Exam 13: Macroeconomic Policy and Aggregate Demand and Supply Analysis

Suppose that inflation is at the target rate and output has fallen substantially below potential output.A central bank with a primary objective of price stability should ________.

"With autonomous changes in the policy interest rate,the Federal Reserve cannot determine the long run equilibrium level of the real interest rate or potential output and will only be able to determine inflation." This statement is consistent with ________.

According to the Taylor rule,which of the following will lead to the largest increase in the nominal federal funds rate?

How might strict adherence to the Taylor rule discourage cost-push inflation?

Which of the following is a primary objective of monetary policy?

Activists believe that ________.

After 1975,the U.S.economy continued to experience high inflation ________.

Which of the following is a primary objective of macroeconomic policy?

According to the Taylor rule,which of the following will lead to a higher nominal federal funds rate?

If most shocks to the economy are ________ shocks,then ________.

If higher inflation ensues from a temporary negative supply shock,and in response,the central bank raises interest rates,then ________.

Which of the following statements is correct?

-Suppose the economy is in a long-run equilibrium when a temporary,favorable aggregate supply shock occurs.On the graphs above,show what happens to bring the economy back to long-run equilibrium,assuming that there is no policy response.In words,explain why "no response" is the best policy.

A negative shock in aggregate demand will likely result in ________.

An increase in financial frictions results in ________.

When a temporary negative supply shock hits the economy ________.

-In the figure above,assume that output is $10.5 trillion,while potential output is $12 trillion.Suppose that a combination of fiscal stimulus and recovery of consumer and business confidence shifts the IS and AD curves,as shown in the figure,while monetary policy sets the real interest rate at one percent.If the short-run aggregate supply curve is π = Y - 13,then the resulting values of output and inflation are ________.

Which of the following statements is correct?

Which statement is a good argument in support of policy activism?

If higher inflation ensues from a temporary negative supply shock,and in response,the central bank raises interest rates,then the resulting decrease in AD will return inflation back to its original level ________.