Question 1

Given a monetary policy rule of the form r = p + 0.5Y^ + 0.5p - p*) + 0.03 and assuming that the output gap equals zero, an unexpected price shock of

Accepted Answer

A)  raise nominal interest rates by 5 percent. 
B)  raise the real interest rate target by 2.5 percent. 
C)  raise nominal interest rates by 7.5 percent. 
D)  raise the inflation target by 2.5 percent. 
E)  wait and see if the shock turned out to be a permanent change. 
A)  raise nominal interest rates by 5 percent. 
B)  raise the real interest rate target by 2.5 percent. 
C)  raise nominal interest rates by 7.5 percent. 
D)  raise the inflation target by 2.5 percent. 
E)  wait and see if the shock turned out to be a permanent change.

Question 2

The Taylor rule describes a Fed that raises real interest rates when

Accepted Answer

A)  real output exceeds potential real output. 
B)  interest rates fall unexpectedly. 
C)  inflation is expected to rise. 
D)  inflation rises about its targeted level. 
E)  both a and d. 
A)  real output exceeds potential real output. 
B)  interest rates fall unexpectedly. 
C)  inflation is expected to rise. 
D)  inflation rises about its targeted level. 
E)  both a and d.

Question 3

Each of the following statements describes the behavior of the Taylor rule, which does not belong?

Accepted Answer

A)  The Taylor rule works equally well in the context of either an open or a closed economy. 
B)  One way for exchange rate fluctuations show up in the Taylor rule is through the behavior of Y^. 
C)  One way for exchange rate fluctuations show up in the Taylor rule is through the behavior of . 
D)  One way for exchange rate fluctuations show up in the Taylor rule is through the behavior of r. 
E)  The Taylor rule requires a flexible exchange rate. 
A)  The Taylor rule works equally well in the context of either an open or a closed economy. 
B)  One way for exchange rate fluctuations show up in the Taylor rule is through the behavior of Y^. 
C)  One way for exchange rate fluctuations show up in the Taylor rule is through the behavior of . 
D)  One way for exchange rate fluctuations show up in the Taylor rule is through the behavior of r. 
E)  The Taylor rule requires a flexible exchange rate.

Question 4

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

Accepted Answer

A)  the Fed desires to maintain real output approximately at potential GDP. 
B)  the Fed desires to maintain unemployment at its natural rate. 
C)  the Fed desires to maintain inflation at its target level. 
D)  the Fed desires to maintain interest rates at their target level. 
E)  all of the above statements are true. 
A)  the Fed desires to maintain real output approximately at potential GDP. 
B)  the Fed desires to maintain unemployment at its natural rate. 
C)  the Fed desires to maintain inflation at its target level. 
D)  the Fed desires to maintain interest rates at their target level. 
E)  all of the above statements are true.

Question 5

A decision on the part of the FOMC to raise 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 increase interest rates. 
D)  Fed open market sales, which increase the money supply and reduce 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 increase interest rates. 
D)  Fed open market sales, which increase the money supply and reduce interest rates.

Question 6

Given the monetary policy rule, r = p + 0.5Y^ + 0.5p - p*) + 3 and
Assuming Y^ = 0 and p = p*, let inflation increase by 2 percentage points. By how much would the Fed increase interest rates?

Accepted Answer

A)  6 percentage points 
B)  2 percentage points 
C)  3 percentage points 
D)  5 percentage points 
E)  Less than 2 percentage points 
A)  6 percentage points 
B)  2 percentage points 
C)  3 percentage points 
D)  5 percentage points 
E)  Less than 2 percentage points

Question 7

The Taylor rule describes a Fed that raises real interest rates when

Accepted Answer

A)  real output falls short of potential real output. 
B)  interest rates fall unexpectedly. 
C)  inflation is expected to rise. 
D)  inflation rises about its targeted level. 
E)  both c and d. 
A)  real output falls short of potential real output. 
B)  interest rates fall unexpectedly. 
C)  inflation is expected to rise. 
D)  inflation rises about its targeted level. 
E)  both c and d.

Question 8

Much of the strong economic performance since the mid-1980s is attributed to successful Fed policy. Which of the following statements does not help explain that success?

Accepted Answer

A)  The stabilizing effect of monetary policy conducted in accordance with the Taylor rule 
B)  A greater monetary response higher federal funds rates) to inflation threats since the mid 1980s than during the 1960s and 1970s 
C)  A more accommodative monetary policy before the mid-1980s than afterward 
D)  All of the above 
E)  Only a and b 
A)  The stabilizing effect of monetary policy conducted in accordance with the Taylor rule 
B)  A greater monetary response higher federal funds rates) to inflation threats since the mid 1980s than during the 1960s and 1970s 
C)  A more accommodative monetary policy before the mid-1980s than afterward 
D)  All of the above 
E)  Only a and b

Question 9

The harder the Fed applies the brakes of restrictive monetary policy in an attempt to reduce an excessive rate of inflation,

Accepted Answer

A)  the larger is the resulting gap between actual and potential GDP in the short run. 
B)  the tighter is the spiral of recovery as the economy moves quickly toward equilibrium at a lower rate of inflation with a minimum of overshooting. 
C)  the wider is the spiral of recovery as the economy more-dramatically overshoots equilibrium on the low side of the long-run rate of inflation. 
D)  a and c only. 
E)  a and b only. 
A)  the larger is the resulting gap between actual and potential GDP in the short run. 
B)  the tighter is the spiral of recovery as the economy moves quickly toward equilibrium at a lower rate of inflation with a minimum of overshooting. 
C)  the wider is the spiral of recovery as the economy more-dramatically overshoots equilibrium on the low side of the long-run rate of inflation. 
D)  a and c only. 
E)  a and b only.

Question 10

According to the price adjustment equatio
The price adjustment line
Ê ˆ
Π = Á ˜ + π e + Z, Ë Y* ¯

Accepted Answer

A)  shifts up, indicating higher inflation, if real GDP was above its potential GDP last year and shifts down if real GDP was below its potential. 
B)  shifts up if the expected rate of inflation pe rises and shifts down if the expected rate of inflation falls. 
C)  shifts up if there is a positive price shock positive value of Z) and shifts down if there is a negative price shock. 
D)  all of the above. 
E)  only a and b. 
A)  shifts up, indicating higher inflation, if real GDP was above its potential GDP last year and shifts down if real GDP was below its potential. 
B)  shifts up if the expected rate of inflation pe rises and shifts down if the expected rate of inflation falls. 
C)  shifts up if there is a positive price shock positive value of Z) and shifts down if there is a negative price shock. 
D)  all of the above. 
E)  only a and b.

Question 11

The Federal Reserve, like other central banks, has several objectives. Which of the following does not belong?

Accepted Answer

A)  low and stable inflation 
B)  low unemployment 
C)  low monetary growth 
D)  low levels of real GDP fluctuations 
E)  low inflation targets 
A)  low and stable inflation 
B)  low unemployment 
C)  low monetary growth 
D)  low levels of real GDP fluctuations 
E)  low inflation targets

Question 12

A reduction in actual GDP down toward its potential from a demand- induced boom can be expected to be quicker

Accepted Answer

A)  the more sensitive inflation is to economic conditions. 
B)  the more heavily recent inflationary experience is weighted in 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 experience is weighted in 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.

Given a monetary policy rule of the form r = p + 0.5Y^{^}+ 0.5p - p*) + 0.03 and assuming that the output gap equals zero, an unexpected price shock of

The Taylor rule describes a Fed that raises real interest rates when

Each of the following statements describes the behavior of the Taylor rule, which does not belong?

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

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

Given the monetary policy rule, r = p + 0.5Y^{^}+ 0.5p - p) + 3 and Assuming Y^{^}= 0 and p = p, let inflation increase by 2 percentage points. By how much would the Fed increase interest rates?

The Taylor rule describes a Fed that raises real interest rates when

Much of the strong economic performance since the mid-1980s is attributed to successful Fed policy. Which of the following statements does not help explain that success?

The harder the Fed applies the brakes of restrictive monetary policy in an attempt to reduce an excessive rate of inflation,

According to the price adjustment equatio The price adjustment line Ê ˆ Π = Á ˜ + π ^e + Z, Ë Y* ¯

The Federal Reserve, like other central banks, has several objectives. Which of the following does not belong?

A reduction in actual GDP down toward its potential from a demand- induced boom can be expected to be quicker

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

Given a monetary policy rule of the form r = p + 0.5Y^ + 0.5p - p*) + 0.03 and assuming that the output gap equals zero, an unexpected price shock of

The Taylor rule describes a Fed that raises real interest rates when

Each of the following statements describes the behavior of the Taylor rule, which does not belong?

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

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

Given the monetary policy rule, r = p + 0.5Y^ + 0.5p - p*) + 3 and Assuming Y^ = 0 and p = p*, let inflation increase by 2 percentage points. By how much would the Fed increase interest rates?

The Taylor rule describes a Fed that raises real interest rates when

Much of the strong economic performance since the mid-1980s is attributed to successful Fed policy. Which of the following statements does not help explain that success?

The harder the Fed applies the brakes of restrictive monetary policy in an attempt to reduce an excessive rate of inflation,

According to the price adjustment equatio The price adjustment line Ê ˆ Π = Á ˜ + π e + Z, Ë Y* ¯

The Federal Reserve, like other central banks, has several objectives. Which of the following does not belong?

A reduction in actual GDP down toward its potential from a demand- induced boom can be expected to be quicker

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

Given a monetary policy rule of the form r = p + 0.5Y^{^}+ 0.5p - p*) + 0.03 and assuming that the output gap equals zero, an unexpected price shock of

Given the monetary policy rule, r = p + 0.5Y^{^}+ 0.5p - p) + 3 and Assuming Y^{^}= 0 and p = p, let inflation increase by 2 percentage points. By how much would the Fed increase interest rates?

According to the price adjustment equatio The price adjustment line Ê ˆ Π = Á ˜ + π ^e + Z, Ë Y* ¯