Question 1

"Official" recessions in the United States are declared by:

Accepted Answer

A)  the Federal Reserve. 
B)  the U.S. department of the Treasury. 
C)  the National Bureau of Economic Research. 
D)  Congress. 
A)  the Federal Reserve. 
B)  the U.S. department of the Treasury. 
C)  the National Bureau of Economic Research. 
D)  Congress.

Question 2

If the economy's output response to changes in current inflation is small, the slope of the dynamic aggregate demand curve will be:

Accepted Answer

A)  flat. 
B)  steep. 
C)  positive. 
D)  zero. 
A)  flat. 
B)  steep. 
C)  positive. 
D)  zero.

Question 3

If monetary policymakers do not want an increase in government purchases, which increases aggregate demand, to cause an increase in inflation, they would:

Accepted Answer

A)  shift the monetary policy reaction curve to the right, raising inflation at every real interest rate. 
B)  do nothing and let the economy's self-correcting mechanism work. 
C)  shift the monetary policy reaction function left, increasing the real interest rate at every rate of inflation. 
D)  increase the growth rate of money. 
A)  shift the monetary policy reaction curve to the right, raising inflation at every real interest rate. 
B)  do nothing and let the economy's self-correcting mechanism work. 
C)  shift the monetary policy reaction function left, increasing the real interest rate at every rate of inflation. 
D)  increase the growth rate of money.

Question 4

If monetary policymakers respond aggressively to current inflation above the target inflation rate, the:

Accepted Answer

A)  monetary policy reaction curve would be flat. 
B)  dynamic aggregate demand curve would have a steep slope. 
C)  monetary policy reaction curve would have a positive and steep slope. 
D)  dynamic aggregate demand curve would shift rightward. 
A)  monetary policy reaction curve would be flat. 
B)  dynamic aggregate demand curve would have a steep slope. 
C)  monetary policy reaction curve would have a positive and steep slope. 
D)  dynamic aggregate demand curve would shift rightward.

Question 5

Increases in productivity result in:

Accepted Answer

A)  higher inflation as output increases. 
B)  lower inflation as output decreases. 
C)  opportunities for policymakers to reduce their inflation target without inducing a recession. 
D)  none of the answers provided is correct. 
A)  higher inflation as output increases. 
B)  lower inflation as output decreases. 
C)  opportunities for policymakers to reduce their inflation target without inducing a recession. 
D)  none of the answers provided is correct.

Question 6

Describe the immediate short-run effect to the economy from an increase in government purchases, as well as the self-correcting mechanism that will restore long-run equilibrium.

Accepted Answer

The increase in government purchases wil

Question 7

Almost all recessions identified by the NBER are characterized by:

Accepted Answer

A)  declining real GDP. 
B)  higher interest rates. 
C)  durations exceeding two years. 
D)  higher rates of inflation. 
A)  declining real GDP. 
B)  higher interest rates. 
C)  durations exceeding two years. 
D)  higher rates of inflation.

Question 8

Neutralizing demand shocks is easier in theory than in practice. Why?

Accepted Answer

To neutralize demand shocks, monetary po

Question 9

Discuss the short- and long-run output responses resulting from an increase in money growth when the economy is producing a current level of output that equals potential output, all other factors constant.

Accepted Answer

In the short run, an increase in money g

Question 10

Central bankers with a relatively flat monetary policy reaction curve will:

Accepted Answer

A)  move interest rates more aggressively when inflation rises, leading to more volatility in output. 
B)  move interest rates more aggressively when inflation rises, leading to less volatility in output. 
C)  move interest rates less aggressively when inflation rises, leading to more volatility in output. 
D)  move interest rates less aggressively when inflation rises, leading to less volatility in output. 
A)  move interest rates more aggressively when inflation rises, leading to more volatility in output. 
B)  move interest rates more aggressively when inflation rises, leading to less volatility in output. 
C)  move interest rates less aggressively when inflation rises, leading to more volatility in output. 
D)  move interest rates less aggressively when inflation rises, leading to less volatility in output.

Question 11

Why can monetary policymakers neutralize demand shocks but not supply shocks?

Accepted Answer

Monetary policy is enacted through shift

Question 12

Which of the following statements best describes the level of potential output in the U.S.?

Accepted Answer

A)  It never changes year to year 
B)  It is very erratic year to year 
C)  It usually increases year to year 
D)  It has been decreasing since 1999 
A)  It never changes year to year 
B)  It is very erratic year to year 
C)  It usually increases year to year 
D)  It has been decreasing since 1999

Question 13

Monetary policy has the following advantage(s) over fiscal policy:

Accepted Answer

A)  it is less influenced by politics. 
B)  it can be implemented faster. 
C)  it can usually be fine-tuned. 
D)  all of the answers given are correct. 
A)  it is less influenced by politics. 
B)  it can be implemented faster. 
C)  it can usually be fine-tuned. 
D)  all of the answers given are correct.

Question 14

If inflation increases, this could be illustrated as a:

Accepted Answer

A)  rightward shift of the long-run aggregate supply curve. 
B)  leftward shift of the long-run aggregate supply curve. 
C)  rightward shift of the short-run aggregate supply curve. 
D)  movement down along the short-run aggregate supply curve. 
A)  rightward shift of the long-run aggregate supply curve. 
B)  leftward shift of the long-run aggregate supply curve. 
C)  rightward shift of the short-run aggregate supply curve. 
D)  movement down along the short-run aggregate supply curve.

Question 15

Explain why understanding short-run fluctuations in output and inflation requires that we study shifts in dynamic aggregate demand and short-run aggregate supply.

Accepted Answer

The economy naturally moves to long-run

Question 16

Which of the following statements is incorrect?

Accepted Answer

A)  A fall in the central bank's target inflation rate shifts the monetary policy reaction curve to the left. 
B)  A decrease in the central bank's inflation target raises the real interest rate policymakers set at each level of inflation. 
C)  Shifts in the monetary policy reaction curve shift the dynamic aggregate demand curve in the same direction. 
D)  A fall in the central bank's target inflation rate causes the monetary policy reaction curve to flatten. 
A)  A fall in the central bank's target inflation rate shifts the monetary policy reaction curve to the left. 
B)  A decrease in the central bank's inflation target raises the real interest rate policymakers set at each level of inflation. 
C)  Shifts in the monetary policy reaction curve shift the dynamic aggregate demand curve in the same direction. 
D)  A fall in the central bank's target inflation rate causes the monetary policy reaction curve to flatten.

Question 17

In recent years the discussions of the causes of recessions have focused on monetary policy and higher oil prices as the likely causes. Discuss how we can get insight into the likely cause by focusing on macroeconomic variables.

Accepted Answer

If the recession was caused by monetary

Question 18

The key part of the real business cycle theory model is:

Accepted Answer

A)  the importance of monetary policy. 
B)  the short-run aggregate supply curve. 
C)  changes in aggregate demand. 
D)  changes in potential output. 
A)  the importance of monetary policy. 
B)  the short-run aggregate supply curve. 
C)  changes in aggregate demand. 
D)  changes in potential output.

Question 19

Why do increases in potential output allow monetary policymakers to think
"opportunistically" about disinflation?

Accepted Answer

Increases in potential output put downwa

Question 20

If a positive inflation shock occurs and monetary policymakers do not change the inflation target:

Accepted Answer

A)  output will eventually return to potential output and inflation will equal the inflation target. 
B)  output will eventually rise above potential output while inflation will equal the inflation target. 
C)  output will eventually fall below potential output while inflation will equal the inflation target. 
D)  output will eventually return to potential output but inflation will exceed the inflation target. 
A)  output will eventually return to potential output and inflation will equal the inflation target. 
B)  output will eventually rise above potential output while inflation will equal the inflation target. 
C)  output will eventually fall below potential output while inflation will equal the inflation target. 
D)  output will eventually return to potential output but inflation will exceed the inflation target.

Exam 22:Understanding Business Cycle Fluctuations

"Official" recessions in the United States are declared by:

If the economy's output response to changes in current inflation is small, the slope of the dynamic aggregate demand curve will be:

If monetary policymakers do not want an increase in government purchases, which increases aggregate demand, to cause an increase in inflation, they would:

If monetary policymakers respond aggressively to current inflation above the target inflation rate, the:

Increases in productivity result in:

Describe the immediate short-run effect to the economy from an increase in government purchases, as well as the self-correcting mechanism that will restore long-run equilibrium.

Almost all recessions identified by the NBER are characterized by:

Neutralizing demand shocks is easier in theory than in practice. Why?

Discuss the short- and long-run output responses resulting from an increase in money growth when the economy is producing a current level of output that equals potential output, all other factors constant.

Central bankers with a relatively flat monetary policy reaction curve will:

Why can monetary policymakers neutralize demand shocks but not supply shocks?

Which of the following statements best describes the level of potential output in the U.S.?

Monetary policy has the following advantage(s) over fiscal policy:

If inflation increases, this could be illustrated as a:

Explain why understanding short-run fluctuations in output and inflation requires that we study shifts in dynamic aggregate demand and short-run aggregate supply.

Which of the following statements is incorrect?

In recent years the discussions of the causes of recessions have focused on monetary policy and higher oil prices as the likely causes. Discuss how we can get insight into the likely cause by focusing on macroeconomic variables.

The key part of the real business cycle theory model is:

Why do increases in potential output allow monetary policymakers to think "opportunistically" about disinflation?

If a positive inflation shock occurs and monetary policymakers do not change the inflation target:

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

Output, Inflation, and Monetary Policy

Modern Monetary Policy and the Challenges Facing Central Bankers

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