Question 1

Fed policies since the 1980s have attempted to

Accepted Answer

A) overshoot natural real GDP. 
B) undershoot natural real GDP. 
C) "stall" the economy whenever natural real GDP is growing too fast. 
D) A and B. 
E) none of the above.

Question 2

Which of the following does NOT contribute to the choice of a policy of hyperinflation?

Accepted Answer

A) war 
B) increased price of energy paid to foreigners 
C) price of export commodities increase 
D) diminished ability to collect taxes

Question 3

The time between the policy decision and the subsequent change in policy instruments is called the

Accepted Answer

A) data lag,the time required to collect and analyze data. 
B) effectiveness lag,the time required for the change in money supply to affect real output. 
C) legislative lag,the time required for policymaking body to make decisions. 
D) transmission lag,the time between the change in policy and the change in policy instruments.

Question 4

Policy makers usually wait for ________ months of data to confirm a change.

Accepted Answer

A) two 
B) three 
C) four 
D) six

Question 5

Which of the following countries experienced the sharpest fiscal contraction in order to gain admission to the Euro club?

Accepted Answer

A) Portugal 
B) Spain 
C) Italy 
D) France

Question 6

During the ________ output ________ its natural level.

Accepted Answer

A) late 1990s,exceeded 
B) 1960s,deviated relatively little from 
C) early 1980s,tended to exceed 
D) all of the above

Question 7

Which of the following is NOT a problem in following an activist policy?

Accepted Answer

A) ineffectiveness in fiscal policy 
B) lags in the effects of policies 
C) multiplier uncertainty 
D) forecasting errors

Question 8

Supply shocks after 1985

Accepted Answer

A) forced the Fed to follow restrictive monetary policy and caused a negative output ratio. 
B) forced the Fed to follow restrictive monetary policy and caused a positive output ratio. 
C) allowed the Fed to follow accommodative monetary policy and caused a negative output ratio. 
D) allowed the Fed to follow accommodative monetary policy and push the output ratio toward zero.

Question 9

The activists believe that

Accepted Answer

A) the time required for flexible prices to bring the economy back to the natural rate of unemployment is relatively short. 
B) the IS curve is relatively flat because of the broad range of assets whose demand is very sensitive to changes in the interest rate. 
C) the time required for flexible prices to return the economy to the natural level of real GDP is intolerably long. 
D) the severity of the Great Depression was primarily related to the large decline in the supply of money.

Question 10

The length of money or commodity demand disturbances is important to the "policy activism" debate between non-activists and activists because

Accepted Answer

A) changing the money supply affects the economy with a lag. 
B) changes in private spending must be offset by policy debate. 
C) Both A and B are correct. 
D) None of the above is correct.

Question 11

Economists who really do want to take discretion away from the Fed,by imposing rules on ________,face the problem of ________.

Accepted Answer

A) policy instruments,the Fed requiring discretion to adhere to the rule 
B) policy instruments,slippages between instruments and target variables 
C) target variables,the Fed requiring discretion on how to achieve the rule 
D) target variables,slippages between instruments and target variables

Question 12

With lags in monetary policy,an effective expansionary policy must be initiated many months ________ the start of the economic downturn it is intended to moderate,and this requires ________ economic forecasts.

Accepted Answer

A) before,generating accurate 
B) before,ignoring 
C) after,generating accurate 
D) after,ignoring

Question 13

The consensus reached in the late 1990s was that from the 1980s onward the Fed had been

Accepted Answer

A) quicker to stimulate or restrain the economy when its output fell short of or exceeded its natural level. 
B) quicker to stimulate the economy when output fell short of the natural level,but slower to do so when output exceeded the natural level. 
C) slower to stimulate the economy when output fell short of the natural level,but quicker to do so when output exceeded its natural level. 
D) slower to stimulate or restrain the economy when its output fell short of or exceeded its natural level.

Question 14

In general,activists are ________ about the ability of the economy to remain stable and non-activists are ________.

Accepted Answer

A) pessimistic;optimistic 
B) optimistic;optimistic 
C) pessimistic;pessimistic 
D) optimistic;pessimistic

Question 15

The deregulation of thrift institutions in the 1970s and 1980s have made their deposits and thus their ability to finance mortgages ________ sensitive to movements in the market interest rate,thus ________ the monetary policy multiplier.

Accepted Answer

A) more,raising 
B) more,lowering 
C) less,raising 
D) less,lowering

Question 16

Fiscal policy in the United States is hampered by its particularly long ________ lag.

Accepted Answer

A) data 
B) recognition 
C) legislative 
D) transmission 
E) effectiveness

Question 17

If the Fed were required to maintain an absolutely constant growth rate of high-powered money,then the growth rate of the money supply

Accepted Answer

A) would be zero. 
B) would be constant at the growth rate of H. 
C) would be constant but not necessarily at the growth rate of H. 
D) would fluctuate along with the parameters in the money-creation formula.

Question 18

Non-activists believe that postwar instability is primarily the result of

Accepted Answer

A) erratic growth of private investment. 
B) uneven changes in real government expenditures. 
C) uneven changes in private consumption of durables. 
D) A and C are both correct.

Question 19

During recessions natural real GDP

Accepted Answer

A) falls. 
B) increases. 
C) remains constant. 
D) A,B,or C do occur during any given recession.

Question 20

Which of the following is NOT one of the set of assumptions necessary to create the Activists' Paradise?

Accepted Answer

A) political constraints on the use of policy instruments 
B) perfect forecasting of future movements in aggregate demand 
C) the absence of costs in changing the policy instruments 
D) policy instruments that strongly affect aggregate demand

Exam 14: The Goals, tools, and Rules of Monetary Policy