Question 1

Nonconventional monetary policy attempts to reduce financial frictions by ________.

Accepted Answer

A) reversing the expansion of the central bank's balance sheet that has made it costly for businesses to invest 
B) purchasing short-term assets,which raises their price and reduces the credit spread 
C) increasing the expected future short-term interest rate 
D) all of the above 
E) none of the above 
A) reversing the expansion of the central bank's balance sheet that has made it costly for businesses to invest 
B) purchasing short-term assets,which raises their price and reduces the credit spread 
C) increasing the expected future short-term interest rate 
D) all of the above 
E) none of the above

Question 2

A good reason for policy makers to pursue a goal of stabilizing economic activity is that ________.

Accepted Answer

A) high inflation is always accompanied by high variability of inflation 
B) high unemployment causes human misery and lost output 
C) in a stable economy,there is little or no structural inflation 
D) all of the above 
E) none of the above 
A) high inflation is always accompanied by high variability of inflation 
B) high unemployment causes human misery and lost output 
C) in a stable economy,there is little or no structural inflation 
D) all of the above 
E) none of the above

Question 3

Which is a plausible cause of the movement in Figure 13.1 from point 1 to point 2?

Accepted Answer

A) a change in expectations that causes a decline in the real interest rate for investments 
B) a decrease in expected inflation 
C) the economy's self-correcting mechanism 
D) the central bank achieves a negative value for the nominal interest rate 
E) none of the above 
A) a change in expectations that causes a decline in the real interest rate for investments 
B) a decrease in expected inflation 
C) the economy's self-correcting mechanism 
D) the central bank achieves a negative value for the nominal interest rate 
E) none of the above

Question 4

When a permanent negative supply shock hits the economy ________.

Accepted Answer

A) in the long-run,output is permanently lowered whether the central bank reacts or not 
B) inflation decreases in the short-run 
C) there is no long-run effect on inflation whether the central bank reacts or not 
D) all of the above 
E) none of the above 
A) in the long-run,output is permanently lowered whether the central bank reacts or not 
B) inflation decreases in the short-run 
C) there is no long-run effect on inflation whether the central bank reacts or not 
D) all of the above 
E) none of the above

Question 5

A central bank with a hierarchical mandate will seek ________ as a condition of pursuing other goals.

Accepted Answer

A) stable inflation 
B) high employment 
C) moderate interest rates 
D) the approval of the legislature 
E) none of the above 
A) stable inflation 
B) high employment 
C) moderate interest rates 
D) the approval of the legislature 
E) none of the above

Question 6

If the economy is in a long-run equilibrium when the Federal Reserve decides that its inflation target is too low and chooses to raise it,________.

Accepted Answer

A) monetary policy would ultimately lead to higher inflation and real interest rates in the long run 
B) monetary policy would ultimately lead to higher inflation and thus higher potential output 
C) monetary policy would ultimately lead to higher potential output and real interest rates but no long-run impact on inflation 
D) all of the above 
E) none of the above 
A) monetary policy would ultimately lead to higher inflation and real interest rates in the long run 
B) monetary policy would ultimately lead to higher inflation and thus higher potential output 
C) monetary policy would ultimately lead to higher potential output and real interest rates but no long-run impact on inflation 
D) all of the above 
E) none of the above

Question 7

Since 2010,the federal funds rate has been well below the rate suggested by the Taylor rule.A likely explanation for the discrepancy is that ________.

Accepted Answer

A) the Fed's dual mandate prevents a close reliance on the Taylor rule 
B) policy makers decided that instability of the coefficients prevents the Taylor rule from having any role in policy decisions 
C) in the past,adherence to the Taylor rule led to policy mistakes 
D) all of the above 
E) none of the above 
A) the Fed's dual mandate prevents a close reliance on the Taylor rule 
B) policy makers decided that instability of the coefficients prevents the Taylor rule from having any role in policy decisions 
C) in the past,adherence to the Taylor rule led to policy mistakes 
D) all of the above 
E) none of the above

Question 8

Every six weeks,the Federal Open Market Committee (FOMC)meets to discuss how to best adjust ________ to accommodate shocks that shift the level of ________.

Accepted Answer

A) the equilibrium real interest rate;the target Fed Funds rate 
B) the target Fed Funds rate;the equilibrium real interest rate 
C) the 3 month T-bill rate;the inflation gap 
D) target rate of inflation;money demand 
E) none of the above 
A) the equilibrium real interest rate;the target Fed Funds rate 
B) the target Fed Funds rate;the equilibrium real interest rate 
C) the 3 month T-bill rate;the inflation gap 
D) target rate of inflation;money demand 
E) none of the above

Question 9

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

Accepted Answer

A) achieving a zero inflation gap 
B) stabilizing economic activity 
C) avoiding large changes in unemployment 
D) all of the above 
E) none of the above 
A) achieving a zero inflation gap 
B) stabilizing economic activity 
C) avoiding large changes in unemployment 
D) all of the above 
E) none of the above

Question 10

How might long policy lags impact the divine coincidence?

Accepted Answer

The divine coincidence applies when poli

Question 11

An emphasis on inflation stability is compatible with a nonactivist stance only when shocks to the macroeconomy are ________.

Accepted Answer

A) permanent supply shocks 
B) temporary supply shocks 
C) aggregate demand shocks 
D) all of the above 
E) none of the above 
A) permanent supply shocks 
B) temporary supply shocks 
C) aggregate demand shocks 
D) all of the above 
E) none of the above

Question 12

In the 1965 to 1973 period,U.S.policymakers ________.

Accepted Answer

A) targeted an unemployment rate that,in hindsight,was likely too low 
B) pursued an easing of monetary policy designed to increase aggregate demand 
C) made some mistakes that led to the most sustained inflationary episode in U.S.history 
D) all of the above 
E) none of the above 
A) targeted an unemployment rate that,in hindsight,was likely too low 
B) pursued an easing of monetary policy designed to increase aggregate demand 
C) made some mistakes that led to the most sustained inflationary episode in U.S.history 
D) all of the above 
E) none of the above

Question 13

The American Recovery and Reinvestment Act of 2009 ________.

Accepted Answer

A) was a result of the Obama administration adopting an activist approach to policymaking 
B) is still being debated after the fact in terms of its effectiveness 
C) was supported by some economists,and opposed by as many economists 
D) all of the above 
E) none of the above 
A) was a result of the Obama administration adopting an activist approach to policymaking 
B) is still being debated after the fact in terms of its effectiveness 
C) was supported by some economists,and opposed by as many economists 
D) all of the above 
E) none of the above

Question 14

Suppose that wages and prices are quite flexible,so that the short-run aggregate supply curve is steep.In that case,________.

Accepted Answer

A) policies to stabilize inflation are probably needed more than policies to stabilize economic activity 
B) supply shocks will destabilize inflation,but have minimal impact on output 
C) demand shocks will destabilize output,but have minimal impact on inflation 
D) all of the above 
E) none of the above 
A) policies to stabilize inflation are probably needed more than policies to stabilize economic activity 
B) supply shocks will destabilize inflation,but have minimal impact on output 
C) demand shocks will destabilize output,but have minimal impact on inflation 
D) all of the above 
E) none of the above

Question 15

The key difference between "quantitative easing" and "credit easing" is that ________.

Accepted Answer

A) the goal of the former is to raise expected inflation 
B) the latter refers to a substantial change in the composition of the central bank's balance sheet 
C) the latter refers to a substantial expansion of the central bank's balance sheet 
D) the former is endorsed by Federal Reserve Chairman Ben Bernanke,while the latter was devised by Japan's Prime Minister Shinzo Abe 
E) none of the above 
A) the goal of the former is to raise expected inflation 
B) the latter refers to a substantial change in the composition of the central bank's balance sheet 
C) the latter refers to a substantial expansion of the central bank's balance sheet 
D) the former is endorsed by Federal Reserve Chairman Ben Bernanke,while the latter was devised by Japan's Prime Minister Shinzo Abe 
E) none of the above

Question 16

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

Accepted Answer

A) a permanent change in output,unless the central bank responds by lowering interest rates 
B) a permanently lower equilibrium inflation rate,unless the central bank responds by lowering interest rates 
C) an eventual increase in aggregate supply for any inflation rate,if the central bank responds by lowering interest rates 
D) all of the above 
E) none of the above 
A) a permanent change in output,unless the central bank responds by lowering interest rates 
B) a permanently lower equilibrium inflation rate,unless the central bank responds by lowering interest rates 
C) an eventual increase in aggregate supply for any inflation rate,if the central bank responds by lowering interest rates 
D) all of the above 
E) none of the above

Question 17

Every six weeks,the Federal Open Market Committee (FOMC)meets to discuss monetary policy.This discussion is mainly focused on ________.

Accepted Answer

A) information of the equilibrium real interest rate from the past three years 
B) the current month's release of the CPI by the BLS 
C) the three year projections of the equilibrium real interest rate 
D) the past 18 month history and future 18 month projections of the discount rate 
E) none of the above 
A) information of the equilibrium real interest rate from the past three years 
B) the current month's release of the CPI by the BLS 
C) the three year projections of the equilibrium real interest rate 
D) the past 18 month history and future 18 month projections of the discount rate 
E) none of the above

Question 18

When a permanent negative supply shock hits the economy,a permanently ________.

Accepted Answer

A) lower equilibrium level of output ensues if the central bank raises interest rates 
B) lower equilibrium level of output ensues if the central bank does not respond 
C) higher equilibrium level of inflation ensues if the central bank does not respond 
D) all of the above 
E) none of the above 
A) lower equilibrium level of output ensues if the central bank raises interest rates 
B) lower equilibrium level of output ensues if the central bank does not respond 
C) higher equilibrium level of inflation ensues if the central bank does not respond 
D) all of the above 
E) none of the above

Question 19

The American Recovery and Reinvestment Act of 2009 ________.

Accepted Answer

A) placed greater emphasis on monetary policy than fiscal policy 
B) finally put an end to the inflationary spiral that had begun in 2005 
C) was intended to reverse the sharp increase in the equilibrium real interest rate 
D) all of the above 
E) none of the above 
A) placed greater emphasis on monetary policy than fiscal policy 
B) finally put an end to the inflationary spiral that had begun in 2005 
C) was intended to reverse the sharp increase in the equilibrium real interest rate 
D) all of the above 
E) none of the above

Question 20

Shocks to the macroeconomy will cause a change in the equilibrium real interest rate,except ________.

Accepted Answer

A) permanent supply shocks 
B) aggregate demand shocks 
C) temporary supply shocks 
D) all of the above 
E) none of the above 
A) permanent supply shocks 
B) aggregate demand shocks 
C) temporary supply shocks 
D) all of the above 
E) none of the above

Exam 13: Macroeconomic Policy and Aggregate Demand and Supply Analysis

Nonconventional monetary policy attempts to reduce financial frictions by ________.

A good reason for policy makers to pursue a goal of stabilizing economic activity is that ________.

Which is a plausible cause of the movement in Figure 13.1 from point 1 to point 2?

When a permanent negative supply shock hits the economy ________.

A central bank with a hierarchical mandate will seek ________ as a condition of pursuing other goals.

If the economy is in a long-run equilibrium when the Federal Reserve decides that its inflation target is too low and chooses to raise it,________.

Since 2010,the federal funds rate has been well below the rate suggested by the Taylor rule.A likely explanation for the discrepancy is that ________.

Every six weeks,the Federal Open Market Committee (FOMC)meets to discuss how to best adjust ________ to accommodate shocks that shift the level of ________.

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

How might long policy lags impact the divine coincidence?

An emphasis on inflation stability is compatible with a nonactivist stance only when shocks to the macroeconomy are ________.

In the 1965 to 1973 period,U.S.policymakers ________.

The American Recovery and Reinvestment Act of 2009 ________.

Suppose that wages and prices are quite flexible,so that the short-run aggregate supply curve is steep.In that case,________.

The key difference between "quantitative easing" and "credit easing" is that ________.

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

Every six weeks,the Federal Open Market Committee (FOMC)meets to discuss monetary policy.This discussion is mainly focused on ________.

When a permanent negative supply shock hits the economy,a permanently ________.

The American Recovery and Reinvestment Act of 2009 ________.

Shocks to the macroeconomy will cause a change in the equilibrium real interest rate,except ________.

The Policy and Practice of Macroeconomics

Measuring Macroeconomic Data

Aggregate Production and Productivity

Saving and Investment in Closed and Open Economies

Money and Inflation

The Sources of Growth and the Solow Model

Drivers of Growth: Technology, policy, and Institutions

Business Cycles: an Introduction

The Is Curve

Monetary Policy and Aggregate Demand

Aggregate Supply and the Phillips Curve

The Aggregate Demand and Supply Model

The Financial System and Economic Growth

Financial Crises and the Economy

Fiscal Policy and the Government Budget

Exchange Rates and International Economic Policy

Consumption and Saving

Investment

The Labor Market, employment, and Unemployment

The Role of Expectations in Macroeconomic Policy

Modern Business Cycle Theory

Filters

Every six weeks,the Federal Open Market Committee (FOMC)meets to discuss how to best adjust to accommodate shocks that shift the level of .