Exam 21: The Role of Expectations in Macroeconomic Policy

According to the Lucas critique, what is the proper way to evaluate a proposal that reduces government borrowing by raising taxes and reducing government spending?

Adaptive expectations are formed ________.

Expectations about the future will always be accurate if formed under ________.

Some members of the U.S. Congress are opposed to inflation targeting because it might ________.

According to monetarists, such as Milton Friedman ________.

The non-democratic character of the Board of Governors of the Federal Reserve System helps support ________.

Suppose you need an estimate of future inflation (to decide, for example, whether a particular security is a good investment). How might you formulate a rational expectation?

Swiss experience in the 1980s evidences the ________.

Inflation targeting involves public disclosure of each of the following, except ________.

In 1973, 1979 and 2007, the U.S. economy was hit by ________.

Assume that prices have risen in a given economy by an average of 5 percent over the last nine years. If consumers base their expectations about future price movements on that knowledge alone their forecasts rely on ________.

The constant growth rate rule for money, as initially proposed by Milton Friedman, has been adjusted ________.

The current Chairman of the Board of Governors is ________.

The "anchor" that sustains the credibility of monetary policy is ________.

Which of the following is least likely to enhance central bank credibility?

Evidence suggests that, with rare exceptions, economic policies are not manipulated in an effort to influence electoral outcomes. Use the Lucas critique to explain why not.

One country that has not yet adopted inflation targeting is ________.

In 1975 the Swiss National Bank announced a policy of targeting ________.

For the most part, central bank credibility, or lack thereof, is reflected in the behavior of ________.

If the public believes that the commitment to a nominal anchor is not credible, the effect of a negative aggregate demand shock is for ________.