Question 1

Explain how globalization impacts inflation in both the short run and the long run.

Accepted Answer

The impact of globalization on economic

Question 2

Which of the following would be classified as a negative supply shock?

Accepted Answer

A)  An increase in the price of oil 
B)  An increase in government purchases 
C)  An increase in export demand 
D)  A decline of investor optimism 
A)  An increase in the price of oil 
B)  An increase in government purchases 
C)  An increase in export demand 
D)  A decline of investor optimism

Question 3

Which of the following statements is most correct?

Accepted Answer

A)  A recession is officially defined as two consecutive quarters where the real growth rate is negative. 
B)  A recession officially begins when unemployment exceeds 5.0 percent. 
C)  There is no hard and fast definition of a recession. 
D)  The official date of a recession is determined by the Federal Reserve Board, but usually with at least a three-month delay. 
A)  A recession is officially defined as two consecutive quarters where the real growth rate is negative. 
B)  A recession officially begins when unemployment exceeds 5.0 percent. 
C)  There is no hard and fast definition of a recession. 
D)  The official date of a recession is determined by the Federal Reserve Board, but usually with at least a three-month delay.

Question 4

In which situation will inflation fall the fastest?

Accepted Answer

A)  A negative supply shock occurs, the dynamic aggregate demand curve is steep and so is the monetary policy reaction curve 
B)  A negative supply shock occurs, the dynamic aggregate demand curve is flat and so is the monetary policy reaction curve 
C)  A negative supply shock occurs, the dynamic aggregate demand curve is flat, and the monetary policy reaction curve is steep 
D)  A negative supply shock occurs, the dynamic aggregate demand curve is steep, and the monetary policy reaction curve is flat 
A)  A negative supply shock occurs, the dynamic aggregate demand curve is steep and so is the monetary policy reaction curve 
B)  A negative supply shock occurs, the dynamic aggregate demand curve is flat and so is the monetary policy reaction curve 
C)  A negative supply shock occurs, the dynamic aggregate demand curve is flat, and the monetary policy reaction curve is steep 
D)  A negative supply shock occurs, the dynamic aggregate demand curve is steep, and the monetary policy reaction curve is flat

Question 5

Explain why changes in the central bank's inflation target will shift the dynamic aggregate demand curve.

Accepted Answer

To explain this, let us illustrate with

Question 6

Possible explanations that have been offered for the Great Moderation experienced in the United States include all of the following except:

Accepted Answer

A)  good fortune. 
B)  economies that have become more flexible in absorbing shocks. 
C)  calm financial markets. 
D)  better understanding and use of monetary policy. 
A)  good fortune. 
B)  economies that have become more flexible in absorbing shocks. 
C)  calm financial markets. 
D)  better understanding and use of monetary policy.

Question 7

Monetary policymakers can respond to the impact that positive inflation shocks have on output by shifting the:

Accepted Answer

A)  monetary policy reaction curve left. 
B)  monetary policy reaction curve right. 
C)  short-run aggregate supply curve to the left. 
D)  short-run aggregate supply curve to the right. 
A)  monetary policy reaction curve left. 
B)  monetary policy reaction curve right. 
C)  short-run aggregate supply curve to the left. 
D)  short-run aggregate supply curve to the right.

Question 8

An increase in the rate of inflation:

Accepted Answer

A)  can only result from increases in aggregate demand. 
B)  can only result from upward shifts in the short-run aggregate supply curve. 
C)  will result only if the long-run aggregate supply curve is vertical. 
D)  can result from shifts in either the dynamic aggregate demand curve or the short-run aggregate supply curve. 
A)  can only result from increases in aggregate demand. 
B)  can only result from upward shifts in the short-run aggregate supply curve. 
C)  will result only if the long-run aggregate supply curve is vertical. 
D)  can result from shifts in either the dynamic aggregate demand curve or the short-run aggregate supply curve.

Question 9

Fiscal policy can act just like monetary policy to offset shifts in the dynamic aggregate demand curve and stabilize inflation and output. Explain how the two policies could have the same effect.

Accepted Answer

Fiscal policy consists of changes in tax

Question 10

An increase in the price of oil should cause the short-run aggregate supply curve to:

Accepted Answer

A)  shift to the right. 
B)  become vertical. 
C)  become horizontal. 
D)  shift to the left. 
A)  shift to the right. 
B)  become vertical. 
C)  become horizontal. 
D)  shift to the left.

Question 11

More than once in our history government officials tried to slow rapidly rising inflation by instituting wage and price controls, in essence, making it illegal to raise prices. In terms of the model, which includes aggregate demand, short-run aggregate supply and long-run aggregate supply, describe what the intended result of the officials would be and what the likely result may be.

Accepted Answer

The inflation the economy was experienci

Question 12

Use the long-run model presented in Chapter 22 to answer this question. If there is a decrease in aggregate demand, and monetary policymakers counter the decrease in aggregate demand, what will be the impact on output and inflation? Explain.

Accepted Answer

If monetary policymakers count

Question 13

In which situation would policymakers be unable to neutralize the effect on the economy?

Accepted Answer

A)  The federal government runs a deficit 
B)  An increase in the price of oil 
C)  Imports exceed exports 
D)  Consumer confidence declines 
A)  The federal government runs a deficit 
B)  An increase in the price of oil 
C)  Imports exceed exports 
D)  Consumer confidence declines

Question 14

Suppose that consumer and business confidence fall. What is the ultimate outcome for the economy if monetary policymakers respond to keep inflation on an unchanged target?

Accepted Answer

A)  If monetary policymakers respond, output would remain close to potential output. 
B)  If monetary policymakers respond, output would fall below potential output. 
C)  If monetary policymakers respond, output would rise above potential output. 
D)  If monetary policymakers respond, output would remain close to potential output but inflation would still rise despite their actions. 
A)  If monetary policymakers respond, output would remain close to potential output. 
B)  If monetary policymakers respond, output would fall below potential output. 
C)  If monetary policymakers respond, output would rise above potential output. 
D)  If monetary policymakers respond, output would remain close to potential output but inflation would still rise despite their actions.

Question 15

What explanations have been offered to account for the Great Moderation?

Accepted Answer

Three possible explanations have been of

Question 16

Why does it take so long for the declaration of the beginning and end of recessions in the
U.S. and why is there a lack of clarity as to what is and is not a recession?

Accepted Answer

There is no official definition of a rec

Question 17

An increase in aggregate demand with no adjustment in monetary policy will result in:

Accepted Answer

A)  an increase in potential output and higher inflation. 
B)  a decrease in potential output and higher inflation. 
C)  no change in potential output but higher inflation. 
D)  no change in inflation. 
A)  an increase in potential output and higher inflation. 
B)  a decrease in potential output and higher inflation. 
C)  no change in potential output but higher inflation. 
D)  no change in inflation.

Question 18

If monetary policymakers do not want the current inflation rate to increase, yet they observe increasing aggregate demand from higher government purchases, will they have to accept a higher inflation target? Explain.

Accepted Answer

Not necessarily. If the increase in aggr

Question 19

During the Vietnam War, monetary policy officials reacted to the increases in aggregate demand resulting from military expenditures by:

Accepted Answer

A)  not shifting the monetary policy reaction function. 
B)  dramatically slowing money growth. 
C)  shifting the monetary policy reaction curve to the left. 
D)  keeping the same inflation target and raising the real interest rates. 
A)  not shifting the monetary policy reaction function. 
B)  dramatically slowing money growth. 
C)  shifting the monetary policy reaction curve to the left. 
D)  keeping the same inflation target and raising the real interest rates.

Question 20

What is opportunistic disinflation and what provides the opportunity? Explain how the process works.

Accepted Answer

Opportunistic disinflation means that ce

Exam 22:Understanding Business Cycle Fluctuations

Explain how globalization impacts inflation in both the short run and the long run.

Which of the following would be classified as a negative supply shock?

Which of the following statements is most correct?

In which situation will inflation fall the fastest?

Explain why changes in the central bank's inflation target will shift the dynamic aggregate demand curve.

Possible explanations that have been offered for the Great Moderation experienced in the United States include all of the following except:

Monetary policymakers can respond to the impact that positive inflation shocks have on output by shifting the:

An increase in the rate of inflation:

Fiscal policy can act just like monetary policy to offset shifts in the dynamic aggregate demand curve and stabilize inflation and output. Explain how the two policies could have the same effect.

An increase in the price of oil should cause the short-run aggregate supply curve to:

Use the long-run model presented in Chapter 22 to answer this question. If there is a decrease in aggregate demand, and monetary policymakers counter the decrease in aggregate demand, what will be the impact on output and inflation? Explain.

In which situation would policymakers be unable to neutralize the effect on the economy?

Suppose that consumer and business confidence fall. What is the ultimate outcome for the economy if monetary policymakers respond to keep inflation on an unchanged target?

What explanations have been offered to account for the Great Moderation?

Why does it take so long for the declaration of the beginning and end of recessions in the U.S. and why is there a lack of clarity as to what is and is not a recession?

An increase in aggregate demand with no adjustment in monetary policy will result in:

If monetary policymakers do not want the current inflation rate to increase, yet they observe increasing aggregate demand from higher government purchases, will they have to accept a higher inflation target? Explain.

During the Vietnam War, monetary policy officials reacted to the increases in aggregate demand resulting from military expenditures by:

What is opportunistic disinflation and what provides the opportunity? Explain how the process works.

An Introduction to Money and the Financial System

Money and the Payments System

Financial Instruments, Financial Markets, and Financial Institutions

Future Value, Present Value and Interest Rates

Understanding Risk

Bonds, Bond Prices, and the Determination of Interest Rates

The Risk and Term Structure of Interest Rates

Stocks, Stock Markets and Market Efficiency

Derivatives: Futures, Options, and Swaps

Foreign Exchange

The Economics of Financial Intermediation

Depository Institutions: Banks and Bank Management

Financial Industry Structure

Regulating the Financial System

Central Banks in the World Today

The Structure of Central Banks: The Federal Reserve and the European Central Bank

The Central Bank Balance Sheet and the Money Supply Process

Monetary Policy: Stabilizing the Domestic Economy

Exchange Rate Policy and the Central Bank

Money Growth, Money Demand and Modern Monetary Policy

Output, Inflation, and Monetary Policy

Modern Monetary Policy and the Challenges Facing Central Bankers

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