Question 1

Central bank independence is the only factor affecting the credibility of anti-inflation policy.

Accepted Answer

A) True 
 B)False

Question 2

Activist policy is NOT effective according to which model?

Accepted Answer

A)  standard Keynesian 
B)  new classical 
C)  new Keynesian 
D)  It is effective for all of them. 
A)  standard Keynesian 
B)  new classical 
C)  new Keynesian 
D)  It is effective for all of them.

Question 3

One danger of using monetary policy to end a recession is that

Accepted Answer

A)  sticky wages will have the purchasing power eroded. 
B)  prices will rise and workers will demand higher wages. 
C)  it might not be possible for AD to shift enough. 
D)  none of the above. 
A)  sticky wages will have the purchasing power eroded. 
B)  prices will rise and workers will demand higher wages. 
C)  it might not be possible for AD to shift enough. 
D)  none of the above.

Question 4

Inflation can be reduced by

Accepted Answer

A)  announcing the policy. 
B)  taking steps to ensure its credibility. 
C)  both of the above. 
D)  none of the above. 
A)  announcing the policy. 
B)  taking steps to ensure its credibility. 
C)  both of the above. 
D)  none of the above.

Question 5

Central bankers can increase their credibility by

Accepted Answer

A)  making the banks more independent. 
B)  promising to lower taxes. 
C)  promising to fight inflation. 
D)  all of the above. 
A)  making the banks more independent. 
B)  promising to lower taxes. 
C)  promising to fight inflation. 
D)  all of the above.

Question 6

Use an AS-AD graph to show difference in the short-run effect of EMP in a standard Keynesian and a new Keynesian model.

Accepted Answer

EMP shifts AD to the right under both mo

Question 7

Some countries use price indexation, meaning many contracts are adjusted for inflation automatically. How would full indexation of all contracts and agreements affect the effectiveness of EMP?

Accepted Answer

With complete indexa

Question 8

Wages and prices adjustments are slow.

Accepted Answer

A) True 
 B)False

Question 9

Assuming flexible prices, if the federal funds rate falls less 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 10

What is a major difference in the conduct of the Fed and the ECB that might affect their credibility as inflation fighters?

Accepted Answer

ECB has an announced

Question 11

Unanticipated EMP has ____ effect on output in the new Keynesian model compared to the standard version.

Accepted Answer

A)  a greater 
B)  less of an 
C)  the same 
D)  cannot be determined 
A)  a greater 
B)  less of an 
C)  the same 
D)  cannot be determined

Question 12

In Bolivia, the creation of an independent central bank was the key factor in reducing inflation in the late 1980s.

Accepted Answer

A) True 
 B)False

Question 13

An open market sale of bonds could lead to an increase in equilibrium output if the change in the federal funds rate is less than expected.

Accepted Answer

A) True 
 B)False

Question 14

To fight inflation, central banks must hold the line on AS.

Accepted Answer

A) True 
 B)False

Question 15

Unanticipated policy changes do NOT affect equilibrium output in which of the following models?

Accepted Answer

A)  standard Keynesian 
B)  new classical 
C)  new Keynesian 
D)  Output is unaffected in all of the above. 
A)  standard Keynesian 
B)  new classical 
C)  new Keynesian 
D)  Output is unaffected in all of the above.

Question 16

If prices (and wages) are flexible and all policy changes are anticipated, there is no distinction between the long run and the short run.

Accepted Answer

A) True 
 B)False

Question 17

Anticipated policy changes have no effect on unemployment 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 18

In the new classical model, if the money supply falls less 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

Assuming flexible prices, if the currency depreciates more than anticipated, then equilibrium output should _____ and the equilibrium price level should _____ in the short run.

Accepted Answer

A)  rise, rise 
B)  rise, fall 
C)  fall, rise 
D)  fall, fall 
A)  rise, rise 
B)  rise, fall 
C)  fall, rise 
D)  fall, fall

Question 20

During the Revolutionary War in the United States, lack of commitment to lower budget deficits led to higher inflation.

Accepted Answer

A) True 
 B)False

Exam 26: Rational Expectations Redux: Monetary Policy Implications

Central bank independence is the only factor affecting the credibility of anti-inflation policy.

Activist policy is NOT effective according to which model?

One danger of using monetary policy to end a recession is that

Inflation can be reduced by

Central bankers can increase their credibility by

Use an AS-AD graph to show difference in the short-run effect of EMP in a standard Keynesian and a new Keynesian model.

Some countries use price indexation, meaning many contracts are adjusted for inflation automatically. How would full indexation of all contracts and agreements affect the effectiveness of EMP?

Wages and prices adjustments are slow.

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

What is a major difference in the conduct of the Fed and the ECB that might affect their credibility as inflation fighters?

Unanticipated EMP has ____ effect on output in the new Keynesian model compared to the standard version.

In Bolivia, the creation of an independent central bank was the key factor in reducing inflation in the late 1980s.

An open market sale of bonds could lead to an increase in equilibrium output if the change in the federal funds rate is less than expected.

To fight inflation, central banks must hold the line on AS.

Unanticipated policy changes do NOT affect equilibrium output in which of the following models?

If prices (and wages) are flexible and all policy changes are anticipated, there is no distinction between the long run and the short run.

Anticipated policy changes have no effect on unemployment in which of the following models?

In the new classical model, if the money supply falls less than expected, then the shift to the _____ by AD will be _____ than the shift to the _____ by AS in the short run.

Assuming flexible prices, if the currency depreciates more than anticipated, then equilibrium output should _____ and the equilibrium price level should _____ in the short run.

During the Revolutionary War in the United States, lack of commitment to lower budget deficits led to higher inflation.

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 falls less than expected, then the shift to the ___ by AD will be _ than the shift to the ___ by AS in the short run.

In the new classical model, if the money supply falls less than expected, then the shift to the ___ by AD will be _ than the shift to the ___ by AS in the short run.

Assuming flexible prices, if the currency depreciates more than anticipated, then equilibrium output should _ and the equilibrium price level should _ in the short run.