Exam 13: Stabilization Policy and the Asad Framework

A policy rule dictates that monetary policy is at the discretion of the president.

If the current rate of inflation is 1 percent, using the values suggested by Professor Taylor, $\bar { r } = 2 \% ; \bar { \pi } = 2 \% ; \bar { m } = 1 / 2 \%$ , the Taylor rule predicts a federal funds rate of:

If the simple Taylor rule models the "ideal" federal funds rate, the ________ displayed a monetary policy that was too loose.

Refer to the following figure when answering Figure 13.3: Aggregate Supply Curve -Consider Figure 13.3. If there is a positive inflation shock, ceteris paribus, the economy would move from point ________ to point ________.

Refer to the following figure when answering Figure 13.1: AD Curve -Consider Figure 13.1, beginning at point e. If there is a change in the inflation rate:

The simple monetary policy rule may contain which of the following?

The simple monetary policy rule may contain which of the following?

Which of the following best describes movement along the AD curve?

If $\bar { r } = 2 \% , \bar { m } = .75$ , and $\bar { \pi } = 2 \%$ , what would the simple monetary rule dictate the real interest be if $\bar { \pi } _ { t } = 5 \%$ ? If $\pi _ { t } = 2 \% , \pi _ { t } = - 2 \%$ ? In each case, is the economy in an expansion, recession, or in the long run?

In the simple monetary policy rule, a large $\bar { m }$ means that the central bank is aggressively fighting inflation.

Refer to the following figure when answering Figure 13.1: AD Curve -Consider Figure 13.1. If there is a positive aggregate demand shock and inflation remains constant, the economy would move from point e to point:

The reputations of ________, ________, and ________ have convinced observers that the Fed is committed to low and stable inflation.

In the simple monetary policy rule $R _ { t } - \bar { r } = \bar { m } \left( \pi _ { t } - \bar { \pi } \right)$ , $\left( \pi _ { t } - \bar { \pi } \right)$ Represents:

In the simple monetary policy rule, if $\bar { m } = 0$ , the AD curve is horizontal.

Refer to the following figure when answering Figure 13.3: Aggregate Supply Curve -Consider Figure 13.3. Over the past few years the "Arab Spring" has caused radical political and economic changes, particularly Syria, Egypt, and Libya. These events can be characterized in the aggregate supply curve as a movement from point ________ to point ________.

Which of the following shifts the aggregate supply curve?

Using the simple monetary rule, if the inflation rate is 2 percent below the target inflation rate and the marginal product of capital is 1 percent, the Federal Reserve will:

Assuming the simple Taylor rule for dictating the federal funds rate, when the actual federal funds rate deviates from the suggested rate, it can be explained by:

Professor John Taylor suggested using which set of values for the Taylor rule?

Refer to the following figure when answering Figure 13.2: AD Curve -Consider Figure 13.2. Each of the aggregate demand curves pictured represents a different economy. Which of the four economies' central banks would be most concerned with unemployment rather than inflation?