Exam 18: Alternative Perspectives on Stabilization Policy

If citizens vote on the basis of both low inflation and low unemployment at the time of the election, then presidents might, in order to ensure their reelection:

If the velocity of money varies a great deal, steady growth of the money supply is a(n):

The time between a shock to the economy and the policy action responding to that shock is called the:

Conducting monetary policy so that the FF rate = $\pi$ + 0.5( $\pi$ - 2) + 0.5 (GDP gap), where the FF rate is the nominal federal funds interest rate, $\pi$ is the annual inflation rate, and GDP gap is the percentage shortfall of real GDP from its natural level, is an example of :

Compare two procedures for conducting monetary policy: Method 1: Maintain a steady money growth of 6 percent per annum, and Method 2: Maintain a steady inflation rate of 3 percent per annum. Be sure to consider whether the methods involve: (1) active or passive monetary policy and (2) rules or discretion. Discuss why one method might be preferred over the other.

If policymakers announce in advance how policy will respond to various situations and commit themselves to following through on this announcement, this is:

Countries with greater central-bank independence can achieve lower rates of inflation:

A monetary policy rule that targets nominal GDP would ______ money growth when nominal GDP rises above the target and ______ money growth when nominal GDP falls below the target.

All of the following U.S. federal agencies are directly concerned with macroeconomic policy except the:

Does the public's expectation of any policy affect the outcome of implementation of the policy?

The central banks of two nearly identical countries, Fixland and Flexland, desire low inflation and low unemployment. There is a similar short-run tradeoff between unemployment and unexpected inflation in both countries. Private agents in both Fixland and Flexland form expectations rationally and understand the incentives that central banks may have to renege on low-inflation policies. Initially, the rates of inflation and unemployment are the same in both countries. The central bank of Fixland makes a credible announcement that it will operate according to a low-inflation rule. The central bank of Flexland announces that it plans to follow a low-inflation policy, but retains the right to deviate from this policy at its discretion. a. In which country would you expect the rate of inflation to be lower? b. In which country would you expect the unemployment rate to be lower?

If people's expectations of inflation are formed rationally rather than based on adaptive expectations and if policymakers make a credible policy move to reduce inflation, then the costs of reducing inflation will be ______ traditional estimates of the sacrifice ratio.

If policymakers are free to analyze events as they occur and choose whatever policy seems appropriate at the time, then this is:

The time between when a recession begins and when the central bank lowers interest rates to stimulate aggregate demand is an example of an:

Conducting fiscal policy so that G = T + $\beta$ (u - u_n), where G is government expenditures, T is tax revenue, u is the unemployment rate, u_n is the natural rate of unemployment, and $\beta$ is a positive number, is an example of a(n):

Assume that the Democrats always had a policy of high money growth while the Republicans followed a policy of low money growth, and the economy had a standard Phillips curve. Then, if the two parties took regular terms in office:

As Secretary of the Treasury, Alexander Hamilton opposed the time-inconsistent policy of:

Assume that there is a short-run tradeoff between inflation and unemployment, that the central bank desires both low inflation and low unemployment, and that the central bank uses discretion in conducting monetary policy. Initially, households and firms expect high inflation. Following an announcement by the central bank of a low-inflation policy, households and firms will ______ the central bank's announcement and ______ their expectations of inflation.

The political business cycle refers to the:

The lawmakers who wrote the Employment Act of 1946 believed that: