Question 1

Ceteris Paribus, if current output has fallen below potential ________.

Accepted Answer

A)  a positive inflation gap will ensue 
B)  it is likely that the equilibrium real rate has fallen below the policy rate 
C)  a negative unemployment gap will ensue 
D)  it is likely that the equilibrium real rate has risen above the policy rate 
E)  none of the above 
A)  a positive inflation gap will ensue 
B)  it is likely that the equilibrium real rate has fallen below the policy rate 
C)  a negative unemployment gap will ensue 
D)  it is likely that the equilibrium real rate has risen above the policy rate 
E)  none of the above

Question 2

Aggregate Demand and Supply Analysis
  
-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. The equilibrium real interest rate is ________ percent.

Accepted Answer

A)  3 
B)  one 
C)  2.5 
D)  2 
E)  zero 
A)  3 
B)  one 
C)  2.5 
D)  2 
E)  zero

Question 3

Aggregate Demand and Supply Analysis
  
-In the figure above, assume that output is $10.5 trillion, while potential output is $12 trillion. If there is no policy intervention, then the figure implies that when output has reached $12 trillion, the real interest rate will be ________ percent, and the inflation rate will be ________ percent.

Accepted Answer

A)  1.5; one 
B)  one; zero 
C)  zero; minus 2 
D)  0.5; minus one 
E)  2.5; three 
A)  1.5; one 
B)  one; zero 
C)  zero; minus 2 
D)  0.5; minus one 
E)  2.5; three

Question 4

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

Accepted Answer

A)  no permanent change in output 
B)  no permanent change in the equilibrium inflation rate if the central bank responds by lowering interest rates 
C)  an increase in aggregate demand for any inflation rate, if the central bank responds by lowering interest rates 
D)  all of the above 
E)  none of the above 
A)  no permanent change in output 
B)  no permanent change in the equilibrium inflation rate if the central bank responds by lowering interest rates 
C)  an increase in aggregate demand for any inflation rate, if the central bank responds by lowering interest rates 
D)  all of the above 
E)  none of the above

Question 5

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 6

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

Accepted Answer

Cost-push inflation cannot persist witho

Question 7

Which of the following statements is correct?

Accepted Answer

A)  Through autonomous monetary policy adjustments the Federal Reserve can target any inflation rate in the long run 
B)  Ultimately, autonomous monetary policy adjustments by the Federal Reserve cannot determine the equilibrium real interest rate in the long run 
C)  Ultimately, autonomous monetary policy adjustments by the Federal Reserve cannot determine long run aggregate output 
D)  all of the above 
E)  none of the above 
A)  Through autonomous monetary policy adjustments the Federal Reserve can target any inflation rate in the long run 
B)  Ultimately, autonomous monetary policy adjustments by the Federal Reserve cannot determine the equilibrium real interest rate in the long run 
C)  Ultimately, autonomous monetary policy adjustments by the Federal Reserve cannot determine long run aggregate output 
D)  all of the above 
E)  none of the above

Question 8

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 9

Cost-push inflation is to ________ as demand-pull inflation is to ________.

Accepted Answer

A)  impatience; inaccuracy 
B)  entering; exiting 
C)  activism; nonactivism 
D)  fiscal; monetary 
E)  none of the above 
A)  impatience; inaccuracy 
B)  entering; exiting 
C)  activism; nonactivism 
D)  fiscal; monetary 
E)  none of the above

Question 10

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 11

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 12

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

Accepted Answer

A)  aggregate demand; inflation stabilization policy will also stabilize activity in the short-run 
B)  permanent aggregate supply; inflation stabilization policy will also stabilize activity in the short-run 
C)  temporary aggregate supply; inflation stabilization policy has no impact on economic activity in the long-run 
D)  all of the above 
E)  none of the above 
A)  aggregate demand; inflation stabilization policy will also stabilize activity in the short-run 
B)  permanent aggregate supply; inflation stabilization policy will also stabilize activity in the short-run 
C)  temporary aggregate supply; inflation stabilization policy has no impact on economic activity in the long-run 
D)  all of the above 
E)  none of the above

Question 13

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 14

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

Accepted Answer

A)  Achieving a zero natural rate of unemployment 
B)  Targeting a zero rate of inflation 
C)  Achieving price stability 
D)  all of the above 
E)  none of the above 
A)  Achieving a zero natural rate of unemployment 
B)  Targeting a zero rate of inflation 
C)  Achieving price stability 
D)  all of the above 
E)  none of the above

Question 15

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)  it would likely conduct an easing of monetary policy by raising the real interest rate for any given inflation rate 
B)  it would likely conduct a tightening of monetary policy by raising the real interest rate for any given inflation rate 
C)  it would likely conduct an easing of monetary policy where the real interest rate would increase due to the ensuing decrease in aggregate demand 
D)  it would likely conduct a tightening of monetary policy where the real interest rate would increase due to the ensuing increase in aggregate demand 
E)  none of the above 
A)  it would likely conduct an easing of monetary policy by raising the real interest rate for any given inflation rate 
B)  it would likely conduct a tightening of monetary policy by raising the real interest rate for any given inflation rate 
C)  it would likely conduct an easing of monetary policy where the real interest rate would increase due to the ensuing decrease in aggregate demand 
D)  it would likely conduct a tightening of monetary policy where the real interest rate would increase due to the ensuing increase in aggregate demand 
E)  none of the above

Question 16

In recent decades, the trend among central banks has been to adopt ________.

Accepted Answer

A)  high employment as a central goal 
B)  a dual mandate that gives equal weight to both price stability and low unemployment. 
C)  price stability as a central goal 
D)  a target of zero inflation 
E)  none of the above 
A)  high employment as a central goal 
B)  a dual mandate that gives equal weight to both price stability and low unemployment. 
C)  price stability as a central goal 
D)  a target of zero inflation 
E)  none of the above

Question 17

Some central banks pursue price stability before they pursue other goals. Which of the following central banks have this kind of hierarchical mandate? i. Bank of England
Ii) Bank of Canada
Iii) European Central Bank
Iv) Federal Reserve (U.S.A.)

Accepted Answer

A)  i, ii, and iv only 
B)  i and iii only 
C)  i and iv only 
D)  ii, iii, and iv only 
E)  none of the above 
A)  i, ii, and iv only 
B)  i and iii only 
C)  i and iv only 
D)  ii, iii, and iv only 
E)  none of the above

Question 18

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)  it would conduct monetary policy consistent with a downward shift of the MP curve 
B)  it would conduct monetary policy that would lead to a rightward shift of the AD curve 
C)  after an easing of monetary policy, an eventual decrease in short-run AS would drive the long-run equilibrium level of inflation up 
D)  all of the above 
E)  none of the above 
A)  it would conduct monetary policy consistent with a downward shift of the MP curve 
B)  it would conduct monetary policy that would lead to a rightward shift of the AD curve 
C)  after an easing of monetary policy, an eventual decrease in short-run AS would drive the long-run equilibrium level of inflation up 
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

Many borrowers defaulted on subprime mortgages ultimately disrupting financial markets by August 2007. Which of the following is a likely result of this financial disruption?

Accepted Answer

A)  The AD curve likely shifted left which caused a negative output gap 
B)  The AD curve likely shifted left which caused a positive inflation gap 
C)  The AD curve likely shifted left which caused an upward movement along the MP curve to a higher general equilibrium interest rate 
D)  The AD curve likely did not shift 
E)  none of the above 
A)  The AD curve likely shifted left which caused a negative output gap 
B)  The AD curve likely shifted left which caused a positive inflation gap 
C)  The AD curve likely shifted left which caused an upward movement along the MP curve to a higher general equilibrium interest rate 
D)  The AD curve likely did not shift 
E)  none of the above

Ceteris Paribus, if current output has fallen below potential ________.

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

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

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

Which of the following statements is correct?

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

Cost-push inflation is to as demand-pull inflation is to .

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

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

If most shocks to the economy are shocks, then .

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, ________.

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

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, ________.

In recent decades, the trend among central banks has been to adopt ________.

Some central banks pursue price stability before they pursue other goals. Which of the following central banks have this kind of hierarchical mandate? i. Bank of England Ii) Bank of Canada Iii) European Central Bank Iv) Federal Reserve (U.S.A.)

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, ________.

The American Recovery and Reinvestment Act of 2009 ________.

Many borrowers defaulted on subprime mortgages ultimately disrupting financial markets by August 2007. Which of the following is a likely result of this financial disruption?

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

Exam 13: Macroeconomic Policy and Aggregate Demand and Supply Analysis

Ceteris Paribus, if current output has fallen below potential ________.

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

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

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

Which of the following statements is correct?

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

Cost-push inflation is to ________ as demand-pull inflation is to ________.

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

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

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

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, ________.

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

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, ________.

In recent decades, the trend among central banks has been to adopt ________.

Some central banks pursue price stability before they pursue other goals. Which of the following central banks have this kind of hierarchical mandate? i. Bank of England Ii) Bank of Canada Iii) European Central Bank Iv) Federal Reserve (U.S.A.)

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, ________.

The American Recovery and Reinvestment Act of 2009 ________.

Many borrowers defaulted on subprime mortgages ultimately disrupting financial markets by August 2007. Which of the following is a likely result of this financial disruption?

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

Cost-push inflation is to as demand-pull inflation is to .

If most shocks to the economy are shocks, then .