Question 1

Linking policy instruments to target variables are the

Accepted Answer

A)  indices of economic welfare. 
B)  structural economic relations. 
C)  exogenous nonpolicy variables. 
D)  irrelevant side effects.

Question 2

"Monetarism" advocates a monetary policy

Accepted Answer

A)  at the full discretion of the Fed. 
B)  that fixes the growth rate of money. 
C)  that fixes a constant short-term interest rate. 
D)  that fixes the growth rate of real GDP. 
E)  that fixes the unemployment rate.

Question 3

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 4

If both money demand and commodity demand are unstable, as many activists believe, which type of policy target(s) would most likely lead to a stable economy (assuming supply-side shocks are likely to occur)?

Accepted Answer

A)  money supply target 
B)  real GDP target 
C)  interest rate target 
D)  nominal GDP

Question 5

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 6

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 7

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 8

David and Christian Romer's estimate of monetary policy's current effectiveness lag, defined as the time necessary for a policy change to have one-half its ultimate effect on GDP, is approximately ________ months.

Accepted Answer

A)  2 
B)  6 
C)  10 
D)  19 
E)  24

Question 9

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 10

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 11

The longest lag monetary policy suffers is the ________ lag.

Accepted Answer

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

Question 12

During which of the following years did the Fed fail to pursue a policy aimed at stabilizing the output ratio?

Accepted Answer

A)  1988 
B)  1990 
C)  1994 
D)  1997

Question 13

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 14

In general, activists are ________ about the ability of fiscal and monetary policies to stabilize AD and non-activists are ________.

Accepted Answer

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

Question 15

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

Accepted Answer

A)  private spending may show some instability but monetary or fiscal policy designed to stabilize it will just make things worse 
B)  private spending is stable partly because consumption spending is based on permanent income 
C)  even if prices are not completely flexible in the short-run, given time there is enough flexibility for the system to return to the natural level of real GNP 
D)  it is true that monetary and fiscal policy have destabilizing in the past, but economic knowledge is now advanced enough to permit effective countercyclical policy

Question 16

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 17

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 18

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 19

Compared to the previous three decades, after 1982 recessions have been ________ and expansions have been ________ .

Accepted Answer

A)  longer, longer 
B)  shorter, shorter 
C)  longer, shorter 
D)  shorter, longer

Question 20

The lag between changes in the Fed's interest rate target and large responses of output means that the Fed may want to ________ interest rates ________ output recovers to its natural level.

Accepted Answer

A)  raise, after 
B)  lower, before 
C)  raise, before 
D)  lower, after

Exam 14: Stabilization Policy in the Closed and Open Economy

Linking policy instruments to target variables are the

"Monetarism" advocates a monetary policy

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

If both money demand and commodity demand are unstable, as many activists believe, which type of policy target(s) would most likely lead to a stable economy (assuming supply-side shocks are likely to occur) ?

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

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

Fed policies since the 1980s have attempted to

David and Christian Romer's estimate of monetary policy's current effectiveness lag, defined as the time necessary for a policy change to have one-half its ultimate effect on GDP, is approximately ________ months.

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

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

The longest lag monetary policy suffers is the ________ lag.

During which of the following years did the Fed fail to pursue a policy aimed at stabilizing the output ratio?

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

In general, activists are about the ability of fiscal and monetary policies to stabilize AD and non-activists are .

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

During the output its natural level.

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

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 .

Compared to the previous three decades, after 1982 recessions have been and expansions have been .

The lag between changes in the Fed's interest rate target and large responses of output means that the Fed may want to interest rates output recovers to its natural level.