Question 1

Which of the following changes should make activist policy makers more confident in their capacity to make good policy recommendations?

Accepted Answer

A) structural change in the economy 
B) changes in multipliers 
C) a longer estimated lag for monetary policy 
D) none of the above

Question 2

The Fed's interest rate response to the rising output ratio experienced from 1997 to 1999 is explained by

Accepted Answer

A) beneficial supply shocks which pushed down the inflation rate. 
B) the Fed's efforts to help end the Asian financial crisis 
C) the Fed's uncertainty about the concepts of the natural level of output and natural rate of unemployment. 
D) All of the above.

Question 3

To be successful in stabilizing AD,the application of a constant growth-rate rule for the money supply requires

Accepted Answer

A) a constant velocity of money. 
B) a steady and predictable rate of growth of the velocity of money. 
C) a steady and predictable rate of growth of the velocity of income. 
D) Both B and C are correct.

Question 4

Gordon believes that the expansion which began in 1982 did so because of the

Accepted Answer

A) expansionary monetary policy which was pursued. 
B) Reagan tax cuts,the passage of the Economic Recovery Act in 1981. 
C) increases in consumer and business firm optimism concerning future business conditions. 
D) A and B are both correct.

Question 5

Non-activists believe that the principal source of AD instability is

Accepted Answer

A) private investment spending. 
B) private consumption spending. 
C) erratic government policy. 
D) All of the above.

Question 6

Which of the following caused pre-1984 volatility in residential construction?

Accepted Answer

A) financial regulations 
B) tax cuts 
C) currency volatility 
D) interest rates

Question 7

A believer in the need for a CGRR of the money supply policy must be ________ about the ability of the private economy to self-stabilize and ________ about the accuracy of discretionary stabilization policy.

Accepted Answer

A) optimistic,optimistic 
B) optimistic,pessimistic 
C) pessimistic,optimistic 
D) pessimistic,pessimistic

Question 8

Some people support the Euro in hopes that the European Central Bank will emulate the monetary policy of the central bank of

Accepted Answer

A) Germany. 
B) France. 
C) Italy. 
D) Spain.

Question 9

The activists' paradise requires

Accepted Answer

A) that government expenditures follow a fairly steady growth path. 
B) the ability to forecast perfectly future changes in demand and effects of changes in policy. 
C) policy to have powerful direct effects but no side-effects. 
D) B and C are both correct.

Question 10

Policy activists' hope that they can undertake successful stabilization policy is ________ by the fact that natural real GDP ________ during recessions.

Accepted Answer

A) improved,falls 
B) worsened,falls 
C) improved,increases 
D) worsened,increases

Question 11

The "time inconsistency" argument is that a downward shift of the short-run Phillips Curve,which comes about with a ________ of inflationary expectations,is more likely when monetary policy ________.

Accepted Answer

A) lowering,follows a rigid rule 
B) lowering,is at the discretion of policymakers 
C) raising,follows a rigid rule 
D) raising,is at the discretion of policymakers

Question 12

During the ________ output tended to exceed its natural level and inflation ________.

Accepted Answer

A) late 1980s,accelerated 
B) 1990s,accelerated 
C) 1960s and early 1970s,accelerated 
D) early 1980s,decelerated

Question 13

Which of these policy rule variables does NOT have the disadvantage of being hard to control?

Accepted Answer

A) nominal GDP growth 
B) high-powered money 
C) the unemployment rate 
D) the inflation rate

Question 14

Monetary policy has one clear advantage over fiscal policy by virtue of its very short

Accepted Answer

A) data lag. 
B) data and recognition lags. 
C) legislative and transmissions lags. 
D) effectiveness lag.

Question 15

Which of the following types of economic data are revised over time as government data collection agencies receive more complete information?

Accepted Answer

A) interest rates 
B) employment 
C) stock prices 
D) all of the above

Question 16

Which of the following is NOT an argument of non-activists?

Accepted Answer

A) Private expenditures tend to be stable. 
B) Monetary policy is impotent relative to fiscal policy. 
C) Prices are flexible in the long-run. 
D) Government actions may be destabilizing.

Question 17

Draw two SP curves intersecting LP;call the upper intersection point A and the lower point B.The Fed promises to reduce inflation while maintaining natural unemployment.If the public believes the Fed,the economy moves from ________.Then if the Fed turns out to be time-inconsistent,breaking its promise and trading off ________ inflation for lower unemployment,the public revises the way it forms inflation expectations so that in the long run the economy stays at ________.

Accepted Answer

A) A to B,lower,B which is superior to A 
B) A to B,higher,A which is inferior to B 
C) A to B,lower,A which is superior to B 
D) B to A,higher,B which is superior to A 
E) B to A,lower,B which is inferior to A

Question 18

When existing stocks of resources are being heavily utilized,actual output is

Accepted Answer

A) likely to grow much faster than natural output. 
B) likely to grow more slowly than natural output. 
C) equal to natural output. 
D) no longer tied to natural output.

Question 19

If the demand for money is relatively stable,

Accepted Answer

A) the velocity of money will be constant. 
B) the velocity of money will grow at a steady and predictable rate. 
C) a fixed growth rate for the nominal money supply will lead to a stable growth rate of nominal GDP. 
D) B and C are both correct.

Question 20

Among the prospective rules that set target variables directly,only the nominal GDP rule

Accepted Answer

A) provides a nominal anchor. 
B) is easy for the Fed to achieve. 
C) allows a neutral response to a supply shock. 
D) is insulated from the effects of unstable velocity.

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