Question 1

When the economy suffers a temporary negative supply shock and the monetary policy makers try to stabilize economic activity in the short run,then

Accepted Answer

A) aggregate demand curve shifts rightward. 
B) output will be at its potential. 
C) inflation rate will be higher. 
D) all of the above. 
E) both A and B. 
A) aggregate demand curve shifts rightward. 
B) output will be at its potential. 
C) inflation rate will be higher. 
D) all of the above. 
E) both A and B.

Question 2

When the economy suffers a temporary negative supply shock,the central bank's autonomous monetary policy to keep inflation at the target inflation rate leads to

Accepted Answer

A) more stable economic activities. 
B) a large deviation of output from its potential. 
C) divine coincidence. 
D) both B and C. 
A) more stable economic activities. 
B) a large deviation of output from its potential. 
C) divine coincidence. 
D) both B and C.

Question 3

The data lag is

Accepted Answer

A) the time it takes for policy makers to obtain data indicating what is happening in the economy. 
B) the time it takes for policy makers to be sure of what the data are signaling about the future course of the economy. 
C) the time it takes to pass legislation to implement a particular policy. 
D) the time it takes for policy makers to change policy instruments once they have decided on the new policy. 
E) the time it takes for the policy actually to have an impact on the economy. 
A) the time it takes for policy makers to obtain data indicating what is happening in the economy. 
B) the time it takes for policy makers to be sure of what the data are signaling about the future course of the economy. 
C) the time it takes to pass legislation to implement a particular policy. 
D) the time it takes for policy makers to change policy instruments once they have decided on the new policy. 
E) the time it takes for the policy actually to have an impact on the economy.

Question 4

Evidence from the time period 1960-1980 indicates that inflation in the United States resulted from

Accepted Answer

A) an employment target that was set too high. 
B) the government's inability to sell bonds to the Fed. 
C) an expansion in the money supply to finance federal government expenditures. 
D) the excessive sale of government bonds to the public. 
A) an employment target that was set too high. 
B) the government's inability to sell bonds to the Fed. 
C) an expansion in the money supply to finance federal government expenditures. 
D) the excessive sale of government bonds to the public.

Question 5

When output is below potential and the policy rate has hit the floor of zero,if policymakers do nothing,output will ________ and inflation will ________.

Accepted Answer

A) rise;fall 
B) fall;fall 
C) fall;rise 
D) rise;rise 
A) rise;fall 
B) fall;fall 
C) fall;rise 
D) rise;rise

Question 6

If the economy suffers a permanent negative supply shock because there is an increase in regulations that permanently reduce the level of potential output,then

Accepted Answer

A) potential output falls. 
B) the long-run aggregate supply curve shifts leftward. 
C) the short-run aggregate supply curve shifts upward. 
D) all of the above. 
A) potential output falls. 
B) the long-run aggregate supply curve shifts leftward. 
C) the short-run aggregate supply curve shifts upward. 
D) all of the above.

Question 7

If workers do not believe that policymakers are serious about fighting inflation,they are most likely to push for higher wages,which will ________ aggregate ________ and lead to unemployment or inflation or both,everything else held constant.

Accepted Answer

A) decrease;demand 
B) increase;demand 
C) decrease;supply 
D) increase;supply 
A) decrease;demand 
B) increase;demand 
C) decrease;supply 
D) increase;supply

Question 8

The effectiveness lag is

Accepted Answer

A) the time it takes for policy makers to obtain data indicating what is happening in the economy. 
B) the time it takes for policy makers to be sure of what the data are signaling about the future course of the economy. 
C) the time it takes to pass legislation to implement a particular policy. 
D) the time it takes for policy makers to change policy instruments once they have decided on the new policy. 
E) the time it takes for the policy actually to have an impact on the economy. 
A) the time it takes for policy makers to obtain data indicating what is happening in the economy. 
B) the time it takes for policy makers to be sure of what the data are signaling about the future course of the economy. 
C) the time it takes to pass legislation to implement a particular policy. 
D) the time it takes for policy makers to change policy instruments once they have decided on the new policy. 
E) the time it takes for the policy actually to have an impact on the economy.

Question 9

If workers believe that government policymakers will increase aggregate demand to avoid a politically unpopular increase in unemployment when workers demand higher wages,then workers will not fear higher unemployment and their wage demands will result in

Accepted Answer

A) demand-pull inflation. 
B) hyperinflation. 
C) deflation. 
D) cost-push inflation. 
A) demand-pull inflation. 
B) hyperinflation. 
C) deflation. 
D) cost-push inflation.

Question 10

With the followings is NOT one of the reasons why quantitative easing in and of itself will not necessarily be stimulative?

Accepted Answer

A) Most of the resulting increase in the monetary base just flows into holdings of excess reserves. 
B) Banks just add to their holdings of excess reserves instead of making loans. 
C) The asset purchase program involves only the purchase of short-term government securities. 
D) The asset purchase program involves only the purchase of long-term government securities. 
A) Most of the resulting increase in the monetary base just flows into holdings of excess reserves. 
B) Banks just add to their holdings of excess reserves instead of making loans. 
C) The asset purchase program involves only the purchase of short-term government securities. 
D) The asset purchase program involves only the purchase of long-term government securities.

Question 11

The recognition lag is

Accepted Answer

A) the time it takes for policy makers to obtain data indicating what is happening in the economy. 
B) the time it takes for policy makers to be sure of what the data are signaling about the future course of the economy. 
C) the time it takes to pass legislation to implement a particular policy. 
D) the time it takes for policy makers to change policy instruments once they have decided on the new policy. 
E) the time it takes for the policy actually to have an impact on the economy. 
A) the time it takes for policy makers to obtain data indicating what is happening in the economy. 
B) the time it takes for policy makers to be sure of what the data are signaling about the future course of the economy. 
C) the time it takes to pass legislation to implement a particular policy. 
D) the time it takes for policy makers to change policy instruments once they have decided on the new policy. 
E) the time it takes for the policy actually to have an impact on the economy.

Question 12

The combination of a successful wage push by workers and the government's commitment to high employment leads to

Accepted Answer

A) demand-pull inflation. 
B) supply-side inflation. 
C) supply-shock inflation. 
D) cost-push inflation. 
A) demand-pull inflation. 
B) supply-side inflation. 
C) supply-shock inflation. 
D) cost-push inflation.

Question 13

Which of the following is least likely to lead to inflationary monetary policy?

Accepted Answer

A) rising unemployment 
B) expanding federal budget deficits 
C) declining oil prices 
D) conflict in the Middle East 
A) rising unemployment 
B) expanding federal budget deficits 
C) declining oil prices 
D) conflict in the Middle East

Question 14

The time it takes to pass legislation to implement a particular policy is called

Accepted Answer

A) the data lag. 
B) the recognition lag. 
C) the legislative lag. 
D) the implementation lag. 
E) the effectiveness lag. 
A) the data lag. 
B) the recognition lag. 
C) the legislative lag. 
D) the implementation lag. 
E) the effectiveness lag.

Question 15

With the policy rate set at zero,the rise in expected inflation will lead to a ________ in the real interest rate,which will cause investment spending and aggregate output to ________.

Accepted Answer

A) fall;rise 
B) fall;fall 
C) rise;rise 
D) rise;fall 
A) fall;rise 
B) fall;fall 
C) rise;rise 
D) rise;fall

Question 16

Nonactivists of the policies believe that

Accepted Answer

A) wages and prices are very flexible. 
B) the self-correcting mechanism is very rapid. 
C) government action is unnecessary. 
D) all of the above. 
A) wages and prices are very flexible. 
B) the self-correcting mechanism is very rapid. 
C) government action is unnecessary. 
D) all of the above.

Question 17

When the economy suffers a permanent negative supply shock and the central bank responds by changing the autonomous component of monetary policy to keep inflation at the target inflation rate,then

Accepted Answer

A) aggregate demand curve shifts leftward. 
B) aggregate demand curve shifts rightward. 
C) output will be unchanged. 
D) both A and C. 
A) aggregate demand curve shifts leftward. 
B) aggregate demand curve shifts rightward. 
C) output will be unchanged. 
D) both A and C.

Question 18

Demand-pull inflation can result when

Accepted Answer

A) policymakers set an unemployment target that is too high. 
B) a persistent budget deficit is financed by selling bonds to the public. 
C) a persistent budget deficit is financed by selling bonds to the central bank. 
D) workers get numerous wage increases. 
A) policymakers set an unemployment target that is too high. 
B) a persistent budget deficit is financed by selling bonds to the public. 
C) a persistent budget deficit is financed by selling bonds to the central bank. 
D) workers get numerous wage increases.

Exam 23: Monetary Policy Theory

When the economy suffers a temporary negative supply shock and the monetary policy makers try to stabilize economic activity in the short run,then

When the economy suffers a temporary negative supply shock,the central bank's autonomous monetary policy to keep inflation at the target inflation rate leads to

The data lag is

Evidence from the time period 1960-1980 indicates that inflation in the United States resulted from

When output is below potential and the policy rate has hit the floor of zero,if policymakers do nothing,output will ________ and inflation will ________.

If the economy suffers a permanent negative supply shock because there is an increase in regulations that permanently reduce the level of potential output,then

If workers do not believe that policymakers are serious about fighting inflation,they are most likely to push for higher wages,which will ________ aggregate ________ and lead to unemployment or inflation or both,everything else held constant.

The effectiveness lag is

If workers believe that government policymakers will increase aggregate demand to avoid a politically unpopular increase in unemployment when workers demand higher wages,then workers will not fear higher unemployment and their wage demands will result in

With the followings is NOT one of the reasons why quantitative easing in and of itself will not necessarily be stimulative?

The recognition lag is

The combination of a successful wage push by workers and the government's commitment to high employment leads to

Which of the following is least likely to lead to inflationary monetary policy?

The time it takes to pass legislation to implement a particular policy is called

With the policy rate set at zero,the rise in expected inflation will lead to a ________ in the real interest rate,which will cause investment spending and aggregate output to ________.

Nonactivists of the policies believe that

When the economy suffers a permanent negative supply shock and the central bank responds by changing the autonomous component of monetary policy to keep inflation at the target inflation rate,then

Demand-pull inflation can result when

Why Study Money, banking, and Financial Markets

An Overview of the Financial System

What Is Money

The Meaning of Interest Rates

The Behavior of Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

An Economic Analysis of Financial Structure

Banking and the Management of Financial Institutions

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Financial Crises

Central Banks and the Federal Reserve System

The Money Supply Process

Tools of Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

Quantity Theory, inflation, and the Demand for Money

The Is Curve

The Monetary Policy and Aggregate Demand Curves

Aggregate Demand and Supply Analysis

The Role of Expectations in Monetary Policy

Transmission Mechanisms of Monetary Policy

Web 1:financial Crises in Emerging Market Economies

Web 2:the Islm Model

Web 3:nonbank Finance

Web 4:financial Derivatives

Web 5:conflicts of Interest in the Financial Services Industry

Filters

When output is below potential and the policy rate has hit the floor of zero,if policymakers do nothing,output will and inflation will .

If workers do not believe that policymakers are serious about fighting inflation,they are most likely to push for higher wages,which will aggregate and lead to unemployment or inflation or both,everything else held constant.

With the policy rate set at zero,the rise in expected inflation will lead to a in the real interest rate,which will cause investment spending and aggregate output to .