Question 1

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

Accepted Answer

A)  zero. 
B)  the nominal interest rate plus the rate of inflation. 
C)  the nominal interest rate minus the rate of unemployment. 
D)  the rate of economic growth. 
E)  the nominal interest rate minus the rate of inflation. 
A)  zero. 
B)  the nominal interest rate plus the rate of inflation. 
C)  the nominal interest rate minus the rate of unemployment. 
D)  the rate of economic growth. 
E)  the nominal interest rate minus the rate of inflation.

Question 2

If nominal interest rates are high, you:

Accepted Answer

A)  hold only cash. 
B)  hold less savings and more cash. 
C)  hold all your money in a different currency. 
D)  never have any cash in your checking account. 
E)  hold less cash and more savings. 
A)  hold only cash. 
B)  hold less savings and more cash. 
C)  hold all your money in a different currency. 
D)  never have any cash in your checking account. 
E)  hold less cash and more savings.

Question 3

Figure 12.18: Real GDP and Non-Farm Employment (1999.07 = 100)   (Source: Federal Reserve Economic Data, St. Louis Federal Reserve)
-Figure 12.18 shows quarterly real GDP and nonfarm employment from 1999.07-2007.07. Discuss what is notable about this relationship.

Accepted Answer

As can be seen, real GDP recovered relat

Question 4

In the Phillips curve, the term ________ reflects ________.

Accepted Answer

A)    demand-pull inflation 
B)    ; cost-push inflation 
C)    ; the "true" rate of inflation 
D)    ; demand-pull inflation 
E)    the responsiveness of inflation to cost shocks 
A)    demand-pull inflation 
B)    ; cost-push inflation 
C)    ; the "true" rate of inflation 
D)    ; demand-pull inflation 
E)    the responsiveness of inflation to cost shocks

Question 5

If the price of oil unexpectedly rises, the Phillips curve shifts down and to the right.

Accepted Answer

A) True 
 B)False

Question 6

What are the mechanics of lowering interest rates?

Accepted Answer

If the Fed wants to lower interest rates

Question 7

Refer to the following figure when answering the following questions.
Figure 12.12: Money Market  
-Starting at any equilibrium in Figure 12.12, if individuals want to hold more wealth in savings, the money market would move from point:

Accepted Answer

A)  B to A. 
B)  B to C. 
C)  B to D. 
D)  A to C. 
E)  Not enough information is given. 
A)  B to A. 
B)  B to C. 
C)  B to D. 
D)  A to C. 
E)  Not enough information is given.

Question 8

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

Accepted Answer

A)  a discount fund. 
B)  savings. 
C)  federal funds. 
D)  a required reserve. 
E)  vault cash. 
A)  a discount fund. 
B)  savings. 
C)  federal funds. 
D)  a required reserve. 
E)  vault cash.

Question 9

Expected inflation is:

Accepted Answer

A)  equal to zero. 
B)  equal to the real interest rate. 
C)  equal to future periods' inflation rates. 
D)  the rate of inflation that firms believe will prevail in macroeconomy. 
E)  about 2 percent. 
A)  equal to zero. 
B)  equal to the real interest rate. 
C)  equal to future periods' inflation rates. 
D)  the rate of inflation that firms believe will prevail in macroeconomy. 
E)  about 2 percent.

Question 10

The MP curve stands for ________ and describes how ________.

Accepted Answer

A)  monopoly pricing; firms set prices 
B)  monetary policy; the Federal Reserve sets the inflation rate 
C)  monetary policy; the federal government sets short-run output fluctuations 
D)  money prices; the Federal Reserve sets the inflation rate 
E)  monetary policy; the Federal Reserve sets the nominal interest rate 
A)  monopoly pricing; firms set prices 
B)  monetary policy; the Federal Reserve sets the inflation rate 
C)  monetary policy; the federal government sets short-run output fluctuations 
D)  money prices; the Federal Reserve sets the inflation rate 
E)  monetary policy; the Federal Reserve sets the nominal interest rate

Question 11

According to reasoning by Milton Friedman and Edmund Phelps:

Accepted Answer

A)  economic stimulus programs were destined to fail in the long run. 
B)  economic stimulus programs were destined to fail in the short and long runs. 
C)  unemployment does not react to fluctuations in output. 
D)  there is a theoretical maximum level of potential output that can be produced. 
E)  firms do not react to real interest rate changes. 
A)  economic stimulus programs were destined to fail in the long run. 
B)  economic stimulus programs were destined to fail in the short and long runs. 
C)  unemployment does not react to fluctuations in output. 
D)  there is a theoretical maximum level of potential output that can be produced. 
E)  firms do not react to real interest rate changes.

Question 12

If the Fed mistakenly believes that potential output is higher than it actually is, it might conduct inflationary monetary policy.

Accepted Answer

A) True 
 B)False

Question 13

In the classical dichotomy, some prices are sticky.

Accepted Answer

A) True 
 B)False

Question 14

Usually the yield curve slopes downward.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

Which of the following statements is NOT true?

Accepted Answer

A)  Small menu prices lead to price stickiness. 
B)  In the classical dichotomy, some prices are sticky. 
C)  In the classical dichotomy, an increase in money supply growth leads to a corresponding increase in inflation. 
D)  Short-run contracts lead to price persistence. 
E)  Imperfect information may lead to price inflexibility. 
A)  Small menu prices lead to price stickiness. 
B)  In the classical dichotomy, some prices are sticky. 
C)  In the classical dichotomy, an increase in money supply growth leads to a corresponding increase in inflation. 
D)  Short-run contracts lead to price persistence. 
E)  Imperfect information may lead to price inflexibility.

Question 17

The structure of the short-run model is best described by Nominal interest rate   
Real interest rate   
Change in inflation.

Accepted Answer

A) True 
 B)False

Question 18

The term structure of interest rates shows the relationship between:

Accepted Answer

A)  corporate bonds and the federal funds rate. 
B)  high and low quality corporate bonds. 
C)  U.S. Treasury bills with different maturities. 
D)  U.S. Treasury rates and municipal bond yields. 
E)  mortgage rates and LIBOR. 
A)  corporate bonds and the federal funds rate. 
B)  high and low quality corporate bonds. 
C)  U.S. Treasury bills with different maturities. 
D)  U.S. Treasury rates and municipal bond yields. 
E)  mortgage rates and LIBOR.

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

The Federal Reserve always has targeted interest rates rather than money supply.

Accepted Answer

A) True 
 B)False

Exam 12: Monetary Policy and the Phillips Curve

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

If nominal interest rates are high, you:

Figure 12.18: Real GDP and Non-Farm Employment (1999.07 = 100) (Source: Federal Reserve Economic Data, St. Louis Federal Reserve) -Figure 12.18 shows quarterly real GDP and nonfarm employment from 1999.07-2007.07. Discuss what is notable about this relationship.

In the Phillips curve, the term ________ reflects ________.

If the price of oil unexpectedly rises, the Phillips curve shifts down and to the right.

What are the mechanics of lowering interest rates?

Refer to the following figure when answering the following questions. Figure 12.12: Money Market -Starting at any equilibrium in Figure 12.12, if individuals want to hold more wealth in savings, the money market would move from point:

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

Expected inflation is:

The MP curve stands for ________ and describes how ________.

According to reasoning by Milton Friedman and Edmund Phelps:

If the Fed mistakenly believes that potential output is higher than it actually is, it might conduct inflationary monetary policy.

In the classical dichotomy, some prices are sticky.

Usually the yield curve slopes downward.

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

Which of the following statements is NOT true?

The structure of the short-run model is best described by Nominal interest rate Real interest rate Change in inflation.

The term structure of interest rates shows the relationship between:

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

The Federal Reserve always has targeted interest rates rather than money supply.

Introduction to Macroeconomics

Measuring the Macroeconomy

An Overview of Long-Run Economic Growth

A Model of Production

The Solow Growth Model

Growth and Ideas

The Labor Market, Wages, and Unemployment

Inflation

An Introduction to the Short Run

The Great Recession: a First Look

The Is Curve

Stabilization Policy and the Asad Framework

The Great Recession and the Short-Run Model

Dsge Models: the Frontier of Business Cycle Research

Consumption

Investment

The Government and the Macroeconomy

International Trade

Exchange Rates and International Finance

Parting Thoughts

Filters

In the Phillips curve, the term reflects .

The MP curve stands for and describes how .