Exam 21: Output, Inflation, and Monetary Policy

Explain why the dynamic aggregate demand curve reflects an inverse relationship between the rate of inflation and real output.Be sure to state any key assumptions.

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Question 1

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Let's begin with the assumptions: we'll assume that velocity is constant and that either the quantity of money is constant or that the quantity of money is growing at a lower rate than the price level.In that case, increases in the price level, which is inflation, results in a decrease in real money balances, the reduced real money balances then leave people with a lower ability to purchase goods and services, therefore the quantity of real output demanded is less.

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

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Question 2

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An expansionary gap that lasts for any significant length of time should put upward pressure on the price level (inflation).An expansionary gap finds the economy producing more than what it would under normal or reasonable conditions.As a result, shortages are likely to result and put upward pressure on input prices as firms compete for scarce inputs.As a result, firms will try to pass these higher costs on to the buyers of their output and to the degree they can, output prices will increase.

Recent policy statements by the FOMC announce and explain its:

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Question 3

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To economists, inflation means all of the following except:

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Question 4

The debate over the causes of recessions in the U.S.in recent years has included arguments about:

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Question 5

Which of the following would not be included in aggregate expenditures?

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Question 6

The fact that central bankers tend to respond to higher rates of inflation by increasing the real interest rate is:

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Question 7

What are the conditions for long-run equilibrium?

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Question 8

If the monetary policy reaction curve were drawn with the nominal interest rate instead of the real interest rate on the vertical axis, would the slope be the same or how would it differ?

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Question 9

If monetary policymakers fear a recession resulting from increased pessimism on the part of business people, and they want to avoid the recession, they would:

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Question 10

Given the equation of exchange, MV = PY, when central bankers control short-term nominal interest rates by adjusting the level of reserves in the banking system, their actions are expected to primarily affect:

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Question 11

Each of the following factors contribute to the slope of the dynamic aggregate demand curve, except the:

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Question 12

The dynamic aggregate demand curve illustrates that the relationship between inflation and real output is:

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Question 13

Rank the components of aggregate demand by their sensitivity to changes in the real interest rate.Start with the most sensitive to the least sensitive.

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Question 14

Which of the following statements is most correct?

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Question 15

The intersection of the aggregate demand curve and the short-run aggregate supply curve determines:

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Question 16

The conditions for long-run equilibrium include each of the following, except:

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Question 17

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

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Question 18

In the long run, if we ignore changes in velocity, inflation will:

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Question 19

The economy is in both a short- and long-run equilibrium if:

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Question 20

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Exam 21: Output, Inflation, and Monetary Policy

Explain why the dynamic aggregate demand curve reflects an inverse relationship between the rate of inflation and real output.Be sure to state any key assumptions.

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

Recent policy statements by the FOMC announce and explain its:

To economists, inflation means all of the following except:

The debate over the causes of recessions in the U.S.in recent years has included arguments about:

Which of the following would not be included in aggregate expenditures?

The fact that central bankers tend to respond to higher rates of inflation by increasing the real interest rate is:

What are the conditions for long-run equilibrium?

If the monetary policy reaction curve were drawn with the nominal interest rate instead of the real interest rate on the vertical axis, would the slope be the same or how would it differ?

If monetary policymakers fear a recession resulting from increased pessimism on the part of business people, and they want to avoid the recession, they would:

Given the equation of exchange, MV = PY, when central bankers control short-term nominal interest rates by adjusting the level of reserves in the banking system, their actions are expected to primarily affect:

Each of the following factors contribute to the slope of the dynamic aggregate demand curve, except the:

The dynamic aggregate demand curve illustrates that the relationship between inflation and real output is:

Rank the components of aggregate demand by their sensitivity to changes in the real interest rate.Start with the most sensitive to the least sensitive.

Which of the following statements is most correct?

The intersection of the aggregate demand curve and the short-run aggregate supply curve determines:

The conditions for long-run equilibrium include each of the following, except:

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

In the long run, if we ignore changes in velocity, inflation will:

The economy is in both a short- and long-run equilibrium if:

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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