Exam 13: Stabilization Policy and the Asad Framework

Refer to the following figure when answering Figure 13.4: AS/AD Model -Use the aggregate supply/aggregate demand model in Figure 13.4 to answer the following scenario. The United Auto Workers were able to negotiate a contract for higher wages and better benefits. The economy initially moves from point ________ to point ________; eventually the economy returns to the steady state at point ________.

Because deflation is so costly, some have argued that setting an inflation target at 2 percent is too low and it should be set higher, to 3 percent, especially in the economic environment of 2007-2010. Consider the impact of such an increase in the inflation target using the AD/AS framework in the short and long runs. Begin your analysis in the long-run equilibrium.

The aggregate demand curve is given by:

Combining the IS and monetary policy curves gives us the aggregate supply curve.

A change in which of the following parameters shifts the AD curve $\tilde { Y } _ { t } = \bar { a } - \bar { b } \bar { m } \left( \pi _ { t } - \bar { \pi } \right)$ ?

Policymakers will find it easier to achieve their goals by sticking to policy rules rather than discretion if they face the problem of:

The Lucas critique states that it is better for economists to use adaptive rather than rational expectations in their macroeconomic models.

The equation used to predict movements in the federal funds rate is called the Slutsky equation.

The simple monetary policy rule $R _ { t } - \bar { r } = \bar { m } \left( \pi _ { t } - \bar { \pi } \right)$ implies that:

Refer to the following figure when answering Figure 13.4: AS/AD Model -Use the aggregate supply/aggregate demand model in Figure 13.4 to answer the following scenario. In the 1990s, Japan experienced a prolonged sluggish economy. If the Bank of Japan targeted inflation, it would have responded to this situation by ________, pushing the economy from point ________ to point ________; eventually the economy would have returned to the steady state at point ________.

If $\bar { m }$ is close to zero, the AD curve is:

Under rational expectations, people use:

Which of the following best describes why the aggregate supply curve slopes upward?

Refer to the following figure when answering Figure 13.5: AS/AD Model -Consider Figure 13.5. If the Fed sets a lower inflation target, under rational expectations, the economy moves from point ________ to point ________.

Refer to the following figure when answering Figure 13.3: Aggregate Supply Curve -Consider Figure 13.3. If rebels in Nigeria, a major oil producing country, temporarily hijack privately owned and operated oil wells, this would be characterized in the aggregate supply curve as a movement from point ________ to point ________.

Refer to the following figure when answering Figure 13.1: AD Curve -Consider Figure 13.1. Holding inflation constant, if the interest rate increases, the economy would move from point e to point:

On the aggregate supply curve, when short-run output deviations are equal to zero, the y-intercept is equal to:

If $\bar { m }$ is close to zero, monetary policy is relatively:

Which of the following countries does not adopt an explicit inflation target?

In the presence of rational expectations, the central banks' willingness to battle inflation: