Question 1

If we have a loss function that is more heavily weighted against high unemployment than against deviations from an inflation target, then

Accepted Answer

A) a recession will result if the targeted rate of inflation is below the expected inflation rate 
B) there is an inherent incentive to raise inflation in order to lower unemployment 
C) there is no good incentive to actually stick to the inflation target 
D) real GDP targeting is preferable to nominal GDP targeting 
E) all of the above 
A) a recession will result if the targeted rate of inflation is below the expected inflation rate 
B) there is an inherent incentive to raise inflation in order to lower unemployment 
C) there is no good incentive to actually stick to the inflation target 
D) real GDP targeting is preferable to nominal GDP targeting 
E) all of the above

Question 2

During the recession of 2007-09, the U.S.Fed

Accepted Answer

A) carefully reduced interests rates step by step until it achieved its desired target level 
B) wasted a lot of time before it realized how severe the recession actually was, but then responded with massive open market sales 
C) stuck to its monetary growth targets in an effort to calm financial markets 
D) reduced short-term interest rates rapidly until they were close to zero percent 
E) kept unemployment below 8 percent by rapidly increasing money supply 
A) carefully reduced interests rates step by step until it achieved its desired target level 
B) wasted a lot of time before it realized how severe the recession actually was, but then responded with massive open market sales 
C) stuck to its monetary growth targets in an effort to calm financial markets 
D) reduced short-term interest rates rapidly until they were close to zero percent 
E) kept unemployment below 8 percent by rapidly increasing money supply

Question 3

With nominal GDP targeting, the central bank

Accepted Answer

A) always tries to keep the economy at its full-employment level by keeping actual inflation close to expected inflation 
B) always adjusts money supply even if there is only a temporary shift in aggregate demand 
C) never makes adjustments in money supply even under extreme circumstances 
D) is willing to risk an inflationary bias in its policy to maintain full employment 
E) none of the above 
A) always tries to keep the economy at its full-employment level by keeping actual inflation close to expected inflation 
B) always adjusts money supply even if there is only a temporary shift in aggregate demand 
C) never makes adjustments in money supply even under extreme circumstances 
D) is willing to risk an inflationary bias in its policy to maintain full employment 
E) none of the above

Question 4

There is considerable discussion of whether an activist policy approach is preferable over a strict rule approach.In this discussion, which of the following has been established?

Accepted Answer

A) active policy is not impossible, but a full-employment bias may create too much inflation 
B)  no activist policy rule has ever been created 
C) no exceptions to the imposed rule should ever be made even under extreme circumstances, otherwise policy makers lose credibility 
D) the economy can successfully be fine tuned as long as monetary policy decisions are announced in advance 
E) none of the above 
A) active policy is not impossible, but a full-employment bias may create too much inflation 
B)  no activist policy rule has ever been created 
C) no exceptions to the imposed rule should ever be made even under extreme circumstances, otherwise policy makers lose credibility 
D) the economy can successfully be fine tuned as long as monetary policy decisions are announced in advance 
E) none of the above

Question 5

Economic disturbances are likely to be caused by

Accepted Answer

A) wars 
B) changes in government spending or tax policies 
C) economic policies designed to win elections 
D) major innovations that require large amounts of investment 
E) all of the above 
A) wars 
B) changes in government spending or tax policies 
C) economic policies designed to win elections 
D) major innovations that require large amounts of investment 
E) all of the above

Question 6

Trying to stabilize the economy through discretionary policy

Accepted Answer

A) is easier using fiscal policy, since its effects are better understood than those of monetary policy 
B) is easier using monetary policy, since its outside lag is shorter than that of fiscal policy 
C) is easier using monetary policy, since its inside lag is shorter than that of fiscal policy 
D) is not necessary, since automatic stabilizers always provide enough built-in stability 
E) is virtually impossible, since neither fiscal nor monetary policy affects the unemployment rate in the short run 
A) is easier using fiscal policy, since its effects are better understood than those of monetary policy 
B) is easier using monetary policy, since its outside lag is shorter than that of fiscal policy 
C) is easier using monetary policy, since its inside lag is shorter than that of fiscal policy 
D) is not necessary, since automatic stabilizers always provide enough built-in stability 
E) is virtually impossible, since neither fiscal nor monetary policy affects the unemployment rate in the short run

Question 7

Economic forecasts tend to be

Accepted Answer

A) difficult to make since the structure of the economy is not well-known 
B) inaccurate since economic data are hard to come by 
C) accurate since major economic disturbances can be easily predicted 
D) fairly accurate since consumer expectations can be easily predicted 
E) inaccurate since forecasters most often misread the economy 
A) difficult to make since the structure of the economy is not well-known 
B) inaccurate since economic data are hard to come by 
C) accurate since major economic disturbances can be easily predicted 
D) fairly accurate since consumer expectations can be easily predicted 
E) inaccurate since forecasters most often misread the economy

Question 8

Policy makers should use a variety of fiscal and monetary policy measures to stabilize the economy since

Accepted Answer

A) this will shorten any policy lags 
B) this will always maintain full employment 
C) this will eliminate multiplier uncertainty 
D) there is a chance that errors in estimating one multiplier will be offset by errors in estimating another 
E) none of the above 
A) this will shorten any policy lags 
B) this will always maintain full employment 
C) this will eliminate multiplier uncertainty 
D) there is a chance that errors in estimating one multiplier will be offset by errors in estimating another 
E) none of the above

Question 9

If an economic disturbance is known to be transitory,

Accepted Answer

A) discretionary monetary policy should be undertaken because of its short outside lag 
B) discretionary fiscal policy should be undertaken because of its short inside lag 
C) consumption is likely to be significantly affected 
D) policy makers should proceed cautiously, since there is always the possibility that any policy action may itself be destabilizing 
E) none of the above 
A) discretionary monetary policy should be undertaken because of its short outside lag 
B) discretionary fiscal policy should be undertaken because of its short inside lag 
C) consumption is likely to be significantly affected 
D) policy makers should proceed cautiously, since there is always the possibility that any policy action may itself be destabilizing 
E) none of the above

Question 10

Advanced announcements of monetary policy changes are desirable since

Accepted Answer

A) financial markets need a long time to interpret and react to policy announcements 
B)  monetary policy only has an effect on real output if people believe policy announcements 
C) as long as policy announcements are consistently followed, the central bank's credibility is increased, creating more rational expectations 
D) individuals tend to adjust their behavior following these announcements in a way that actually negates the need for any real policy action 
E) none of the above 
A) financial markets need a long time to interpret and react to policy announcements 
B)  monetary policy only has an effect on real output if people believe policy announcements 
C) as long as policy announcements are consistently followed, the central bank's credibility is increased, creating more rational expectations 
D) individuals tend to adjust their behavior following these announcements in a way that actually negates the need for any real policy action 
E) none of the above

If we have a loss function that is more heavily weighted against high unemployment than against deviations from an inflation target, then

During the recession of 2007-09, the U.S.Fed

With nominal GDP targeting, the central bank

There is considerable discussion of whether an activist policy approach is preferable over a strict rule approach.In this discussion, which of the following has been established?

Economic disturbances are likely to be caused by

Trying to stabilize the economy through discretionary policy

Economic forecasts tend to be

Policy makers should use a variety of fiscal and monetary policy measures to stabilize the economy since

If an economic disturbance is known to be transitory,

Advanced announcements of monetary policy changes are desirable since

Introduction

National income accounting

Growth and accumulation

Growth and policy

Aggregate supply and demand

Aggregate supply and the phillips curve

Unemployment

Inflation

Policy preview

Income and spending

Money, interest, and income

Monetary and fiscal policy

International linkages

Consumption and saving

Investment spending

The demand for money

The fed, money, and credit

Financial markets and asset prices

The national debt

Recession and depression

Inflation and hyperinflation

International adjustment and interdependence

Advanced topics

Filters

Exam 18: Policy

If we have a loss function that is more heavily weighted against high unemployment than against deviations from an inflation target, then

During the recession of 2007-09, the U.S.Fed

With nominal GDP targeting, the central bank

There is considerable discussion of whether an activist policy approach is preferable over a strict rule approach.In this discussion, which of the following has been established?

Economic disturbances are likely to be caused by

Trying to stabilize the economy through discretionary policy

Economic forecasts tend to be

Policy makers should use a variety of fiscal and monetary policy measures to stabilize the economy since

If an economic disturbance is known to be transitory,

Advanced announcements of monetary policy changes are desirable since

Introduction

National income accounting

Growth and accumulation

Growth and policy

Aggregate supply and demand

Aggregate supply and the phillips curve

Unemployment

Inflation

Policy preview

Income and spending

Money, interest, and income

Monetary and fiscal policy

International linkages

Consumption and saving

Investment spending

The demand for money

The fed, money, and credit

Financial markets and asset prices

The national debt

Recession and depression

Inflation and hyperinflation

International adjustment and interdependence

Advanced topics

Filters