Exam 25: The Role of Expectations in Monetary Policy

If aggregate output is below the natural rate level, advocates of discretionary policy would recommend that the government ________.

Monetarists believe all of the following except that ________.

Advocates of nondiscretionary policy emphasize the importance of a constant money growth rate rule more than the balanced-budget amendment or restrictions on union power because ________.

One of the drawbacks of rules based monetary policy is ________.

One example where a rules based approach would have improved the economy is ________.

Explain how the impacts of a positive aggregate demand shock can be mitigated by monetary policy credibility.

The oil crisis in the 1970s led to an unemployment rate of over ________ percent.

Describe discretionary and nondiscretionary policy in the case of a negative aggregate supply shock to the economy. Use a graph to support your answer.

With a positive aggregate demand shock, monetary policy credibility can ________.

The argument that econometric policy evaluation is likely to be misleading if policymakers assume stable economic relationships is known as ________.

An example of a negative supply shock is ________.

Advocates of nondiscretionary policy contend that a policy of shifting the aggregate demand curve will be costly because it produces more volatility in both the price level and output. Thus they favor ________.

When expectations of inflation are formed rationally, an anti-inflationary policy will be more successful if it is ________.

How did Canada win the battle against inflation?

in the 1970s when faced with inflation shocks, the Bank of Canada ________.

Evidence indicating that the wage and price adjustment process is extremely slow would strengthen the case for ________.

A rise in short-term interest rates that is believed to be only temporary ________.

Suppose that there is a negative aggregate demand shock and the central bank commits to an inflation rate target. If the commitment is credible, then ________.

By ________ its deficit, the government makes an anti-inflationary policy ________ credible.

The oil shock in 2007 ________.