Question 1

In the New Keynesian Rational Expectations model, an increase in the nominal interest rate

Accepted Answer

A)  causes output to decrease. 
B)  has no effect on output. 
C)  causes inflation to fall. 
D)  causes inflation to rise. 
E)  has no effect on inflation. 
A)  causes output to decrease. 
B)  has no effect on output. 
C)  causes inflation to fall. 
D)  causes inflation to rise. 
E)  has no effect on inflation.

Question 2

In the Basic New Keynesian model, the Phillips curve specifies that inflation

Accepted Answer

A)  increases when the anticipated future rate of inflation decreases. 
B)  decreases when output increases. 
C)  increases when the efficient level of output increases. 
D)  decreases when taxes increase. 
E)  increases when the difference between output and efficient output increases. 
A)  increases when the anticipated future rate of inflation decreases. 
B)  decreases when output increases. 
C)  increases when the efficient level of output increases. 
D)  decreases when taxes increase. 
E)  increases when the difference between output and efficient output increases.

Question 3

The following is a suggested cause of the long-term decline in real interest rates

Accepted Answer

A)  an increase in financial market frictions. 
B)  the global investment glut. 
C)  secular growth. 
D)  low savings in China. 
E)  sticky prices. 
A)  an increase in financial market frictions. 
B)  the global investment glut. 
C)  secular growth. 
D)  low savings in China. 
E)  sticky prices.

Question 4

Rational expectations implies

Accepted Answer

A)  that consumers can be systematically fooled. 
B)  that in models with aggregate shocks, consumers and firms always correctly forecast inflation. 
C)  that the central bank always foresees what the fiscal authority will do. 
D)  that the consumers and firms in models do the best they can in forecasting future economic variables. 
E)  that models in which we make this assumption are always right. 
A)  that consumers can be systematically fooled. 
B)  that in models with aggregate shocks, consumers and firms always correctly forecast inflation. 
C)  that the central bank always foresees what the fiscal authority will do. 
D)  that the consumers and firms in models do the best they can in forecasting future economic variables. 
E)  that models in which we make this assumption are always right.

Question 5

In the Basic New Keynesian model, when there is a liquidity trap, if the central bank promises higher inflation in the future, then

Accepted Answer

A)  output falls and inflation falls. 
B)  output falls and inflation rises. 
C)  output rises and inflation rises. 
D)  output and inflation stay the same. 
E)  output rises and inflation falls. 
A)  output falls and inflation falls. 
B)  output falls and inflation rises. 
C)  output rises and inflation rises. 
D)  output and inflation stay the same. 
E)  output rises and inflation falls.

Question 6

A low natural real interest rate might result in

Accepted Answer

A)  a global savings shortage. 
B)  a liquidity trap. 
C)  an investment trap. 
D)  a liquidity shortage. 
E)  a secular glut. 
A)  a global savings shortage. 
B)  a liquidity trap. 
C)  an investment trap. 
D)  a liquidity shortage. 
E)  a secular glut.

Question 7

Neo-Fisherians assert

Accepted Answer

A)  that the New Keynesian model is wrong. 
B)  that the central bank cannot control inflation. 
C)  that traditional central bankers have inflation control wrong. 
D)  that Irving Fisher was wrong. 
E)  that Stanley Fisher is right. 
A)  that the New Keynesian model is wrong. 
B)  that the central bank cannot control inflation. 
C)  that traditional central bankers have inflation control wrong. 
D)  that Irving Fisher was wrong. 
E)  that Stanley Fisher is right.

Question 8

An example of an arrangement that helps to enforce commitment by a central bank is

Accepted Answer

A)  the Bank of Canada's interest rate target. 
B)  New Zealand's Policy Targets Agreement. 
C)  an independent central bank. 
D)  deposit insurance. 
E)  the lender of last resort. 
A)  the Bank of Canada's interest rate target. 
B)  New Zealand's Policy Targets Agreement. 
C)  an independent central bank. 
D)  deposit insurance. 
E)  the lender of last resort.

Question 9

Real interest rates have declined

Accepted Answer

A)  only in Canada. 
B)  only in Europe. 
C)  only in the United States. 
D)  worldwide. 
E)  only in Canada and the United States. 
A)  only in Canada. 
B)  only in Europe. 
C)  only in the United States. 
D)  worldwide. 
E)  only in Canada and the United States.

Question 10

In the Basic New Keynesian model, a decrease in the natural rate of interest causes the following effect:

Accepted Answer

A)  nothing. 
B)  output declines and inflation goes up. 
C)  output declines and inflation goes down. 
D)  output increases and inflation goes down. 
E)  output increases and inflation goes up. 
A)  nothing. 
B)  output declines and inflation goes up. 
C)  output declines and inflation goes down. 
D)  output increases and inflation goes down. 
E)  output increases and inflation goes up.

Question 11

Inflation costs do not arise because of

Accepted Answer

A)  sticky prices. 
B)  sticky wages. 
C)  people economizing on currency holdings because of anticipated inflation. 
D)  unexpectedly low inflation redistributing wealth from borrowers to lenders. 
E)  unexpectedly high inflation redistributing wealth from lenders to borrowers. 
A)  sticky prices. 
B)  sticky wages. 
C)  people economizing on currency holdings because of anticipated inflation. 
D)  unexpectedly low inflation redistributing wealth from borrowers to lenders. 
E)  unexpectedly high inflation redistributing wealth from lenders to borrowers.

Question 12

The idea of a "savings glut" was put forward by

Accepted Answer

A)  Lawrence Summers. 
B)  Ben Bernanke. 
C)  Lawrence Bernanke. 
D)  Milton Friedman. 
E)  Steve Poloz. 
A)  Lawrence Summers. 
B)  Ben Bernanke. 
C)  Lawrence Bernanke. 
D)  Milton Friedman. 
E)  Steve Poloz.

Question 13

In the New Keynesian Rational Expectations model, when the nominal interest rate is constant forever,

Accepted Answer

A)  in the long run, the inflation rate equals the natural real rate of interest minus the nominal interest rate. 
B)  in the long run, the inflation rate equals minus the natural real rate of interest minus the nominal interest rate. 
C)  in the long run, the inflation rate equals minus the natural real rate of interest plus the nominal interest rate. 
D)  in the long run, the inflation rate equals the natural real rate of interest plus the nominal interest rate. 
E)  in the long run, the inflation rate explodes. 
A)  in the long run, the inflation rate equals the natural real rate of interest minus the nominal interest rate. 
B)  in the long run, the inflation rate equals minus the natural real rate of interest minus the nominal interest rate. 
C)  in the long run, the inflation rate equals minus the natural real rate of interest plus the nominal interest rate. 
D)  in the long run, the inflation rate equals the natural real rate of interest plus the nominal interest rate. 
E)  in the long run, the inflation rate explodes.

Question 14

At the end of 2015, Venezuelan inflation approached

Accepted Answer

A)  200%. 
B)  10,000%. 
C)  13%. 
D)  2%. 
E)  -20%. 
A)  200%. 
B)  10,000%. 
C)  13%. 
D)  2%. 
E)  -20%.

Question 15

To make forward guidance work,

Accepted Answer

A)  the central bank must follow through on its promises. 
B)  it is important that the central bank surprise the public. 
C)  the central bank must not follow through on its promises. 
D)  fiscal policy must support monetary policy. 
E)  consumers cannot be forward-looking. 
A)  the central bank must follow through on its promises. 
B)  it is important that the central bank surprise the public. 
C)  the central bank must not follow through on its promises. 
D)  fiscal policy must support monetary policy. 
E)  consumers cannot be forward-looking.

Question 16

The Neo-Fisherian result that increasing the nominal interest rate increases inflation is a startling one because

Accepted Answer

A)  this result is obtained in a New Keynesian model that is usually used to justify conventional central banking ideas. 
B)  it is wrong. 
C)  Keynes would agree with it. 
D)  Steve Poloz supports Neo-Fisherism. 
E)  it also holds in the Basic New Keynesian model. 
A)  this result is obtained in a New Keynesian model that is usually used to justify conventional central banking ideas. 
B)  it is wrong. 
C)  Keynes would agree with it. 
D)  Steve Poloz supports Neo-Fisherism. 
E)  it also holds in the Basic New Keynesian model.

Question 17

In the Basic New Keynesian model, the optimum for the central bank is/are

Accepted Answer

A)  a target for the money supply. 
B)  targets for inflation and the quantity of investment. 
C)  targets for inflation and the real interest rate. 
D)  targets for fiscal policy and inflation. 
E)  targets for the Bank Rate and the deposit rate. 
A)  a target for the money supply. 
B)  targets for inflation and the quantity of investment. 
C)  targets for inflation and the real interest rate. 
D)  targets for fiscal policy and inflation. 
E)  targets for the Bank Rate and the deposit rate.

Question 18

Forward guidance, in the Basic New Keynesian model, is

Accepted Answer

A)  a guide in the forward to the central bank statement. 
B)  a promise about future fiscal policy. 
C)  a promise concerning future inflation. 
D)  always a promise of no future inflation. 
E)  a commitment guide the public in the future. 
A)  a guide in the forward to the central bank statement. 
B)  a promise about future fiscal policy. 
C)  a promise concerning future inflation. 
D)  always a promise of no future inflation. 
E)  a commitment guide the public in the future.

Question 19

In the New Keynesian Rational Expectations Model, in the output demand relationship,

Accepted Answer

A)  output increases when the nominal interest rate increases. 
B)  the difference between current output and future output increases when the nominal interest rate increases. 
C)  the difference between current output and future output increases when the natural real interest rate increases. 
D)  the difference between current output and future output increases when anticipated future inflation decreases. 
E)  the difference between current output and future output increases when the actual real interest rate increases. 
A)  output increases when the nominal interest rate increases. 
B)  the difference between current output and future output increases when the nominal interest rate increases. 
C)  the difference between current output and future output increases when the natural real interest rate increases. 
D)  the difference between current output and future output increases when anticipated future inflation decreases. 
E)  the difference between current output and future output increases when the actual real interest rate increases.

Question 20

In the Basic New Keynesian model, a firm that cannot change its price

Accepted Answer

A)  must satisfy the demand for its product. 
B)  chooses output optimally. 
C)  will not produce. 
D)  produces what the government says it should. 
E)  earns zero profits. 
A)  must satisfy the demand for its product. 
B)  chooses output optimally. 
C)  will not produce. 
D)  produces what the government says it should. 
E)  earns zero profits.

In the New Keynesian Rational Expectations model, an increase in the nominal interest rate

In the Basic New Keynesian model, the Phillips curve specifies that inflation

The following is a suggested cause of the long-term decline in real interest rates

Rational expectations implies

In the Basic New Keynesian model, when there is a liquidity trap, if the central bank promises higher inflation in the future, then

A low natural real interest rate might result in

Neo-Fisherians assert

An example of an arrangement that helps to enforce commitment by a central bank is

Real interest rates have declined

In the Basic New Keynesian model, a decrease in the natural rate of interest causes the following effect:

Inflation costs do not arise because of

The idea of a "savings glut" was put forward by

In the New Keynesian Rational Expectations model, when the nominal interest rate is constant forever,

At the end of 2015, Venezuelan inflation approached

To make forward guidance work,

The Neo-Fisherian result that increasing the nominal interest rate increases inflation is a startling one because

In the Basic New Keynesian model, the optimum for the central bank is/are

Forward guidance, in the Basic New Keynesian model, is

In the New Keynesian Rational Expectations Model, in the output demand relationship,

In the Basic New Keynesian model, a firm that cannot change its price

Introduction

Measurement

Business Cycle Measurement

Consumer and Firm Behaviour: The Work–Leisure Decision and Profit Maximization

A Closed-Economy One-Period Macroeconomic Model

Search and Unemployment

Economic Growth: Malthus and Solow

Income Disparity among Countries and Endogenous Growth

A Two-Period Model: The Consumption–Savings Decision and Credit Markets

Credit Market Imperfections: Credit Frictions, Financial Crises, and Social Security

A Real Intertemporal Model with Investment

A Monetary Intertemporal Model: Money, Banking, Prices, and Monetary Policy

Business Cycle Models with Flexible Prices and Wages

New Keynesian Economics: Sticky Prices

International Trade in Goods and Assets

Money in the Open Economy

Money, Inflation, and Banking: A Deeper Look

Filters

Exam 15: Inflation: Phillips Curves and Neo-Fisherism

In the New Keynesian Rational Expectations model, an increase in the nominal interest rate

In the Basic New Keynesian model, the Phillips curve specifies that inflation

The following is a suggested cause of the long-term decline in real interest rates

Rational expectations implies

In the Basic New Keynesian model, when there is a liquidity trap, if the central bank promises higher inflation in the future, then

A low natural real interest rate might result in

Neo-Fisherians assert

An example of an arrangement that helps to enforce commitment by a central bank is

Real interest rates have declined

In the Basic New Keynesian model, a decrease in the natural rate of interest causes the following effect:

Inflation costs do not arise because of

The idea of a "savings glut" was put forward by

In the New Keynesian Rational Expectations model, when the nominal interest rate is constant forever,

At the end of 2015, Venezuelan inflation approached

To make forward guidance work,

The Neo-Fisherian result that increasing the nominal interest rate increases inflation is a startling one because

In the Basic New Keynesian model, the optimum for the central bank is/are

Forward guidance, in the Basic New Keynesian model, is

In the New Keynesian Rational Expectations Model, in the output demand relationship,

In the Basic New Keynesian model, a firm that cannot change its price

Introduction

Measurement

Business Cycle Measurement

Consumer and Firm Behaviour: The Work–Leisure Decision and Profit Maximization

A Closed-Economy One-Period Macroeconomic Model

Search and Unemployment

Economic Growth: Malthus and Solow

Income Disparity among Countries and Endogenous Growth

A Two-Period Model: The Consumption–Savings Decision and Credit Markets

Credit Market Imperfections: Credit Frictions, Financial Crises, and Social Security

A Real Intertemporal Model with Investment

A Monetary Intertemporal Model: Money, Banking, Prices, and Monetary Policy

Business Cycle Models with Flexible Prices and Wages

New Keynesian Economics: Sticky Prices

International Trade in Goods and Assets

Money in the Open Economy

Money, Inflation, and Banking: A Deeper Look

Filters