorporated into the computation of inflationary expectations. 
C)  the more responsive interest rates are to changes in inflation. 
D)  all of the above. 
E)  none of the above.

Question 14

Suppose government deficits increase such that real interest rates rise by 1.5 percentage points. According to the Taylor rule, if inflation targets remain unchanged, then nominal interest rates should rise by

Accepted Answer

A)  less than 1 percent. 
B)  between 1 and 1.5 percent. 
C)  exactly 1.5 percent. 
D)  between 1.5 and 2 percent. 
E)  more than 2 percent. 
A)  less than 1 percent. 
B)  between 1 and 1.5 percent. 
C)  exactly 1.5 percent. 
D)  between 1.5 and 2 percent. 
E)  more than 2 percent.

Question 15

During the early phases of recovery from stagflation,

Accepted Answer

A)  inflation continues to climb even though it eventually falls. 
B)  inflation begins to decline almost immediately. 
C)  inflation is initially unaffected. 
D)  any of the above depending on economic circumstances. 
E)  either a or c only) depending on economic circumstance. 
A)  inflation continues to climb even though it eventually falls. 
B)  inflation begins to decline almost immediately. 
C)  inflation is initially unaffected. 
D)  any of the above depending on economic circumstances. 
E)  either a or c only) depending on economic circumstance.

Question 16

Since the late 1980s, under Alan Greenspan, the Fed's operating instructions to the New York trading desk typically took the form of

Accepted Answer

A)  a short-term interest rate target. 
B)  an M1 target. 
C)  an M3 target. 
D)  a nominal GDP target. 
E)  a real GDP target. 
A)  a short-term interest rate target. 
B)  an M1 target. 
C)  an M3 target. 
D)  a nominal GDP target. 
E)  a real GDP target.

Question 17

Each of the following statements about the principles underlying the Taylor rule is true except

Accepted Answer

A)  the Fed desires to minimize inflation deviation from its target level. 
B)  the Fed desires to minimize real output fluctuations. 
C)  the Fed desires to minimize unemployment fluctuations. 
D)  the Fed desires to minimize interest rate fluctuations. 
E)  the Fed desires to minimize inflation fluctuations. 
A)  the Fed desires to minimize inflation deviation from its target level. 
B)  the Fed desires to minimize real output fluctuations. 
C)  the Fed desires to minimize unemployment fluctuations. 
D)  the Fed desires to minimize interest rate fluctuations. 
E)  the Fed desires to minimize inflation fluctuations.

Question 18

Stagflation is defined as a period of

Accepted Answer

A)  positive inflationary expectations with unemployment exceeding the natural rate. 
B)  positive inflationary expectations with actual GDP exceeding potential. 
C)  positive inflationary expectations associated with negative growth in net exports. 
D)  positive inflationary expectations associated with high real interest rates. 
E)  none of the above. 
A)  positive inflationary expectations with unemployment exceeding the natural rate. 
B)  positive inflationary expectations with actual GDP exceeding potential. 
C)  positive inflationary expectations associated with negative growth in net exports. 
D)  positive inflationary expectations associated with high real interest rates. 
E)  none of the above.

Question 19

Consider an economy described collectively by a schedule of the form
ˆ − δ
Y = B+
Α
Π − π *), an expectations-augmented Phillips curveand a
Partially backward-looking definition of how price expectations are formed. Which of the following is not an accurate description of a step in recovery from recession?

Accepted Answer

A)  Inflation falls as expectations gradually decline. 
B)  The microeconomic policy curve shifts to the right and predicts lower interest rates. 
C)  Higher investment dominates diminishing net exports to drive aggregate demand higher. 
D)  Higher output production drives employment and, thus, aggregate demand higher. 
E)  None of the above. 
A)  Inflation falls as expectations gradually decline. 
B)  The microeconomic policy curve shifts to the right and predicts lower interest rates. 
C)  Higher investment dominates diminishing net exports to drive aggregate demand higher. 
D)  Higher output production drives employment and, thus, aggregate demand higher. 
E)  None of the above.

Question 20

During the early phases of recovery from stagflation,

Accepted Answer

A)  inflation always begins to fall immediately. 
B)  inflation may rise or fall depending on whether or not inflationary expectations push prices up harder than excess supply pressures push them down. 
C)  output begins to increase immediately in all but very exceptional cases. 
D)  a and c. 
E)  b and c. 
A)  inflation always begins to fall immediately. 
B)  inflation may rise or fall depending on whether or not inflationary expectations push prices up harder than excess supply pressures push them down. 
C)  output begins to increase immediately in all but very exceptional cases. 
D)  a and c. 
E)  b and c.

The Taylor rule has stabilizing effects on

The sequence that brings an economy back toward equilibrium from a boom includes

In an economy described collectively by a macroeconomic policy curve of the formY^ˆ=⁻π − π *), an expectations-augmented

A decision on the part of the FOMC to lower interest rates must necessarily be followed by

Recovery from a period of stagflation will be

The Federal Reserve, like other central banks, considers the role of monetary policy to be one of

The Taylor principle describes Fed behavior that nominal Interest rates _ .

Of the following statements regarding macroeconomic performance since 1960, which is not true?

Given a monetary policy rule of the form r = p + 0.5Y^{^}+ 0.5p - p*) + 0.03, a negative aggregate demand shock resulting in a -5 percent GDP gap leads the Fed to

Previous variables used by the Fed for monetary policy since 1970 include all of the following except

For a macroeconomic policy curve of the forY ^ˆ higher inflation means

Since the mid-1980s, the FOMC's chief policy focus has been the behavior of

Recovery from a recession can be expected to be quicker

Suppose government deficits increase such that real interest rates rise by 1.5 percentage points. According to the Taylor rule, if inflation targets remain unchanged, then nominal interest rates should rise by

During the early phases of recovery from stagflation,

Since the late 1980s, under Alan Greenspan, the Fed's operating instructions to the New York trading desk typically took the form of

Each of the following statements about the principles underlying the Taylor rule is true except

Stagflation is defined as a period of

During the early phases of recovery from stagflation,

Economic Growth, Fluctuation, and Policy

Measuring Economic Performance

Employment, Job Creation, and Job Destruction

Long-Run Economic Growth

Technology and Economic Growth

Growth and the World Economy

Short-Run Fluctuations

Financial Markets and Aggregate Demand

The Economic Fluctuations Model

Consumption Demand

Investment Demand

Foreign Trade and the Exchange Rate

Spending, Taxes, and the Budget Deficit

The Monetary System

The Microeconomic Foundations of Price Rigidity

The New Normative Macroeconomics

Macroeconomic Policy in the World Economy

Filters

Exam 16: The Macroeconomic Policy Model

The Taylor rule has stabilizing effects on

The sequence that brings an economy back toward equilibrium from a boom includes

In an economy described collectively by a macroeconomic policy curve of the formYˆ = − π − π *), an expectations-augmented

A decision on the part of the FOMC to lower interest rates must necessarily be followed by

Recovery from a period of stagflation will be

The Federal Reserve, like other central banks, considers the role of monetary policy to be one of

The Taylor principle describes Fed behavior that nominal Interest rates _ .

Of the following statements regarding macroeconomic performance since 1960, which is not true?

Given a monetary policy rule of the form r = p + 0.5Y^ + 0.5p - p*) + 0.03, a negative aggregate demand shock resulting in a -5 percent GDP gap leads the Fed to

Previous variables used by the Fed for monetary policy since 1970 include all of the following except

For a macroeconomic policy curve of the forY ˆ higher inflation means

Since the mid-1980s, the FOMC's chief policy focus has been the behavior of

Recovery from a recession can be expected to be quicker

Suppose government deficits increase such that real interest rates rise by 1.5 percentage points. According to the Taylor rule, if inflation targets remain unchanged, then nominal interest rates should rise by

During the early phases of recovery from stagflation,

Since the late 1980s, under Alan Greenspan, the Fed's operating instructions to the New York trading desk typically took the form of

Each of the following statements about the principles underlying the Taylor rule is true except

Stagflation is defined as a period of

During the early phases of recovery from stagflation,

Economic Growth, Fluctuation, and Policy

Measuring Economic Performance

Employment, Job Creation, and Job Destruction

Long-Run Economic Growth

Technology and Economic Growth

Growth and the World Economy

Short-Run Fluctuations

Financial Markets and Aggregate Demand

The Economic Fluctuations Model

Consumption Demand

Investment Demand

Foreign Trade and the Exchange Rate

Spending, Taxes, and the Budget Deficit

The Monetary System

The Microeconomic Foundations of Price Rigidity

The New Normative Macroeconomics

Macroeconomic Policy in the World Economy

Filters

In an economy described collectively by a macroeconomic policy curve of the formY^ˆ=⁻π − π *), an expectations-augmented

Given a monetary policy rule of the form r = p + 0.5Y^{^}+ 0.5p - p*) + 0.03, a negative aggregate demand shock resulting in a -5 percent GDP gap leads the Fed to

For a macroeconomic policy curve of the forY ^ˆ higher inflation means