Exam 14: Expectations: the Basic Tools

The Fisher effect summarizes the effects of

In the IS-LM model,an increase in expected inflation will cause which of the following?

For this question,assume that expected inflation is zero.In this situation,we know that

Suppose the Federal Reserve pursues contractionary monetary policy resulting in a reduction in money growth.This reduction in money growth will result in which of the following?

Explain what effect monetary policy will have on the real interest rate in the short run and in the medium run? Explain.

If the expected real interest rate 5% and expected inflation 3%,the nominal interest rate in year t is approximately

When individuals make decisions about how much money and bonds to hold,which of the following variables affects those decisions?

Using the IS-LM model,graphically illustrate and explain what effect an increase in money growth will have on output,the nominal interest rate,and the real interest rate in the short run.

First,explain what the nominal interest rate represents.Second,explain what the real interest rate represents.

To raise the nominal interest rate in the short run,what type of policy should the central bank pursue? Explain.

Suppose that the nominal interest rate increases while the expected inflation rate rises.Given this information,we know with certainty that the real interest rate

What is the relationship among the nominal interest rate,the natural rate of interest,and money growth in the medium run? Explain.Based on your answer,what effect will a reduction in money growth have on the nominal interest rate and the natural real interest rate in the medium run? Explain.

Suppose the economy is initially operating at the natural level of output.Now,suppose the central bank increases the rate of nominal money growth by 2%.Given this information,we would expect that

In the medium run,lower money growth causes

In the IS-LM model,a reduction in expected inflation will cause which of the following?

An increase in the nominal interest rate,all else held constant,will always cause which of the following?

If the nominal interest rate 8% and expected inflation 3%,the expected real interest rate in year t is approximately

With a nominal interest rate of 5%,the present discounted value of $100 to be received in two year is

Suppose the central bank engages in contractionary monetary policy that results in lower money growth.This lower money growth will cause which of the following in the short run?

Using the IS-LM model,graphically illustrate and explain what effect a reduction in money growth will have on output,the nominal interest rate,and the real interest rate in the short run.