Question 1

If the inflation rate is lower than expected,real income is redistributed from lenders to borrowers.

Accepted Answer

A) True 
 B)False

Question 2

The natural rate is natural in the sense that macroeconomic policy

Accepted Answer

A)  sees it all the time 
B)  can ignore it 
C)  can't do much about it 
D)  is a natural reaction to unemployment 
E)  has always recognized that some workers will be voluntarily unemployed 
A)  sees it all the time 
B)  can ignore it 
C)  can't do much about it 
D)  is a natural reaction to unemployment 
E)  has always recognized that some workers will be voluntarily unemployed

Question 3

The AD curve shifts to the right when

Accepted Answer

A)  the Fed alters its fiscal policy rules 
B)  any economic shock disrupts the economy 
C)  the AS curve does not shift 
D)  new trade legislation is passed 
E)  positive demand shocks occur 
A)  the Fed alters its fiscal policy rules 
B)  any economic shock disrupts the economy 
C)  the AS curve does not shift 
D)  new trade legislation is passed 
E)  positive demand shocks occur

Question 4

If the Fed moves the economy upward along the short-run Phillips curve from an initial inflationary equilibrium,what is happening?

Accepted Answer

A)  Unemployment is rising above the natural rate,output is decreasing,and inflation is decreasing. 
B)  Unemployment is falling below the natural rate,output is decreasing,and inflation is increasing. 
C)  Unemployment is rising above the natural rate,output is increasing,and inflation is decreasing. 
D)  Unemployment is falling below the natural rate,output is increasing,and inflation is increasing. 
E)  Unemployment is falling below the natural rate,output is increasing,and inflation is decreasing. 
A)  Unemployment is rising above the natural rate,output is decreasing,and inflation is decreasing. 
B)  Unemployment is falling below the natural rate,output is decreasing,and inflation is increasing. 
C)  Unemployment is rising above the natural rate,output is increasing,and inflation is decreasing. 
D)  Unemployment is falling below the natural rate,output is increasing,and inflation is increasing. 
E)  Unemployment is falling below the natural rate,output is increasing,and inflation is decreasing.

Question 5

Why are there significant time lags in monetary policy?

Accepted Answer

A)  Financial markets are inefficient and information takes several months to impact them. 
B)  Changes in monetary policy only affect future projects such as factories,not current ones. 
C)  Interest rates takes several months to change after a change in money supply. 
D)  Interest rates are fixed and it takes several months to change laws to have the targets amended. 
E)  Because of the Fed's relative inability to convince Congress about the necessity of a particular monetary policy. 
A)  Financial markets are inefficient and information takes several months to impact them. 
B)  Changes in monetary policy only affect future projects such as factories,not current ones. 
C)  Interest rates takes several months to change after a change in money supply. 
D)  Interest rates are fixed and it takes several months to change laws to have the targets amended. 
E)  Because of the Fed's relative inability to convince Congress about the necessity of a particular monetary policy.

Question 6

Inflation doves lean in the direction of milder recessions and are more willing to tolerate higher inflation.

Accepted Answer

A) True 
 B)False

Question 7

-Refer to Figure 16-2.Suppose a supply shock shifts aggregate supply from AS₁ to AS₂ and decreases output below full employment.Which of the following statements is most accurate?

Accepted Answer

A)  By increasing the money supply,the Fed can stabilize the interest rate and price level and return output to its full-employment level. 
B)  By decreasing the money supply,the Fed can stabilize the interest rate and price level and return output to its full-employment level. 
C)  By increasing the money supply,the Fed can stabilize the price level but output will remain below the full-employment level. 
D)  By increasing the money supply,the Fed can return output to its full-employment level but at the expense of a further increase in the price level. 
E)  By increasing the money supply,the Fed can stabilize the price level and return output to its full-employment level but must sacrifice its interest rate target. 
A)  By increasing the money supply,the Fed can stabilize the interest rate and price level and return output to its full-employment level. 
B)  By decreasing the money supply,the Fed can stabilize the interest rate and price level and return output to its full-employment level. 
C)  By increasing the money supply,the Fed can stabilize the price level but output will remain below the full-employment level. 
D)  By increasing the money supply,the Fed can return output to its full-employment level but at the expense of a further increase in the price level. 
E)  By increasing the money supply,the Fed can stabilize the price level and return output to its full-employment level but must sacrifice its interest rate target.

Question 8

For the Fed,price stability means a low and stable rate of inflation.

Accepted Answer

A) True 
 B)False

Question 9

There is uncertainty about the precise level of the natural rate of unemployment.

Accepted Answer

A) True 
 B)False

Question 10

What short-run choice does the Phillips curve illustrate?

Accepted Answer

A)  The choice between higher real wages and higher output 
B)  The choice between cyclical unemployment and frictional unemployment 
C)  The choice between a higher capital stock and inflation 
D)  The choice between higher output per capita and maintaining the natural rate of unemployment 
E)  The choice between unemployment and inflation. 
A)  The choice between higher real wages and higher output 
B)  The choice between cyclical unemployment and frictional unemployment 
C)  The choice between a higher capital stock and inflation 
D)  The choice between higher output per capita and maintaining the natural rate of unemployment 
E)  The choice between unemployment and inflation.

Question 11

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

Accepted Answer

A)  That output can be below potential in the long run 
B)  That the unemployment rate can take on any value in the long run 
C)  That output can be maintained above potential in the long run 
D)  That unemployment will return to the natural rate in the long run 
E)  That the inflation rate cannot rise above 10 percent in the long run. 
A)  That output can be below potential in the long run 
B)  That the unemployment rate can take on any value in the long run 
C)  That output can be maintained above potential in the long run 
D)  That unemployment will return to the natural rate in the long run 
E)  That the inflation rate cannot rise above 10 percent in the long run.

Question 12

The natural rate of unemployment never changes.

Accepted Answer

A) True 
 B)False

Question 13

The Phillips curve

Accepted Answer

A)  is the same as a country's production possibilities frontier.. 
B)  is upward sloping. 
C)  illustrates the Fed's choice between inflation and unemployment in the long run. 
D)  illustrates the Fed's choice between inflation and unemployment in the short run. 
E)  illustrates the Fed's choice between inflation and tax revenues in the short run. 
A)  is the same as a country's production possibilities frontier.. 
B)  is upward sloping. 
C)  illustrates the Fed's choice between inflation and unemployment in the long run. 
D)  illustrates the Fed's choice between inflation and unemployment in the short run. 
E)  illustrates the Fed's choice between inflation and tax revenues in the short run.

Question 14

The Fed's goal is

Accepted Answer

A)  moderate and stable inflation 
B)  zero inflation 
C)  a low price level 
D)  an inflation rate that diminishes over time 
E)  low and stable inflation 
A)  moderate and stable inflation 
B)  zero inflation 
C)  a low price level 
D)  an inflation rate that diminishes over time 
E)  low and stable inflation

Question 15

Those who prefer that the Fed react to negative supply shocks by tolerating higher rates of inflation as a means of moderating a recession are called

Accepted Answer

A)  inflation doves 
B)  inflation hawks 
C)  monetarists 
D)  Keynesians 
E)  hard headed and soft hearted 
A)  inflation doves 
B)  inflation hawks 
C)  monetarists 
D)  Keynesians 
E)  hard headed and soft hearted

Question 16

Which of the following is an accurate description of the U.S.inflation rate since 1950?

Accepted Answer

A)  The rate has always been below 4 percent. 
B)  Inflation was low in the 1970s. 
C)  Episodes of high inflation occurred in the 1970s and early 1980s. 
D)  Inflation rates were very high in the 1960s. 
E)  Episodes of high inflation occurred in the 1990s. 
A)  The rate has always been below 4 percent. 
B)  Inflation was low in the 1970s. 
C)  Episodes of high inflation occurred in the 1970s and early 1980s. 
D)  Inflation rates were very high in the 1960s. 
E)  Episodes of high inflation occurred in the 1990s.

Question 17

To eliminate built-in inflation from the economy,the Fed must

Accepted Answer

A)  announce its intention to have a single policy objective 
B)  create a recession 
C)  maintain a constant rate of inflation 
D)  resist the temptation to change its interest rate targets 
E)  work closely with Congress and the President 
A)  announce its intention to have a single policy objective 
B)  create a recession 
C)  maintain a constant rate of inflation 
D)  resist the temptation to change its interest rate targets 
E)  work closely with Congress and the President

Question 18

If the demand for money decreases,a constant interest rate policy requires the Fed to

Accepted Answer

A)  consult with leaders in the financial markets to see whether it should introduce credit controls 
B)  watch to see whether the investment spending decreases 
C)  move quickly to prevent a recession 
D)  decrease the supply of money 
E)  decrease the interest rate. 
A)  consult with leaders in the financial markets to see whether it should introduce credit controls 
B)  watch to see whether the investment spending decreases 
C)  move quickly to prevent a recession 
D)  decrease the supply of money 
E)  decrease the interest rate.

Question 19

If the inflation rate is 3 percent and the nominal wage is frozen for one year,by how much will the real wage change?

Accepted Answer

A)  It will decrease by about 3 percent. 
B)  It will not change. 
C)  It will increase by 3 percent. 
D)  It will triple. 
E)  We do not have enough information to determine this answer. 
A)  It will decrease by about 3 percent. 
B)  It will not change. 
C)  It will increase by 3 percent. 
D)  It will triple. 
E)  We do not have enough information to determine this answer.

Question 20

In the mid-1980s the natural rate of unemployment in the U.S.was about __________ while at present it is about __________.

Accepted Answer

A)  10%;2.5% 
B)  6.5%;4.5% 
C)  4.5%;6.5% 
D)  6.5%;6.2% 
E)  6.5%;10.0%. 
A)  10%;2.5% 
B)  6.5%;4.5% 
C)  4.5%;6.5% 
D)  6.5%;6.2% 
E)  6.5%;10.0%.

If the inflation rate is lower than expected,real income is redistributed from lenders to borrowers.

The natural rate is natural in the sense that macroeconomic policy

The AD curve shifts to the right when

If the Fed moves the economy upward along the short-run Phillips curve from an initial inflationary equilibrium,what is happening?

Why are there significant time lags in monetary policy?

Inflation doves lean in the direction of milder recessions and are more willing to tolerate higher inflation.

-Refer to Figure 16-2.Suppose a supply shock shifts aggregate supply from AS₁ to AS₂ and decreases output below full employment.Which of the following statements is most accurate?

For the Fed,price stability means a low and stable rate of inflation.

There is uncertainty about the precise level of the natural rate of unemployment.

What short-run choice does the Phillips curve illustrate?

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

The natural rate of unemployment never changes.

The Phillips curve

The Fed's goal is

Those who prefer that the Fed react to negative supply shocks by tolerating higher rates of inflation as a means of moderating a recession are called

Which of the following is an accurate description of the U.S.inflation rate since 1950?

To eliminate built-in inflation from the economy,the Fed must

If the demand for money decreases,a constant interest rate policy requires the Fed to

If the inflation rate is 3 percent and the nominal wage is frozen for one year,by how much will the real wage change?

In the mid-1980s the natural rate of unemployment in the U.S.was about while at present it is about .

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

If the inflation rate is lower than expected,real income is redistributed from lenders to borrowers.

The natural rate is natural in the sense that macroeconomic policy

The AD curve shifts to the right when

If the Fed moves the economy upward along the short-run Phillips curve from an initial inflationary equilibrium,what is happening?

Why are there significant time lags in monetary policy?

Inflation doves lean in the direction of milder recessions and are more willing to tolerate higher inflation.

-Refer to Figure 16-2.Suppose a supply shock shifts aggregate supply from AS₁ to AS₂ and decreases output below full employment.Which of the following statements is most accurate?

For the Fed,price stability means a low and stable rate of inflation.

There is uncertainty about the precise level of the natural rate of unemployment.

What short-run choice does the Phillips curve illustrate?

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

The natural rate of unemployment never changes.

The Phillips curve

The Fed's goal is

Those who prefer that the Fed react to negative supply shocks by tolerating higher rates of inflation as a means of moderating a recession are called

Which of the following is an accurate description of the U.S.inflation rate since 1950?

To eliminate built-in inflation from the economy,the Fed must

If the demand for money decreases,a constant interest rate policy requires the Fed to

If the inflation rate is 3 percent and the nominal wage is frozen for one year,by how much will the real wage change?

In the mid-1980s the natural rate of unemployment in the U.S.was about __________ while at present it is about __________.

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

In the mid-1980s the natural rate of unemployment in the U.S.was about while at present it is about .