Question 1

If expectations are rational, the credibility of an anti-inflation announcement reduces the resulting fall in employment.

Accepted Answer

A) True 
 B)False  True

Question 2

At the beginning of the Reagan administration, AS shifted in spite of the Fed's commitment to lower inflation. What does this imply about the labor market and the validity of the new classical assumptions?

Accepted Answer

The shift indicated the wages must have continued to rise, as inflation was expected to continue. Either the announcement was completely credible or wages were sticky, in contrast to the new classical assumptions.

Question 3

When a central bank announces that it will lower inflation, it is attempting to influence

Accepted Answer

A)  IS. 
B)  AD. 
C)  AS. 
D)  money demand. 
A)  IS. 
B)  AD. 
C)  AS. 
D)  money demand. C

Question 4

Unanticipated monetary policy designed to reduce inflation would lead to a reduction in employment under which model?

Accepted Answer

A)  standard Keynesian 
B)  new classical 
C)  new Keynesian 
D)  all of the above 
A)  standard Keynesian 
B)  new classical 
C)  new Keynesian 
D)  all of the above

Question 5

The new Keynesian model assumes price and wages are flexible.

Accepted Answer

A) True 
 B)False

Question 6

Starting from the natural rate, if prices are sticky, anticipated EMP will raise equilibrium output and inflation.

Accepted Answer

A) True 
 B)False

Question 7

New Keynesians believe that anticipated policies have some short-term effects due to wage and price stickiness.

Accepted Answer

A) True 
 B)False

Question 8

Why do new classical economists say that activist policy might be not just ineffective but mistaken?

Accepted Answer

Policymakers must know public

Question 9

U.S. economy in the early 1980s gave support for the key assumptions of the new Keynesian model.

Accepted Answer

A) True 
 B)False

Question 10

According to the new Keynesian model, expansionary monetary policy can be effective if it is

Accepted Answer

A)  anticipated. 
B)  unanticipated. 
C)  both of the above. 
D)  neither of the above. 
A)  anticipated. 
B)  unanticipated. 
C)  both of the above. 
D)  neither of the above.

Question 11

Credibility of the monetary policymaker is important according to the new Keynesian model.

Accepted Answer

A) True 
 B)False

Question 12

A large change in expectations can cause EMP to lead to a reduction in output if the shift in _____ is not sufficiently large.

Accepted Answer

A)  IS 
B)  LM 
C)  AD 
D)  none of the above 
A)  IS 
B)  LM 
C)  AD 
D)  none of the above

Question 13

If an increase in the money supply is less than what was expected, output will rise.

Accepted Answer

A) True 
 B)False

Question 14

What is the major element introduced to macroeconomics models by new classical economists?

Accepted Answer

rational e

Question 15

In the new Keynesian model, a credible commitment to lower inflation will cause output to rise.

Accepted Answer

A) True 
 B)False

Question 16

Credibility of an inflation reduction policy does NOT matter in which of the following models?

Accepted Answer

A)  standard Keynesian 
B)  new classical 
C)  new Keynesian 
D)  all of the above 
A)  standard Keynesian 
B)  new classical 
C)  new Keynesian 
D)  all of the above

Question 17

Under rational expectations, shifts in AS take less time.

Accepted Answer

A) True 
 B)False

Question 18

Assuming flexible prices, if the federal funds rate rises more than expected, then the shift to the _____ by AD will be _____ than the shift to the _____ by AS in the short run.

Accepted Answer

A)  left, greater, right 
B)  left, less, right 
C)  right, greater, left 
D)  right, less, left 
A)  left, greater, right 
B)  left, less, right 
C)  right, greater, left 
D)  right, less, left

Question 19

If autonomous consumption rises more than expected, then output rises under the

Accepted Answer

A)  new classical model. 
B)  new Keynesian model. 
C)  both of the above. 
D)  none of the above. 
A)  new classical model. 
B)  new Keynesian model. 
C)  both of the above. 
D)  none of the above.

Question 20

New Keynesian economists believe that EMP cannot increase output above the natural rate in the short run.

Accepted Answer

A) True 
 B)False

Exam 26: Rational Expectations Redux: Monetary Policy Implications

If expectations are rational, the credibility of an anti-inflation announcement reduces the resulting fall in employment.

At the beginning of the Reagan administration, AS shifted in spite of the Fed's commitment to lower inflation. What does this imply about the labor market and the validity of the new classical assumptions?

When a central bank announces that it will lower inflation, it is attempting to influence

Unanticipated monetary policy designed to reduce inflation would lead to a reduction in employment under which model?

The new Keynesian model assumes price and wages are flexible.

Starting from the natural rate, if prices are sticky, anticipated EMP will raise equilibrium output and inflation.

New Keynesians believe that anticipated policies have some short-term effects due to wage and price stickiness.

Why do new classical economists say that activist policy might be not just ineffective but mistaken?

U.S. economy in the early 1980s gave support for the key assumptions of the new Keynesian model.

According to the new Keynesian model, expansionary monetary policy can be effective if it is

Credibility of the monetary policymaker is important according to the new Keynesian model.

A large change in expectations can cause EMP to lead to a reduction in output if the shift in _____ is not sufficiently large.

If an increase in the money supply is less than what was expected, output will rise.

What is the major element introduced to macroeconomics models by new classical economists?

In the new Keynesian model, a credible commitment to lower inflation will cause output to rise.

Credibility of an inflation reduction policy does NOT matter in which of the following models?

Under rational expectations, shifts in AS take less time.

Assuming flexible prices, if the federal funds rate rises more than expected, then the shift to the _____ by AD will be _____ than the shift to the _____ by AS in the short run.

If autonomous consumption rises more than expected, then output rises under the

New Keynesian economists believe that EMP cannot increase output above the natural rate in the short run.

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

Inflation and Money

Filters

Assuming flexible prices, if the federal funds rate rises more than expected, then the shift to the ___ by AD will be _ than the shift to the ___ by AS in the short run.