Question 1

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 lowering the real interest rate for any given inflation rate 
B) an increase in aggregate demand would ensue generating a positive output gap 
C) 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 2

Figure 13.1 
-If the economy is at point 1 in Figure 13.1 and there is no policy intervention,what happens next?

Accepted Answer

A) the economy moves to point 2 
B) the economy remains at point 1 
C) the economy moves to the left along the AS curve 
D) the AS curve shifts down,causing both output and inflation to decline 
E) the AS curve shifts up,causing both output and inflation to rise

Question 3

If the inflation rate target is 2%,the current inflation rate is 1%,and the output gap is minus 2%,then according to the Taylor rule,the nominal federal funds rate should be ________ percent.

Accepted Answer

A) zero 
B) two 
C) four 
D) three 
E) none of the above

Question 4

How might strict adherence to the Taylor rule discourage demand-pull inflation? How might demand-pull inflation occur,nonetheless?

Accepted Answer

The answer of How might strict adherence to the Taylor...

Question 5

-In the figure above,assume that output is $10.5 trillion,while potential output is $12 trillion.If there is no policy intervention,we should expect ________.

Accepted Answer

A) rightward shifts of IS & AD,so that both output and inflation rise 
B) a decrease in inflation to shift the MP curve,raising the real interest rate 
C) declines in both the inflation rate and the real interest rate as output rises 
D) a decrease in inflation to shift the AD curve,causing output to rise 
E) none of the above

Question 6

When a temporary negative supply shock hits the economy,then in the short-run ________.

Accepted Answer

A) if the central bank focuses on stabilizing output,it cannot stabilize inflation 
B) if the central bank focuses on stabilizing inflation,it cannot stabilize output 
C) the divine coincidence does not hold 
D) all of the above 
E) none of the above

Question 7

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

Accepted Answer

A) achieving price stability 
B) stabilizing economic activity 
C) closing the output gap to zero 
D) all of the above 
E) none of the above

Question 8

-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

Question 9

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

Question 10

What is the divine coincidence? When and why does it not hold true?

Accepted Answer

The answer of What is the divine coincidence? When and...

Question 11

The time it takes for policymakers to obtain and to understand the data and to change the policy instrument based on that information is known as ________,respectively.

Accepted Answer

A) the data,recognition,and effectiveness lags 
B) the recognition,data,and effectiveness lags 
C) the data,recognition,and implementation lags 
D) the recognition,implementation,and effectiveness lags 
E) the data,implementation,and effectiveness lags

Question 12

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

Question 13

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

Accepted Answer

A) The AD curve likely shifted left which caused a positive inflation gap. 
B) The AD curve likely shifted right 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

Question 14

How might openness to the global economy influence the debate between policy activists and nonactivists?

Accepted Answer

The answer of How might openness to the global economy...

Question 15

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

Question 16

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 potential output but real interest rates and inflation would be unaffected in the long run 
B) monetary policy would ultimately lead to higher inflation but real interest rates and potential output would be unaffected in the long run 
C) monetary policy would ultimately lead to higher interest rates but potential output and inflation would be unaffected in the long run 
D) monetary policy would ultimately lead to higher interest rates,potential output,and inflation in the long run 
E) none of the above

Question 17

Suppose that data for a particular economy over time suggest that its aggregate demand curve is both steep and shifts frequently.We might reasonably infer that ________.

Accepted Answer

A) the central bank has an activist emphasis on the stability of economic activity 
B) wages and prices are remarkably flexible 
C) policy lags are quite long 
D) all of the above 
E) none of the above

Question 18

Figure 13.1 
-The aggregate demand curves in Figure 13.1 have a positively-sloped portion.The reason this can happen is ________.

Accepted Answer

A) sloppy editing 
B) the monetary policy response to declining inflation causes the real interest rate to fall,which causes output to rise 
C) a sudden increase in potential output 
D) changes in expected inflation cause the real interest rate to change in the opposite direction 
E) rising inflation causes financial frictions to increase

Question 19

Is the Taylor rule of greater use to activist or to nonactivist policy makers?

Accepted Answer

The answer of Is the Taylor rule of greater use...

Question 20

-In the figure above,assume that output is $10.5 trillion,while potential output is $12 trillion.If autonomous monetary policy (alone)is used to bring output to $12 trillion,then the figure implies that the real interest rate will be ________ percent,and the inflation rate will be one percent.

Accepted Answer

A) 1.5 
B) zero 
C) one 
D) 0.5 
E) 2.5

Exam 13: Macroeconomic Policy and Aggregate Demand and Supply Analysis

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,________.

Figure 13.1 -If the economy is at point 1 in Figure 13.1 and there is no policy intervention,what happens next?

If the inflation rate target is 2%,the current inflation rate is 1%,and the output gap is minus 2%,then according to the Taylor rule,the nominal federal funds rate should be ________ percent.

How might strict adherence to the Taylor rule discourage demand-pull inflation? How might demand-pull inflation occur,nonetheless?

-In the figure above,assume that output is $10.5 trillion,while potential output is $12 trillion.If there is no policy intervention,we should expect ________.

When a temporary negative supply shock hits the economy,then in the short-run ________.

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

-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.

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,________.

What is the divine coincidence? When and why does it not hold true?

The time it takes for policymakers to obtain and to understand the data and to change the policy instrument based on that information is known as ________,respectively.

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

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

How might openness to the global economy influence the debate between policy activists and nonactivists?

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

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,________.

Suppose that data for a particular economy over time suggest that its aggregate demand curve is both steep and shifts frequently.We might reasonably infer that ________.

Figure 13.1 -The aggregate demand curves in Figure 13.1 have a positively-sloped portion.The reason this can happen is ________.

Is the Taylor rule of greater use to activist or to nonactivist policy makers?

-In the figure above,assume that output is $10.5 trillion,while potential output is $12 trillion.If autonomous monetary policy (alone) is used to bring output to $12 trillion,then the figure implies that the real interest rate will be ________ percent,and the inflation rate will be one percent.