Exam 12: Monetary Policy and the Phillips Curve

Which of the following is the mission of the Federal Reserve Bank? i. Preserve price stability ii. Foster economic growth and employment iii. Promote a stable financial system

Refer to the following figure when answering the next two questions. Figure 12.11: Change in Inflation by Month (Source: Federal Reserve Economic Data, St. Louis Federal Reserve) -Consider Figure 12.11, which shows the change in inflation $( \Delta \pi )$ from 1977 to 1981, 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 the second quarter of 1981, you consider your performance, and you conclude that you ________; using the Phillips curve, you see the country is now ________.

Once a ________ is chosen, the main tool the Federal Reserve uses to change the money supply is ________.

The Fed has perfect information about the state of the economy.

The structure of the short-run model is best described as which of the following?

According to the Fisher equation, the real interest rate is given by:

In the Phillips curve, $\Delta \pi _ { t } = \overline { \boldsymbol { v } } \tilde { Y } _ { t } + \bar { a }$ , if $\overline { \boldsymbol { v } }$ Is large, then:

In the Phillips curve, $\Delta \pi _ { t } = \overline { \boldsymbol { v } } \tilde { Y } _ { t } + \bar { a } , \bar { a }$ represents a change in government spending.

Refer to the following figure when answering Figure 12.12: Money Market -Starting at any equilibrium in Figure 12.12, if the Fed loosens money, the money market would move from:

The economywide rate of inflation is given by:

According to the Phillips curve, if current output equals potential output:

Refer to the following figure when answering Figure 12.4: Phillips Curve -Consider the Phillips curve in Figure 12.4. At point a, the economy is ________; at point c, the economy is ________.

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

Usually the yield curve slopes downward.

The amount of deposits that a bank must hold in its vaults is called:

The main tool used by the Federal Reserve is the federal funds rate.

According to the Phillips curve, if current output is above potential output:

One of the remarkable things about the 2001 recession was the:

According to the quantity theory of money, an increase in GDP ________ inflation, and the Phillips curve demonstrates that inflation ________ with rising GDP. This is because the quantity theory is a ________ theory of price behavior.

Refer to the following figure when answering Figure 12.2: IS-MP Curve -Consider the economy presented in Figure 12.2. If housing prices drop sharply, there is a loss in consumer and investor confidence and the economy moves from ________. To prevent a ________, the Fed ________, and the economy moves from ________.