Exam 12: Monetary Policy and the Phillips Curve

Refer to the following figure when answering the following questions. Figure 12.11: Change in Inflation by Month -Consider Figure 12.11. You are Federal Reserve chairman Volcker and today's date is mid-1977. You suggest the appropriate policy would be to ________. You reevaluate your policy in mid-1979 and conclude that you ________; using the Phillips curve, you see the country is now in ________.

In most advanced economies, central banks target ________ to conduct monetary policy.

When economists say "sticky inflation," they mean:

With adaptive expectations, the Phillips curve can be written as:

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

Which of the following is the mission of the Federal Reserve Bank? i. Preserve price stability ii. Foster stable fiscal policy iii. Ensure taxes are fair

Refer to the following figure when answering the following questions. Figure 12.2: IS-MP Curve -Consider Figure 12.2. If the stock market drops sharply, there is a loss in consumer and investor confidence and the economy moves from point ________. To prevent a ________, the Fed ________, and the economy moves from point ________.

If the central bank targets the interest rate, the money:

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

What is the main policy tool available to the Federal Reserve?

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

You have been asked to spend a week or so as the Fed chairman. It will turn out to be a very interesting week. If your goal is to stabilize inflation and economic activity, what would be your response to the following three events? Consider each event individually, independent from the others: (a) a rapid rise in the stock markets rapidly increases people's wealth; (b) Chilean citizens get a sudden taste for Buffalo hot wings (they must be made in Buffalo); and (c) firms begin to grow anxious about the decline in consumer confidence.

Which of the following scenarios best describes the short-run model?

When the Federal Reserve increases the interest rate, the MP curve shifts up and potential output falls.

The most immediate and visible form of inflation shock is:

Refer to the following figure when answering the following questions. Figure 12.10: Output Gap: 1990-2000 -Consider Figure 12.10, which shows the output gap from 1990 to 2000, by quarter. If this is all the information you have, during the period 1993.1-1993.4, from the Phillips curve, you would conclude that:

"Adaptive expectations" implies that firms adjust their inflation expectations immediately.

The link between real and nominal interest rates is summarized in:

The federal funds rate is:

Refer to the following figure when answering the following questions. Figure 12.2: IS-MP Curve -Consider Figure 12.2. If the Fed lowers interest rates and there are no aggregate demand shocks, the economy moves from point ________ to ________.