Question 1

Inflation costs do NOT arise because of

Accepted Answer

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

Question 2

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

Accepted Answer

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

Question 3

Discuss the key ideas in Neo-Fisherism. Discuss how Neo-Fisherism departs from conventional ideas about
how central banking works, and why central bankers may have trouble accepting Neo-Fisherian ideas.

Accepted Answer

Neo-Fisherians argue that central bankers have key ideas about the inflation process wrong.
Conventional central banking wisdom says that inflation decreases when nominal interest rates
increase. This may be true in simple models with fixed inflation expectations, but it is not true in
typical New Keynesian rational expectations models. Neo-Fisherians argue that, when inflation goes
up when nominal interest rates go up the Fisher effect is important for inflation control by central
banks. Why do central bankers have trouble accepting Neo-Fisherian ideas? On this, we can only
speculate. Maybe they lose face from admitting their policies are wrong. Maybe they do not actually
understand how modern macroeconomic models work.

Question 4

In the Basic New Keynesian model, the Phillips curve specifies that, when the anticipated future rate of inflation increases, inflation

Accepted Answer

A) increases less than one-for-one. 
B) stays the same. 
C) decreases. 
D) increases one-for-one. 
E) increases more than one-for-one. 
A) increases less than one-for-one. 
B) stays the same. 
C) decreases. 
D) increases one-for-one. 
E) increases more than one-for-one.

Question 5

In the Basic New Keynesian model, if the central bank is initially achieving its goals, and the natural rate of interest rises, the central bank should

Accepted Answer

A) increase the nominal interest rate by the amount of the natural real interest rate increase. 
B) reduce the nominal interest rate by the amount of the natural real interest rate increase. 
C) reduce the nominal interest rate by less than the amount of the natural real interest rate increase. 
D) do nothing. 
E) increase the nominal interest rate by less than the amount of the natural real rate of interest increase. 
A) increase the nominal interest rate by the amount of the natural real interest rate increase. 
B) reduce the nominal interest rate by the amount of the natural real interest rate increase. 
C) reduce the nominal interest rate by less than the amount of the natural real interest rate increase. 
D) do nothing. 
E) increase the nominal interest rate by less than the amount of the natural real rate of interest increase.

Question 6

In the Basic New Keynesian model, there are two curves

Accepted Answer

A) the output demand curve and the Phillips curve. 
B) the money supply curve and the Phillips curve. 
C) the output supply curve and the money demand curve. 
D) the output demand curve and the labour supply curve. 
E) the output supply curve and the Phillips curve. 
A) the output demand curve and the Phillips curve. 
B) the money supply curve and the Phillips curve. 
C) the output supply curve and the money demand curve. 
D) the output demand curve and the labour supply curve. 
E) the output supply curve and the Phillips curve.

Question 7

The central bank's policy goals can be represented by

Accepted Answer

A) a Phillips curve. 
B) the output demand curve. 
C) the output supply curve. 
D) a loss function. 
E) a vertical line. 
A) a Phillips curve. 
B) the output demand curve. 
C) the output supply curve. 
D) a loss function. 
E) a vertical line.

Question 8

The Bank of Canada commenced inflation targeting in

Accepted Answer

A) 1981. 
B) 1995. 
C) 1991. 
D) 2008. 
E) 1960. 
A) 1981. 
B) 1995. 
C) 1991. 
D) 2008. 
E) 1960.

Question 9

There are costs associated with

Accepted Answer

A) unbelievable inflation. 
B) uncharted inflation. 
C) unrealized inflation. 
D) unanticipated inflation. 
E) incipient inflation. 
A) unbelievable inflation. 
B) uncharted inflation. 
C) unrealized inflation. 
D) unanticipated inflation. 
E) incipient inflation.

Question 10

"Secular stagnation" is an idea popularized by

Accepted Answer

A) John Maynard Keynes. 
B) Lawrence Summers. 
C) Larry Winters. 
D) Ben Bernanke. 
E) Milton Berle. 
A) John Maynard Keynes. 
B) Lawrence Summers. 
C) Larry Winters. 
D) Ben Bernanke. 
E) Milton Berle.

Question 11

In the Basic New Keynesian Model, an unconventional policy that works in a liquidity trap is

Accepted Answer

A) a money supply increase. 
B) a reduction in the real interest rate. 
C) a reduction in the nominal interest rate. 
D) an increase in the nominal interest rate. 
E) forward guidance. 
A) a money supply increase. 
B) a reduction in the real interest rate. 
C) a reduction in the nominal interest rate. 
D) an increase in the nominal interest rate. 
E) forward guidance.

Question 12

A low natural real interest rate might result in

Accepted Answer

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

Question 13

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

Accepted Answer

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

Question 14

Neo-Fisherians assert

Accepted Answer

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

Question 15

Thomas Sargent studied hyperinflations that occurred when?

Accepted Answer

A) during the Great Depression 
B) in the 1920s 
C) during the Great Recession 
D) during the 1970s 
E) in the 19th century 
A) during the Great Depression 
B) in the 1920s 
C) during the Great Recession 
D) during the 1970s 
E) in the 19th century

Question 16

The central bank loss function can be represented in a graph with output on the horizontal axis, and inflation on the vertical axis as

Accepted Answer

A) a set of circles. 
B) a set of triangles. 
C) a set of convex indifference curves. 
D) a set of ellipses. 
E) a set of straight lines. 
A) a set of circles. 
B) a set of triangles. 
C) a set of convex indifference curves. 
D) a set of ellipses. 
E) a set of straight lines.

Question 17

The Fisher relation states that

Accepted Answer

A) the real interest rate equals the nominal interest rate plus the anticipated future inflation rate. 
B) the anticipated future inflation rate equals the nominal interest rate plus the real interest rate. 
C) the real interest rate equals minus the anticipated future inflation rate plus the nominal interest rate. 
D) the nominal interest rate equals the anticipated future inflation rate minus the real interest rate. 
E) the nominal interest rate equals the real interest rate. 
A) the real interest rate equals the nominal interest rate plus the anticipated future inflation rate. 
B) the anticipated future inflation rate equals the nominal interest rate plus the real interest rate. 
C) the real interest rate equals minus the anticipated future inflation rate plus the nominal interest rate. 
D) the nominal interest rate equals the anticipated future inflation rate minus the real interest rate. 
E) the nominal interest rate equals the real interest rate.

Question 18

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

Accepted Answer

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

Question 19

In 1981, inflation in Canada reached

Accepted Answer

A) 13%. 
B) 5%. 
C) 2%. 
D) 200%. 
E) 20%. 
A) 13%. 
B) 5%. 
C) 2%. 
D) 200%. 
E) 20%.

Question 20

In the New Keynesian Rational Expectations model with a Taylor rule, if the central bank follows the Taylor principle, in the steady state in which nominal interest rate is zero

Accepted Answer

A) inflation is higher than the central bank's target. 
B) inflation is greater than zero. 
C) inflation is lower than the central bank's target. 
D) inflation is zero. 
E) the central bank hits its inflation target. 
A) inflation is higher than the central bank's target. 
B) inflation is greater than zero. 
C) inflation is lower than the central bank's target. 
D) inflation is zero. 
E) the central bank hits its inflation target.

Inflation costs do NOT arise because of

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

Discuss the key ideas in Neo-Fisherism. Discuss how Neo-Fisherism departs from conventional ideas about how central banking works, and why central bankers may have trouble accepting Neo-Fisherian ideas.

In the Basic New Keynesian model, the Phillips curve specifies that, when the anticipated future rate of inflation increases, inflation

In the Basic New Keynesian model, if the central bank is initially achieving its goals, and the natural rate of interest rises, the central bank should

In the Basic New Keynesian model, there are two curves

The central bank's policy goals can be represented by

The Bank of Canada commenced inflation targeting in

There are costs associated with

"Secular stagnation" is an idea popularized by

In the Basic New Keynesian Model, an unconventional policy that works in a liquidity trap is

A low natural real interest rate might result in

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

Neo-Fisherians assert

Thomas Sargent studied hyperinflations that occurred when?

The central bank loss function can be represented in a graph with output on the horizontal axis, and inflation on the vertical axis as

The Fisher relation states that

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

In 1981, inflation in Canada reached

In the New Keynesian Rational Expectations model with a Taylor rule, if the central bank follows the Taylor principle, in the steady state in which nominal interest rate is zero

Introduction

Measurement

Business Cycle Measurement

Consumer and Firm Behavior: the Workleisure 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 Consumptionsavings Decision and Credit Markets

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

A Real Intertemporal Model With Investment

Money, Banking, Prices, and Monetary Policy

Business Cycle Models With Flexible Prices and Wages

Inflation: Phillips Curves and Neo-Fisherism

International Trade in Goods and Assets

Money in the Open Economy

Money, Inflation, and Banking: a Deeper Look

Filters

Exam 14: New Keynesian Economics: Sticky Prices

Inflation costs do NOT arise because of

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

Discuss the key ideas in Neo-Fisherism. Discuss how Neo-Fisherism departs from conventional ideas about how central banking works, and why central bankers may have trouble accepting Neo-Fisherian ideas.

In the Basic New Keynesian model, the Phillips curve specifies that, when the anticipated future rate of inflation increases, inflation

In the Basic New Keynesian model, if the central bank is initially achieving its goals, and the natural rate of interest rises, the central bank should

In the Basic New Keynesian model, there are two curves

The central bank's policy goals can be represented by

The Bank of Canada commenced inflation targeting in

There are costs associated with

"Secular stagnation" is an idea popularized by

In the Basic New Keynesian Model, an unconventional policy that works in a liquidity trap is

A low natural real interest rate might result in

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

Neo-Fisherians assert

Thomas Sargent studied hyperinflations that occurred when?

The central bank loss function can be represented in a graph with output on the horizontal axis, and inflation on the vertical axis as

The Fisher relation states that

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

In 1981, inflation in Canada reached

In the New Keynesian Rational Expectations model with a Taylor rule, if the central bank follows the Taylor principle, in the steady state in which nominal interest rate is zero

Introduction

Measurement

Business Cycle Measurement

Consumer and Firm Behavior: the Workleisure 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 Consumptionsavings Decision and Credit Markets

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

A Real Intertemporal Model With Investment

Money, Banking, Prices, and Monetary Policy

Business Cycle Models With Flexible Prices and Wages

Inflation: Phillips Curves and Neo-Fisherism

International Trade in Goods and Assets

Money in the Open Economy

Money, Inflation, and Banking: a Deeper Look

Filters