Question 1

Is the monetary policy reaction curve applicable only to central banks that have an explicit inflation target? Explain.

Accepted Answer

No. The monetary policy reaction curve r

Question 2

What distinguishes the short-run real interest rate from the long-run real interest rate?

Accepted Answer

The short-run real interest rate is the

Question 3

Why is it necessary to understand fluctuations in investment if we want to understand the fluctuations in the business cycle?

Accepted Answer

Investment is not the largest component

Question 4

An inflation rate above the target rate will result in:

Accepted Answer

A)  a movement up along the monetary policy reaction curve and a movement up the dynamic aggregate demand curve. 
B)  a movement down along the monetary policy reaction curve and a movement down the dynamic aggregate demand curve. 
C)  a movement up along the monetary policy reaction curve and a leftward shift of the dynamic aggregate demand curve. 
D)  a movement up along the monetary policy reaction curve and a rightward shift of the dynamic aggregate demand curve. 
A)  a movement up along the monetary policy reaction curve and a movement up the dynamic aggregate demand curve. 
B)  a movement down along the monetary policy reaction curve and a movement down the dynamic aggregate demand curve. 
C)  a movement up along the monetary policy reaction curve and a leftward shift of the dynamic aggregate demand curve. 
D)  a movement up along the monetary policy reaction curve and a rightward shift of the dynamic aggregate demand curve.

Question 5

If changes in the nominal federal funds rate result in equal changes to the expected rate of inflation, how effective would it be for the FOMC to target the nominal federal funds rate?

Accepted Answer

It wouldn't be effective if changes to t

Question 6

A monetary policy reaction curve requires the central bank to have a(n):

Accepted Answer

A)  money growth target. 
B)  inflation target. 
C)  unemployment target. 
D)  economic growth target. 
A)  money growth target. 
B)  inflation target. 
C)  unemployment target. 
D)  economic growth target.

Question 7

Which of the following is not a part of aggregate expenditure?

Accepted Answer

A)  Consumption 
B)  The nominal interest rate 
C)  Government purchases 
D)  Net exports 
A)  Consumption 
B)  The nominal interest rate 
C)  Government purchases 
D)  Net exports

Question 8

Each of the following factors contribute to the slope of the dynamic aggregate demand curve, except the:

Accepted Answer

A)  strength of the effect of inflation on real balances. 
B)  current level of technology. 
C)  extent to which monetary policymakers react to a change in current inflation. 
D)  size of the response of aggregate expenditures to changes in the interest rate. 
A)  strength of the effect of inflation on real balances. 
B)  current level of technology. 
C)  extent to which monetary policymakers react to a change in current inflation. 
D)  size of the response of aggregate expenditures to changes in the interest rate.

Question 9

Which of the following statements is correct?

Accepted Answer

A)  The long-run real interest rate varies directly with changes in non-interest sensitive components of aggregate demand and inversely with potential output. 
B)  The long-run real interest rate varies inversely with changes in non-interest sensitive components of aggregate demand and inversely with potential output. 
C)  The long-run real interest rate varies directly with changes in non-interest sensitive components of aggregate demand and directly with potential output. 
D)  The long-run real interest rate varies directly with changes in non-interest sensitive components of aggregate demand and does not vary with potential output. 
A)  The long-run real interest rate varies directly with changes in non-interest sensitive components of aggregate demand and inversely with potential output. 
B)  The long-run real interest rate varies inversely with changes in non-interest sensitive components of aggregate demand and inversely with potential output. 
C)  The long-run real interest rate varies directly with changes in non-interest sensitive components of aggregate demand and directly with potential output. 
D)  The long-run real interest rate varies directly with changes in non-interest sensitive components of aggregate demand and does not vary with potential output.

Question 10

Recent policy statements by the FOMC announce and explain its:

Accepted Answer

A)  targets for money growth with no mention of interest-rate targets. 
B)  short-term interest-rate and balance-sheet adjustments with no mention of money growth targets. 
C)  decisions for long-term interest rates. 
D)  decisions for money-growth targets but also mentioning short-term interest-rate decisions. 
A)  targets for money growth with no mention of interest-rate targets. 
B)  short-term interest-rate and balance-sheet adjustments with no mention of money growth targets. 
C)  decisions for long-term interest rates. 
D)  decisions for money-growth targets but also mentioning short-term interest-rate decisions.

Question 11

Aggregate supply is the quantity of:

Accepted Answer

A)  real output supplied at each level of inflation. 
B)  nominal output supplied at each level of inflation. 
C)  real output supplied at each level of real interest rate. 
D)  output the country wants at each level of inflation. 
A)  real output supplied at each level of inflation. 
B)  nominal output supplied at each level of inflation. 
C)  real output supplied at each level of real interest rate. 
D)  output the country wants at each level of inflation.

Question 12

The point where the central bank's target inflation rate is consistent with the long-run real interest rate lies:

Accepted Answer

A)  above the monetary policy reaction curve. 
B)  below the monetary policy reaction curve. 
C)  on the monetary policy reaction curve. 
D)  on the horizontal (inflation) axis. 
A)  above the monetary policy reaction curve. 
B)  below the monetary policy reaction curve. 
C)  on the monetary policy reaction curve. 
D)  on the horizontal (inflation) axis.

Question 13

In the long run, if we ignore changes in velocity, inflation will:

Accepted Answer

A)  be zero. 
B)  equal the rate of money growth. 
C)  equal money growth less the growth in potential output. 
D)  equal money growth plus the growth in potential output. 
A)  be zero. 
B)  equal the rate of money growth. 
C)  equal money growth less the growth in potential output. 
D)  equal money growth plus the growth in potential output.

Question 14

With the economy at its potential level of output, the federal government undertakes a large military buildup; all other things equal, the impact on the long-run real interest rate will be to:

Accepted Answer

A)  increase. 
B)  decrease. 
C)  remain constant since output is at its potential level. 
D)  change at the same rate as inflation. 
A)  increase. 
B)  decrease. 
C)  remain constant since output is at its potential level. 
D)  change at the same rate as inflation.

Question 15

Increases in the real interest rate in the U.S. will cause net exports to:

Accepted Answer

A)  decrease, because the dollar depreciates. 
B)  increase, because the dollar depreciates. 
C)  decrease, because the dollar appreciates. 
D)  increase, because the dollar appreciates. 
A)  decrease, because the dollar depreciates. 
B)  increase, because the dollar depreciates. 
C)  decrease, because the dollar appreciates. 
D)  increase, because the dollar appreciates.

Question 16

Discuss what happens to the monetary policy reaction curve if the Fed were to lower their inflation target and why?

Accepted Answer

If the Fed were to lower their inflation

Question 17

If policymakers are not aggressive about keeping inflation close to the target rate, the slope of the monetary policy reaction curve would be:

Accepted Answer

A)  steep. 
B)  relatively flat. 
C)  horizontal. 
D)  negative. 
A)  steep. 
B)  relatively flat. 
C)  horizontal. 
D)  negative.

Question 18

The FOMC targets the federal funds rate, but if they are going to alter the course of the economy they must influence the:

Accepted Answer

A)  real interest rate as well. 
B)  long-term nominal interest rate as well. 
C)  real exchange rate as well. 
D)  nominal exchange rate as well. 
A)  real interest rate as well. 
B)  long-term nominal interest rate as well. 
C)  real exchange rate as well. 
D)  nominal exchange rate as well.

Question 19

The Fed hopes to impact short-run inflation and output by altering:

Accepted Answer

A)  the production function. 
B)  aggregate supply. 
C)  aggregate demand. 
D)  fiscal policy. 
A)  the production function. 
B)  aggregate supply. 
C)  aggregate demand. 
D)  fiscal policy.

Question 20

The relationship between the long-run real interest rate and potential output:

Accepted Answer

A)  is direct. 
B)  is inverse. 
C)  is constant since the long-run real interest rate is primarily determined by risk. 
D)  depends on the actions of central bankers. 
A)  is direct. 
B)  is inverse. 
C)  is constant since the long-run real interest rate is primarily determined by risk. 
D)  depends on the actions of central bankers.

Exam 21:Output, Inflation, and Monetary Policy

Is the monetary policy reaction curve applicable only to central banks that have an explicit inflation target? Explain.

What distinguishes the short-run real interest rate from the long-run real interest rate?

Why is it necessary to understand fluctuations in investment if we want to understand the fluctuations in the business cycle?

An inflation rate above the target rate will result in:

If changes in the nominal federal funds rate result in equal changes to the expected rate of inflation, how effective would it be for the FOMC to target the nominal federal funds rate?

A monetary policy reaction curve requires the central bank to have a(n):

Which of the following is not a part of aggregate expenditure?

Each of the following factors contribute to the slope of the dynamic aggregate demand curve, except the:

Which of the following statements is correct?

Recent policy statements by the FOMC announce and explain its:

Aggregate supply is the quantity of:

The point where the central bank's target inflation rate is consistent with the long-run real interest rate lies:

In the long run, if we ignore changes in velocity, inflation will:

With the economy at its potential level of output, the federal government undertakes a large military buildup; all other things equal, the impact on the long-run real interest rate will be to:

Increases in the real interest rate in the U.S. will cause net exports to:

Discuss what happens to the monetary policy reaction curve if the Fed were to lower their inflation target and why?

If policymakers are not aggressive about keeping inflation close to the target rate, the slope of the monetary policy reaction curve would be:

The FOMC targets the federal funds rate, but if they are going to alter the course of the economy they must influence the:

The Fed hopes to impact short-run inflation and output by altering:

The relationship between the long-run real interest rate and potential output:

An Introduction to Money and the Financial System

Money and the Payments System

Financial Instruments, Financial Markets, and Financial Institutions

Future Value, Present Value and Interest Rates

Understanding Risk

Bonds, Bond Prices, and the Determination of Interest Rates

The Risk and Term Structure of Interest Rates

Stocks, Stock Markets and Market Efficiency

Derivatives: Futures, Options, and Swaps

Foreign Exchange

The Economics of Financial Intermediation

Depository Institutions: Banks and Bank Management

Financial Industry Structure

Regulating the Financial System

Central Banks in the World Today

The Structure of Central Banks: The Federal Reserve and the European Central Bank

The Central Bank Balance Sheet and the Money Supply Process

Monetary Policy: Stabilizing the Domestic Economy

Exchange Rate Policy and the Central Bank

Money Growth, Money Demand and Modern Monetary Policy

Understanding Business Cycle Fluctuations

Modern Monetary Policy and the Challenges Facing Central Bankers

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