Question 1

Why might it be argued that prolonged recessionary or expansionary gaps could actually affect potential output?

Accepted Answer

A prolonged recessionary gap could reduc

Question 2

The short-run effects from an increase in aggregate demand will include:

Accepted Answer

A) an increase in potential output. 
B) an increase in the current inflation rate. 
C) a decrease in current output. 
D) a recessionary gap. 
A) an increase in potential output. 
B) an increase in the current inflation rate. 
C) a decrease in current output. 
D) a recessionary gap.

Question 3

Short-run movements in inflation and output are ultimately attributed to changes in:

Accepted Answer

A) aggregate demand. 
B) aggregate supply. 
C) foreign policy. 
D) aggregate demand and aggregate supply. 
A) aggregate demand. 
B) aggregate supply. 
C) foreign policy. 
D) aggregate demand and aggregate supply.

Question 4

The self-correcting mechanism to return the economy to potential output from output gaps is the change in:

Accepted Answer

A) potential output. 
B) aggregate demand. 
C) short-run aggregate supply. 
D) the real interest rate by the central bank. 
A) potential output. 
B) aggregate demand. 
C) short-run aggregate supply. 
D) the real interest rate by the central bank.

Question 5

How would the discovery of a previously unknown large reserve of oil affect the short-run aggregate supply curve and why? What other change could have the same effect?

Accepted Answer

This discovery should mean a lower price

Question 6

Which of the following statements is most accurate?

Accepted Answer

A) Potential output is determined by current output. 
B) When an expansionary gap exists, current output is below potential output. 
C) Current output cannot exceed potential output. 
D) During a recessionary gap, current output is below potential output. 
A) Potential output is determined by current output. 
B) When an expansionary gap exists, current output is below potential output. 
C) Current output cannot exceed potential output. 
D) During a recessionary gap, current output is below potential output.

Question 7

Discuss why many economists maintain that continued deficit spending by government is likely to "crowd out" (decrease) investment spending in the long run.

Accepted Answer

The long-run real interest rate is the r

Question 8

The aggregate demand curve shows the quantity of:

Accepted Answer

A) nominal output demanded at each level of inflation. 
B) real output demanded at each level of inflation. 
C) output made available at each level of inflation. 
D) real output demanded at each level of real interest rate. 
A) nominal output demanded at each level of inflation. 
B) real output demanded at each level of inflation. 
C) output made available at each level of inflation. 
D) real output demanded at each level of real interest rate.

Question 9

If policymakers are aggressive in keeping current inflation near the target inflation rate then the monetary policy reaction curve will:

Accepted Answer

A) be steep. 
B) be flat. 
C) have an undefined slope. 
D) be vertical. 
A) be steep. 
B) be flat. 
C) have an undefined slope. 
D) be vertical.

Question 10

Consumption can be sensitive to changes in the real interest rate because:

Accepted Answer

A) higher interest rates can increase the cost of durable goods like automobiles. 
B) higher interest rates will result in less saving. 
C) lower real interest rates will decrease spending on durable goods and increase spending on non-durable goods. 
D) lower interest rates increase savings. 
A) higher interest rates can increase the cost of durable goods like automobiles. 
B) higher interest rates will result in less saving. 
C) lower real interest rates will decrease spending on durable goods and increase spending on non-durable goods. 
D) lower interest rates increase savings.

Question 11

If the economy is producing a level of output that is consistent with the potential output level, and government purchases increase, describe what happens in terms of the long-run real interest rate, and why, to keep the economy at its potential output level.

Accepted Answer

If the economy is producing its potentia

Question 12

The slope of the monetary policy reaction curve is determined by:

Accepted Answer

A) how strongly the economy reacts to changes in the nominal interest rate. 
B) how strongly the inflation rate impacts peoples' decisions. 
C) how aggressively policymakers change interest rates in response to deviations between current and target inflation rates. 
D) people's expectations for inflation. 
A) how strongly the economy reacts to changes in the nominal interest rate. 
B) how strongly the inflation rate impacts peoples' decisions. 
C) how aggressively policymakers change interest rates in response to deviations between current and target inflation rates. 
D) people's expectations for inflation.

Question 13

What would you expect to happen to the price level (inflation) from a prolonged expansionary gap and why?

Accepted Answer

An expansionary gap that lasts for any s

Question 14

With the economy at its potential level of output, the federal government undertakes a large military buildup; all other things equal, the impact on the long-run real interest rate will be to:

Accepted Answer

A) increase. 
B) decrease. 
C) remain constant since output is at its potential level. 
D) change at the same rate as inflation. 
A) increase. 
B) decrease. 
C) remain constant since output is at its potential level. 
D) change at the same rate as inflation.

Question 15

A characteristic of long-run equilibrium is the economy is producing its potential output.This is:

Accepted Answer

A) the maximum level of output the economy could produce at any time. 
B) the level of output the economy produces when its resources are used at normal rates. 
C) defined as using 80 percent of the economy's resources at any time. 
D) the level of output consistent with an unemployment rate of 7.5%. 
A) the maximum level of output the economy could produce at any time. 
B) the level of output the economy produces when its resources are used at normal rates. 
C) defined as using 80 percent of the economy's resources at any time. 
D) the level of output consistent with an unemployment rate of 7.5%.

Question 16

Former Bank of England Governor Mervyn King, commenting on a speech given by then Fed Chairman Greenspan, said "any (coherent) monetary policy can be written as an inflation target plus a response to supply shocks." What do these comments mean and what insight do they provide us to the focus of central banks?

Accepted Answer

Governor King is pointing to the fact th

Why might it be argued that prolonged recessionary or expansionary gaps could actually affect potential output?

The short-run effects from an increase in aggregate demand will include:

Short-run movements in inflation and output are ultimately attributed to changes in:

The self-correcting mechanism to return the economy to potential output from output gaps is the change in:

How would the discovery of a previously unknown large reserve of oil affect the short-run aggregate supply curve and why? What other change could have the same effect?

Which of the following statements is most accurate?

Discuss why many economists maintain that continued deficit spending by government is likely to "crowd out" (decrease) investment spending in the long run.

The aggregate demand curve shows the quantity of:

If policymakers are aggressive in keeping current inflation near the target inflation rate then the monetary policy reaction curve will:

Consumption can be sensitive to changes in the real interest rate because:

If the economy is producing a level of output that is consistent with the potential output level, and government purchases increase, describe what happens in terms of the long-run real interest rate, and why, to keep the economy at its potential output level.

The slope of the monetary policy reaction curve is determined by:

What would you expect to happen to the price level (inflation) from a prolonged expansionary gap and why?

With the economy at its potential level of output, the federal government undertakes a large military buildup; all other things equal, the impact on the long-run real interest rate will be to:

A characteristic of long-run equilibrium is the economy is producing its potential output.This is:

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

Understanding Business Cycle Fluctuations

Modern Monetary Policy and the Challenges Facing Central Bankers

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Exam 21: Output, Inflation, and Monetary Policy

Why might it be argued that prolonged recessionary or expansionary gaps could actually affect potential output?

The short-run effects from an increase in aggregate demand will include:

Short-run movements in inflation and output are ultimately attributed to changes in:

The self-correcting mechanism to return the economy to potential output from output gaps is the change in:

How would the discovery of a previously unknown large reserve of oil affect the short-run aggregate supply curve and why? What other change could have the same effect?

Which of the following statements is most accurate?

Discuss why many economists maintain that continued deficit spending by government is likely to "crowd out" (decrease) investment spending in the long run.

The aggregate demand curve shows the quantity of:

If policymakers are aggressive in keeping current inflation near the target inflation rate then the monetary policy reaction curve will:

Consumption can be sensitive to changes in the real interest rate because:

If the economy is producing a level of output that is consistent with the potential output level, and government purchases increase, describe what happens in terms of the long-run real interest rate, and why, to keep the economy at its potential output level.

The slope of the monetary policy reaction curve is determined by:

What would you expect to happen to the price level (inflation) from a prolonged expansionary gap and why?

With the economy at its potential level of output, the federal government undertakes a large military buildup; all other things equal, the impact on the long-run real interest rate will be to:

A characteristic of long-run equilibrium is the economy is producing its potential output.This is:

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

Understanding Business Cycle Fluctuations

Modern Monetary Policy and the Challenges Facing Central Bankers

Filters