Question 1

If prices are sticky and there are no aggregate demand shocks,and if the Fed raises the interest rate,__________ and __________.

Accepted Answer

A) unemployment falls;potential output falls 
B) the real interest rate falls;short-run output falls 
C) the unemployment rate rises;short-run output rises 
D) the real interest rate rises;short-run output falls 
E) the real interest rate falls;current output falls 
A) unemployment falls;potential output falls 
B) the real interest rate falls;short-run output falls 
C) the unemployment rate rises;short-run output rises 
D) the real interest rate rises;short-run output falls 
E) the real interest rate falls;current output falls D

Question 2

The nominal interest rate:

Accepted Answer

A) is set by Congress. 
B) is equal to the rate of inflation. 
C) always is equal to the 10-year bond rate of return. 
D) is the opportunity cost of holding money. 
E) is constant. 
A) is set by Congress. 
B) is equal to the rate of inflation. 
C) always is equal to the 10-year bond rate of return. 
D) is the opportunity cost of holding money. 
E) is constant. D

Question 3

The term structure of interest rates is a way of looking at bond rates with different maturity periods.

Accepted Answer

A) True 
 B)False  True

Question 4

If the central bank is targeting the money supply,the money supply is __________ and __________ the nominal interest rate.

Accepted Answer

A) equal to money velocity;is vertical with respect to 
B) whatever level is dictated by the president;is horizontal with respect to 
C) whatever level is dictated by the central bank;is horizontal with respect to 
D) whatever level is dictated by the central bank;is vertical with respect to 
E) whatever level is dictated by the central bank;slopes downward with respect to 
A) equal to money velocity;is vertical with respect to 
B) whatever level is dictated by the president;is horizontal with respect to 
C) whatever level is dictated by the central bank;is horizontal with respect to 
D) whatever level is dictated by the central bank;is vertical with respect to 
E) whatever level is dictated by the central bank;slopes downward with respect to

Question 5

If the central bank targets the interest rate,the:

Accepted Answer

A) money demand curve is flat. 
B) money supply curve is vertical. 
C) money supply curve slopes upward. 
D) money supply curve is flat. 
E) money demand curve is vertical. 
A) money demand curve is flat. 
B) money supply curve is vertical. 
C) money supply curve slopes upward. 
D) money supply curve is flat. 
E) money demand curve is vertical.

Question 6

Which of the following is (are)the mission of the Federal Reserve Bank?
i.Preserve price stability.
ii.Foster economic growth and employment.
iii.Ensure taxes are fair.

Accepted Answer

A) i only. 
B) ii only. 
C) iii only. 
D) i and ii. 
E) i and iii. 
A) i only. 
B) ii only. 
C) iii only. 
D) i and ii. 
E) i and iii.

Question 7

Economists who study monetary policy believe that it takes anywhere from __________ for monetary policy to have a substantial effect on economic activity.

Accepted Answer

A) three to six weeks 
B) 6 to 18 days 
C) 6 to 18 months 
D) three to six months 
E) 6 to 18 weeks 
A) three to six weeks 
B) 6 to 18 days 
C) 6 to 18 months 
D) three to six months 
E) 6 to 18 weeks

Question 8

The money demand curve:

Accepted Answer

A) slopes downward with respect to the discount rate. 
B) slopes downward with respect to the nominal interest rate. 
C) slopes upward with respect to the nominal interest rate. 
D) always is flat with respect to the nominal interest rate. 
E) is flat with respect to the inflation rate. 
A) slopes downward with respect to the discount rate. 
B) slopes downward with respect to the nominal interest rate. 
C) slopes upward with respect to the nominal interest rate. 
D) always is flat with respect to the nominal interest rate. 
E) is flat with respect to the inflation rate.

Question 9

In the Phillips curve,   
,   
represents a permanent price change.

Accepted Answer

A) True 
 B)False

Question 10

-Starting at any equilibrium in Figure 12.11,if the Fed loosens money,the money market would move from:

Accepted Answer

A) point A to B. 
B) point A to D. 
C) point B to D. 
D) point C to A. 
E) Not enough information is given. 
A) point A to B. 
B) point A to D. 
C) point B to D. 
D) point C to A. 
E) Not enough information is given.

Question 11

If the central bank reduces the money supply,

Accepted Answer

A) the inflation rate rises and individuals hold more money. 
B) the nominal interest rate rises and individuals hold more money. 
C) the nominal interest rate falls and individuals hold no money. 
D) the nominal interest rate rises and individuals hold less money. 
E) the unemployment rate rises and individuals hold less money. 
A) the inflation rate rises and individuals hold more money. 
B) the nominal interest rate rises and individuals hold more money. 
C) the nominal interest rate falls and individuals hold no money. 
D) the nominal interest rate rises and individuals hold less money. 
E) the unemployment rate rises and individuals hold less money.

Question 12

-Consider the Phillips curve in Figure 12.3.At point b,__________,and at point a,__________.

Accepted Answer

A) the economy is in recession;the economy is booming 
B) the economy is in recession;the economy is in its long-run equilibrium 
C) the economy is in recession;the economy is in recession 
D) the economy is booming;the economy is in recession 
E) the economy is in its long-run equilibrium;the economy is in recession 
A) the economy is in recession;the economy is booming 
B) the economy is in recession;the economy is in its long-run equilibrium 
C) the economy is in recession;the economy is in recession 
D) the economy is booming;the economy is in recession 
E) the economy is in its long-run equilibrium;the economy is in recession

Question 13

In March and April 1980,inflation in the United States peaked at 14.6 percent.What did then-Fed Chairman Volcker elect to do? What was the impact of his policy?

Accepted Answer

Oil shocks in 1974 and 1979 and loose mo

Question 14

-Consider Figure 12.10,which shows the change in inflation  
From 1977.1 to 1981.4,by quarter.You are Federal Reserve chairman Volcker and today's date is the first quarter of 1980 (1980.1).You suggest the appropriate policy would be to __________.In 1981.2,you consider your performance,and you conclude that you __________;using the Phillips curve,you see the country is now in __________.

Accepted Answer

A) lower taxes;failed to tame inflation;debt 
B) lower interest rates;failed at taming inflation;recession 
C) raise interest rates;succeeded in taming the recession;booming 
D) raise interest rates;succeeded in taming inflation;recession 
E) raise taxes;succeeded in taming inflation;debt 
A) lower taxes;failed to tame inflation;debt 
B) lower interest rates;failed at taming inflation;recession 
C) raise interest rates;succeeded in taming the recession;booming 
D) raise interest rates;succeeded in taming inflation;recession 
E) raise taxes;succeeded in taming inflation;debt

Question 15

-Consider Figure 12.8,which shows the change in inflation  
From 1995.1 to 2000.4,by quarter.You are Federal Reserve chairman Greenspan and today's date is the first quarter of 1999 (1999.1).Given the information you have,using the Phillips curve,to stabilize the economy,you would __________,risking __________.

Accepted Answer

A) raise interest rates;inflation 
B) raise interest rates;recession 
C) lower interest rates;recession 
D) lower interest rates;higher unemployment 
E) Not enough information is given. 
A) raise interest rates;inflation 
B) raise interest rates;recession 
C) lower interest rates;recession 
D) lower interest rates;higher unemployment 
E) Not enough information is given.

Question 16

The link between real and nominal interest rates is the Fisher equation.

Accepted Answer

A) True 
 B)False

Question 17

In the Phillips curve  
If  
Is large,then

Accepted Answer

A) price-setting behavior is completely insensitive to short-run fluctuations. 
B) price-setting behavior is very insensitive to short-run fluctuations. 
C) inflation is not very sensitive to short-run fluctuations. 
D) price-setting behavior is very sensitive to short-run fluctuations. 
E) Not enough information is given. 
A) price-setting behavior is completely insensitive to short-run fluctuations. 
B) price-setting behavior is very insensitive to short-run fluctuations. 
C) inflation is not very sensitive to short-run fluctuations. 
D) price-setting behavior is very sensitive to short-run fluctuations. 
E) Not enough information is given.

Question 18

Which of the following contributed to high levels of inflation in the 1970s?
i.Soviet invasion of Afghanistan
ii.loose monetary policy
iii.a productivity slowdown

Accepted Answer

A) i only 
B) ii only 
C) iii only 
D) i and iii 
E) ii and iii 
A) i only 
B) ii only 
C) iii only 
D) i and iii 
E) ii and iii

Question 19

Which of the following innovations has (have)become commonplace in financial markets over the past few decades?

Accepted Answer

A) ATM cards 
B) credit cards 
C) money market accounts 
D) mutual funds 
E) all of the above 
A) ATM cards 
B) credit cards 
C) money market accounts 
D) mutual funds 
E) all of the above

Question 20

-Consider Figure 12.6.You are chairman of the Federal Reserve in 1975.You believe potential output follows the dotted line after 1973,but in actuality,it follows the line denoted "True potential output." The current state of the economy is given by the curve "Actual output." Given the information in the figure,you __________,because you believe the economy is in a __________;but your advice instead __________.

Accepted Answer

A) lower interest rates;recession;accelerates inflation 
B) raise interest rates;recession;accelerates inflation 
C) keep interest rates the same;boom;accelerates inflation 
D) lower interest rates;boom;increases unemployment 
E) Not enough information is given. 
A) lower interest rates;recession;accelerates inflation 
B) raise interest rates;recession;accelerates inflation 
C) keep interest rates the same;boom;accelerates inflation 
D) lower interest rates;boom;increases unemployment 
E) Not enough information is given.

If prices are sticky and there are no aggregate demand shocks,and if the Fed raises the interest rate, and .

The nominal interest rate:

The term structure of interest rates is a way of looking at bond rates with different maturity periods.

If the central bank is targeting the money supply,the money supply is and the nominal interest rate.

If the central bank targets the interest rate,the:

Which of the following is (are)the mission of the Federal Reserve Bank? i.Preserve price stability. ii.Foster economic growth and employment. iii.Ensure taxes are fair.

Economists who study monetary policy believe that it takes anywhere from __________ for monetary policy to have a substantial effect on economic activity.

The money demand curve:

In the Phillips curve, , represents a permanent price change.

-Starting at any equilibrium in Figure 12.11,if the Fed loosens money,the money market would move from:

If the central bank reduces the money supply,

-Consider the Phillips curve in Figure 12.3.At point b,,and at point a,.

In March and April 1980,inflation in the United States peaked at 14.6 percent.What did then-Fed Chairman Volcker elect to do? What was the impact of his policy?

-Consider Figure 12.8,which shows the change in inflation From 1995.1 to 2000.4,by quarter.You are Federal Reserve chairman Greenspan and today's date is the first quarter of 1999 (1999.1).Given the information you have,using the Phillips curve,to stabilize the economy,you would ,risking .

The link between real and nominal interest rates is the Fisher equation.

In the Phillips curve If Is large,then

Which of the following contributed to high levels of inflation in the 1970s? i.Soviet invasion of Afghanistan ii.loose monetary policy iii.a productivity slowdown

Which of the following innovations has (have)become commonplace in financial markets over the past few decades?

Introduction to Macroeconomics

Measuring the Macroeconomy

An Overview of Long- Run Economic Growth

A Model of Production

The Solow Growth Model

Growth and Ideas

The Labor Market,wages,and Unemployment

Inflation

An Introduction to the Short Run

The Great Recession: a First Look

The Is Curve

Stabilization Policy and the Asad Framework

The Great Recession and the Short-Run Model

Consumption

Investment

The Government and the Macroeconomy

International Trade

Exchange Rates and International Finance

Parting Thoughts

Filters

Exam 12: Monetary Policy and the Phillips Curve

If prices are sticky and there are no aggregate demand shocks,and if the Fed raises the interest rate,__________ and __________.

The nominal interest rate:

The term structure of interest rates is a way of looking at bond rates with different maturity periods.

If the central bank is targeting the money supply,the money supply is __________ and __________ the nominal interest rate.

If the central bank targets the interest rate,the:

Which of the following is (are)the mission of the Federal Reserve Bank? i.Preserve price stability. ii.Foster economic growth and employment. iii.Ensure taxes are fair.

Economists who study monetary policy believe that it takes anywhere from __________ for monetary policy to have a substantial effect on economic activity.

The money demand curve:

In the Phillips curve, , represents a permanent price change.

-Starting at any equilibrium in Figure 12.11,if the Fed loosens money,the money market would move from:

If the central bank reduces the money supply,

-Consider the Phillips curve in Figure 12.3.At point b,__________,and at point a,__________.

In March and April 1980,inflation in the United States peaked at 14.6 percent.What did then-Fed Chairman Volcker elect to do? What was the impact of his policy?

The link between real and nominal interest rates is the Fisher equation.

In the Phillips curve If Is large,then

Which of the following contributed to high levels of inflation in the 1970s? i.Soviet invasion of Afghanistan ii.loose monetary policy iii.a productivity slowdown

Which of the following innovations has (have)become commonplace in financial markets over the past few decades?

Introduction to Macroeconomics

Measuring the Macroeconomy

An Overview of Long- Run Economic Growth

A Model of Production

The Solow Growth Model

Growth and Ideas

The Labor Market,wages,and Unemployment

Inflation

An Introduction to the Short Run

The Great Recession: a First Look

The Is Curve

Stabilization Policy and the Asad Framework

The Great Recession and the Short-Run Model

Consumption

Investment

The Government and the Macroeconomy

International Trade

Exchange Rates and International Finance

Parting Thoughts

Filters

If prices are sticky and there are no aggregate demand shocks,and if the Fed raises the interest rate, and .

If the central bank is targeting the money supply,the money supply is and the nominal interest rate.

-Consider the Phillips curve in Figure 12.3.At point b,,and at point a,.