Question 1

For the Fed,price stability means stable prices.

Accepted Answer

A) True 
 B)False  False

Question 2

If there is a decrease in world oil prices and the Fed wishes to maintain output stability,what should it do?

Accepted Answer

A)  Buy bonds in the open market. 
B)  All the economy to adjust itself. 
C)  Sell bonds in the open market. 
D)  Impose higher taxes to counteract the supply shock. 
E)  Lower taxes to maintain output. 
A)  Buy bonds in the open market. 
B)  All the economy to adjust itself. 
C)  Sell bonds in the open market. 
D)  Impose higher taxes to counteract the supply shock. 
E)  Lower taxes to maintain output. C

Question 3

If the Fed wants to move the economy up and to the left along the Phillips curve,what must it do?

Accepted Answer

A)  Increase the rate at which the aggregate supply curve shifts upward 
B)  Decrease the rate at which the aggregate demand curve shifts rightward 
C)  Increase the rate at which the aggregate demand curve shifts rightward 
D)  Increase the rate at which the aggregate demand curve shifts leftward 
E)  Decrease the rate at which the aggregate supply curve shifts upward. 
A)  Increase the rate at which the aggregate supply curve shifts upward 
B)  Decrease the rate at which the aggregate demand curve shifts rightward 
C)  Increase the rate at which the aggregate demand curve shifts rightward 
D)  Increase the rate at which the aggregate demand curve shifts leftward 
E)  Decrease the rate at which the aggregate supply curve shifts upward. C

Question 4

The Federal Reserve has been quite successful in keeping the inflation rate low for the past 20 years.

Accepted Answer

A) True 
 B)False

Question 5

The outcome of monetary policy can never be certain because

Accepted Answer

A)  unemployment is always changing 
B)  the concept of a natural rate of unemployment is still not accepted by all policy makers 
C)  the slope of the AS curve is never clear 
D)  time lags disrupt policy planning 
E)  the natural rate of unemployment lags behind the actual rate of unemployment. 
A)  unemployment is always changing 
B)  the concept of a natural rate of unemployment is still not accepted by all policy makers 
C)  the slope of the AS curve is never clear 
D)  time lags disrupt policy planning 
E)  the natural rate of unemployment lags behind the actual rate of unemployment.

Question 6

The long-run Phillips curve is vertical.

Accepted Answer

A) True 
 B)False

Question 7

When economists say that there is a time lag in the effect of monetary policy,what do they mean?

Accepted Answer

A)  That it takes time to observe the effects of fiscal policy on the economy 
B)  That the Fed takes awhile to figure out what it wants to do 
C)  That the Congress takes awhile to figure out what it wants to do 
D)  That it takes time to observe the effects of monetary policy on the economy 
E)  That the public needs time to decide how to respond to monetary policy changes. 
A)  That it takes time to observe the effects of fiscal policy on the economy 
B)  That the Fed takes awhile to figure out what it wants to do 
C)  That the Congress takes awhile to figure out what it wants to do 
D)  That it takes time to observe the effects of monetary policy on the economy 
E)  That the public needs time to decide how to respond to monetary policy changes.

Question 8

The choice between hawk and dove positions depends on

Accepted Answer

A)  the extent of cyclical unemployment at the time of the decision 
B)  relative importance of short-run and long-run monetary considerations 
C)  cooperation between Congress and the monetary authorities 
D)  the frequency of negative supply shocks 
E)  the Fed's relative concern for price and employment stability 
A)  the extent of cyclical unemployment at the time of the decision 
B)  relative importance of short-run and long-run monetary considerations 
C)  cooperation between Congress and the monetary authorities 
D)  the frequency of negative supply shocks 
E)  the Fed's relative concern for price and employment stability

Question 9

According to the Taylor rule,

Accepted Answer

A)  the Fed would have the discretion to choose an appropriate inflation rate 
B)  the Fed would announce targets for the inflation rate and real GDP 
C)  the Fed would allow the inflation rate to increase by about 0.5 percent per year 
D)  the Fed would allow the price level to increase by about 0.5 percent per year 
E)  Congress would set an annual inflation rate target. 
A)  the Fed would have the discretion to choose an appropriate inflation rate 
B)  the Fed would announce targets for the inflation rate and real GDP 
C)  the Fed would allow the inflation rate to increase by about 0.5 percent per year 
D)  the Fed would allow the price level to increase by about 0.5 percent per year 
E)  Congress would set an annual inflation rate target.

Question 10

In the long run,monetary policy can

Accepted Answer

A)  change the form of inflation 
B)  change the type of unemployment 
C)  change the level of unemployment 
D)  stop the flow of currency abroad 
E)  change the rate of inflation 
A)  change the form of inflation 
B)  change the type of unemployment 
C)  change the level of unemployment 
D)  stop the flow of currency abroad 
E)  change the rate of inflation

Question 11

The Fed does not try to reduce frictional unemployment because it

Accepted Answer

A)  is easier to eliminate with fiscal policy 
B)  is not a serious social problem 
C)  has microeconomic solutions 
D)  signals a strong economy 
E)  rarely exceeds a 1 percent rate 
A)  is easier to eliminate with fiscal policy 
B)  is not a serious social problem 
C)  has microeconomic solutions 
D)  signals a strong economy 
E)  rarely exceeds a 1 percent rate

Question 12

If unemployment is below the natural rate,GDP is below potential output.

Accepted Answer

A) True 
 B)False

Question 13

The long-run Phillips curve is downward-sloping.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is a possible cure for ongoing inflation?

Accepted Answer

A)  The Fed could pursue anti-cyclical monetary policy. 
B)  The Fed could increase money supply whenever the AD curve shifts to the right. 
C)  The Fed could maintain a constant interest rate target regardless of economic circumstances. 
D)  The Fed could always try to keep the unemployment rate below the natural rate. 
E)  The Fed could pursue anti-cyclical fiscal policy. 
A)  The Fed could pursue anti-cyclical monetary policy. 
B)  The Fed could increase money supply whenever the AD curve shifts to the right. 
C)  The Fed could maintain a constant interest rate target regardless of economic circumstances. 
D)  The Fed could always try to keep the unemployment rate below the natural rate. 
E)  The Fed could pursue anti-cyclical fiscal policy.

Question 15

If the Fed believes the natural rate of unemployment is 5.5 percent and the natural rate is really 5 percent,what is likely to happen in the short run?

Accepted Answer

A)  The Fed will allow unemployment to be unnecessarily high and output to be unnecessarily low. 
B)  The Fed will allow unemployment to be unnecessarily high,but output will remain at potential. 
C)  The Fed will allow unemployment to be unnecessarily low and output to be unnecessarily high. 
D)  The Fed will allow output to be unnecessarily low,but unemployment will remain at the natural rate. 
E)  The Fed will allow unemployment to be unnecessarily low and output to be unnecessarily low. 
A)  The Fed will allow unemployment to be unnecessarily high and output to be unnecessarily low. 
B)  The Fed will allow unemployment to be unnecessarily high,but output will remain at potential. 
C)  The Fed will allow unemployment to be unnecessarily low and output to be unnecessarily high. 
D)  The Fed will allow output to be unnecessarily low,but unemployment will remain at the natural rate. 
E)  The Fed will allow unemployment to be unnecessarily low and output to be unnecessarily low.

Question 16

Which of the following is the Fed's best strategy for dealing with demand shocks?

Accepted Answer

A)  Maintain a money supply target 
B)  Decrease the money supply 
C)  Maintain a passive monetary policy 
D)  Neutralize the impact with an increase in the money supply 
E)  Increase the interest rate. 
A)  Maintain a money supply target 
B)  Decrease the money supply 
C)  Maintain a passive monetary policy 
D)  Neutralize the impact with an increase in the money supply 
E)  Increase the interest rate.

Question 17

Deflation can render monetary policy powerless.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following does the long-run Phillips curve tell us?

Accepted Answer

A)  That the Fed can select any rate of unemployment it wants in the long run 
B)  That the Fed can select any rate of inflation and unemployment rate it wants in the long run 
C)  That the Fed can select neither the rate of inflation nor the rate of unemployment in the long run 
D)  That there is a tradeoff between the rate of inflation and the rate of unemployment in the long run 
E)  That the Fed can select any rate of inflation it wants in the long run 
A)  That the Fed can select any rate of unemployment it wants in the long run 
B)  That the Fed can select any rate of inflation and unemployment rate it wants in the long run 
C)  That the Fed can select neither the rate of inflation nor the rate of unemployment in the long run 
D)  That there is a tradeoff between the rate of inflation and the rate of unemployment in the long run 
E)  That the Fed can select any rate of inflation it wants in the long run

Question 19

If the inflation rate is 2 percent and nominal wages increase by 1 percent,what happens to real wages?

Accepted Answer

A)  They rise by 1 percent. 
B)  They fall by 1 percent. 
C)  They remain constant. 
D)  They fall by 2 percent. 
E)  They rise by 3 percent. 
A)  They rise by 1 percent. 
B)  They fall by 1 percent. 
C)  They remain constant. 
D)  They fall by 2 percent. 
E)  They rise by 3 percent.

Question 20

The vertical long-run Phillips curve

Accepted Answer

A)  indicates the permanent unemployment rate 
B)  indicates the unemployment rate at the optimal level of GDP 
C)  is only one of several vertical curves that together are called interest rate targets 
D)  indicates the economy's natural rate of unemployment 
E)  is more socially desirable than a horizontal Phillips curve would be 
A)  indicates the permanent unemployment rate 
B)  indicates the unemployment rate at the optimal level of GDP 
C)  is only one of several vertical curves that together are called interest rate targets 
D)  indicates the economy's natural rate of unemployment 
E)  is more socially desirable than a horizontal Phillips curve would be

For the Fed,price stability means stable prices.

If there is a decrease in world oil prices and the Fed wishes to maintain output stability,what should it do?

If the Fed wants to move the economy up and to the left along the Phillips curve,what must it do?

The Federal Reserve has been quite successful in keeping the inflation rate low for the past 20 years.

The outcome of monetary policy can never be certain because

The long-run Phillips curve is vertical.

When economists say that there is a time lag in the effect of monetary policy,what do they mean?

The choice between hawk and dove positions depends on

According to the Taylor rule,

In the long run,monetary policy can

The Fed does not try to reduce frictional unemployment because it

If unemployment is below the natural rate,GDP is below potential output.

The long-run Phillips curve is downward-sloping.

Which of the following is a possible cure for ongoing inflation?

If the Fed believes the natural rate of unemployment is 5.5 percent and the natural rate is really 5 percent,what is likely to happen in the short run?

Which of the following is the Fed's best strategy for dealing with demand shocks?

Deflation can render monetary policy powerless.

Which of the following does the long-run Phillips curve tell us?

If the inflation rate is 2 percent and nominal wages increase by 1 percent,what happens to real wages?

The vertical long-run Phillips curve

What is Economics?

Scarcity, Choice, and Economic Systems

Supply and Demand

Working With Supply and Demand

What Macroeconomics Tries to Explain

Production, Income, and Employment

The Price Level and Inflation

The Classical Long run Model

Economic Growth and Rising Living Standards

Economic Fluctuations

The Short-run Macro Model

Fiscal Policy

Money, Banks, and the Federal Reserve

The Money Market and Monetary Policy

Aggregate Demand and Aggregate Supply

Exchange Rates and Macroeconomic Policy

Filters

Exam 16: Inflation and Monetary Policy

For the Fed,price stability means stable prices.

If there is a decrease in world oil prices and the Fed wishes to maintain output stability,what should it do?

If the Fed wants to move the economy up and to the left along the Phillips curve,what must it do?

The Federal Reserve has been quite successful in keeping the inflation rate low for the past 20 years.

The outcome of monetary policy can never be certain because

The long-run Phillips curve is vertical.

When economists say that there is a time lag in the effect of monetary policy,what do they mean?

The choice between hawk and dove positions depends on

According to the Taylor rule,

In the long run,monetary policy can

The Fed does not try to reduce frictional unemployment because it

If unemployment is below the natural rate,GDP is below potential output.

The long-run Phillips curve is downward-sloping.

Which of the following is a possible cure for ongoing inflation?

If the Fed believes the natural rate of unemployment is 5.5 percent and the natural rate is really 5 percent,what is likely to happen in the short run?

Which of the following is the Fed's best strategy for dealing with demand shocks?

Deflation can render monetary policy powerless.

Which of the following does the long-run Phillips curve tell us?

If the inflation rate is 2 percent and nominal wages increase by 1 percent,what happens to real wages?

The vertical long-run Phillips curve

What is Economics?

Scarcity, Choice, and Economic Systems

Supply and Demand

Working With Supply and Demand

What Macroeconomics Tries to Explain

Production, Income, and Employment

The Price Level and Inflation

The Classical Long run Model

Economic Growth and Rising Living Standards

Economic Fluctuations

The Short-run Macro Model

Fiscal Policy

Money, Banks, and the Federal Reserve

The Money Market and Monetary Policy

Aggregate Demand and Aggregate Supply

Exchange Rates and Macroeconomic Policy

Filters