Question 1

Temporary changes in inflation lead to adjustments in the price level.What causes permanent increases in inflation and why?

Accepted Answer

Permanent increases in inflation can onl

Question 2

Evidence seems to point out that just before recessions interest rates rose.Why would monetary policymakers choose to cause recessions?

Accepted Answer

The primary answer is that they were con

Question 3

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

Accepted Answer

A) Interest rate target 
B) Inflation target 
C) Unemployment target 
D) Growth target 
A) Interest rate target 
B) Inflation target 
C) Unemployment target 
D) Growth target

Question 4

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

Accepted Answer

A) Increase because exports will remain constant but imports will decrease 
B) Decrease because exports will decrease and imports will increase 
C) Decrease because exports will increase but imports will increase 
D) Increase because exports will increase and imports will decrease 
A) Increase because exports will remain constant but imports will decrease 
B) Decrease because exports will decrease and imports will increase 
C) Decrease because exports will increase but imports will increase 
D) Increase because exports will increase and imports will decrease

Question 5

The Bank of England Governor Mervyn King, commenting on a speech given by then Fed Chairman Greenspan, said "any (coherent) monetary policy can be written as an inflation target plus a response to supply shocks." What do these comments mean and what insight do they provide us to the focus of central banks?

Accepted Answer

Governor King is pointing to the fact th

Question 6

Select the answer which best completes the following statement: "at any point along the long-run aggregate supply curve...."

Accepted Answer

A) Expected inflation equals current inflation and current output is below potential output 
B) The economy is moving toward its potential output level 
C) Current output equals potential output and expected inflation equals current inflation 
D) Expected inflation is moving toward current inflation 
A) Expected inflation equals current inflation and current output is below potential output 
B) The economy is moving toward its potential output level 
C) Current output equals potential output and expected inflation equals current inflation 
D) Expected inflation is moving toward current inflation

Question 7

If the slope of the monetary policy reaction curve is relatively flat, it means that central bankers are:

Accepted Answer

A) Very concerned about keeping inflation close to the target rate 
B) Not concerned at all about inflation 
C) Less concerned about keeping inflation close to its short-run target 
D) Not going to let inflation deviate from its target at all 
A) Very concerned about keeping inflation close to the target rate 
B) Not concerned at all about inflation 
C) Less concerned about keeping inflation close to its short-run target 
D) Not going to let inflation deviate from its target at all

Question 8

Changes in investment can usually be attributed to:

Accepted Answer

A) Changes in the real interest rate 
B) Expectations about future business conditions 
C) Changes in inflation 
D) Changes in exports 
A) Changes in the real interest rate 
B) Expectations about future business conditions 
C) Changes in inflation 
D) Changes in exports

Question 9

Explain why the FOMC in recent years has been able to focus almost exclusively on short-term interest rate targets without having to announce money growth targets.

Accepted Answer

In the United States over the last ten t

Question 10

One reason the long-run aggregate supply curve has the slope it does is due to the fact that:

Accepted Answer

A) If current output equals potential output, the short-run aggregate supply curve is stable 
B) That inflation is zero in the long run 
C) Over long periods of time the economy moves to its potential level of output with higher inflation 
D) Over long periods of time the economy moves to its potential level of output with lower inflation 
A) If current output equals potential output, the short-run aggregate supply curve is stable 
B) That inflation is zero in the long run 
C) Over long periods of time the economy moves to its potential level of output with higher inflation 
D) Over long periods of time the economy moves to its potential level of output with lower inflation

Question 11

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 12

If inflation is very high, say 50 or 100 percent a year, monetary policymakers will shift their focus to controlling:

Accepted Answer

A) The long-term interest rate 
B) The short-term interest rate 
C) The exchange rate 
D) Money growth 
A) The long-term interest rate 
B) The short-term interest rate 
C) The exchange rate 
D) Money growth

Question 13

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 14

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 15

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 16

The slope of the monetary policy reaction curve is determined by:

Accepted Answer

A) How strongly the economy reacts to changes in the nominal interest rate 
B) How strongly the inflation rate impacts peoples' decisions 
C) How aggressively policymakers change interest rates in response to deviations between current and target inflation rates 
D) People's expectations for inflation 
A) How strongly the economy reacts to changes in the nominal interest rate 
B) How strongly the inflation rate impacts peoples' decisions 
C) How aggressively policymakers change interest rates in response to deviations between current and target inflation rates 
D) People's expectations for inflation

Question 17

Discuss why many economists maintain that continued deficit spending by government is likely to "crowd out" (decrease) investment spending in the long run.

Accepted Answer

The long-run real interest rate is the r

Question 18

If the economy is in long-run equilibrium:

Accepted Answer

A) Inflation should be increasing at its long-term trend rate 
B) Current output should be greater than potential output 
C) Current inflation should equal expected inflation 
D) Current inflation should be less than expected inflation 
A) Inflation should be increasing at its long-term trend rate 
B) Current output should be greater than potential output 
C) Current inflation should equal expected inflation 
D) Current inflation should be less than expected inflation

Question 19

Which of the following would not be included in aggregate expenditures?

Accepted Answer

A) Your purchase of a new car 
B) The value of 100 shares of Microsoft stock you purchased 
C) The purchase of new textbooks by your local school district 
D) The value of blue jeans produced in the U.S.and exported to Japan 
A) Your purchase of a new car 
B) The value of 100 shares of Microsoft stock you purchased 
C) The purchase of new textbooks by your local school district 
D) The value of blue jeans produced in the U.S.and exported to Japan

Question 20

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

Exam 21: Output, Inflation, and Monetary Policy

Temporary changes in inflation lead to adjustments in the price level.What causes permanent increases in inflation and why?

Evidence seems to point out that just before recessions interest rates rose.Why would monetary policymakers choose to cause recessions?

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

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

Select the answer which best completes the following statement: "at any point along the long-run aggregate supply curve...."

If the slope of the monetary policy reaction curve is relatively flat, it means that central bankers are:

Changes in investment can usually be attributed to:

Explain why the FOMC in recent years has been able to focus almost exclusively on short-term interest rate targets without having to announce money growth targets.

One reason the long-run aggregate supply curve has the slope it does is due to the fact that:

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

If inflation is very high, say 50 or 100 percent a year, monetary policymakers will shift their focus to controlling:

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

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

An inflation rate above the target rate will result in:

The slope of the monetary policy reaction curve is determined by:

Discuss why many economists maintain that continued deficit spending by government is likely to "crowd out" (decrease) investment spending in the long run.

If the economy is in long-run equilibrium:

Which of the following would not be included in aggregate expenditures?

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?

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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