Question 1

A 1977 amendment to the Federal Reserve Act of 1913

Accepted Answer

A) requires the Federal Reserve to place more weight on promoting price stability than on promoting maximum employment. 
B) requires the Federal Reserve to place more weight on promoting maximum employment than on promoting price stability. 
C) requires the Federal Reserve to place equal weight on promoting price stability and maximum employment. 
D) says the Federal Reserve should promote price stability and maximum employment,but does not specify how the Federal Reserve should weight these goals. 
A) requires the Federal Reserve to place more weight on promoting price stability than on promoting maximum employment. 
B) requires the Federal Reserve to place more weight on promoting maximum employment than on promoting price stability. 
C) requires the Federal Reserve to place equal weight on promoting price stability and maximum employment. 
D) says the Federal Reserve should promote price stability and maximum employment,but does not specify how the Federal Reserve should weight these goals.

Question 2

If people in countries that have had persistently high inflation are skeptical about efforts to reduce inflation,the short-run Phillips curve will remain far to the

Accepted Answer

A) left,and the sacrifice ratio will be low. 
B) left,and the sacrifice ratio will be high. 
C) right,and the sacrifice ratio will be low. 
D) right,and the sacrifice ratio will be high. 
A) left,and the sacrifice ratio will be low. 
B) left,and the sacrifice ratio will be high. 
C) right,and the sacrifice ratio will be low. 
D) right,and the sacrifice ratio will be high.

Question 3

Assume a central bank follows a rule that requires it to take steps to keep the price level constant.If the price level rose because of an increase in aggregate demand and a decrease in aggregate supply that kept output unchanged,then

Accepted Answer

A) the central bank would have to decrease the money supply which would decrease output. 
B) the central bank would have to decrease the money supply which would increase output. 
C) the central bank would have to increase the money supply which would decrease output. 
D) the central bank would have to increase the money supply which would increase output. 
A) the central bank would have to decrease the money supply which would decrease output. 
B) the central bank would have to decrease the money supply which would increase output. 
C) the central bank would have to increase the money supply which would decrease output. 
D) the central bank would have to increase the money supply which would increase output.

Question 4

Suppose that the central bank is required to follow a monetary policy rule to stabilize prices.If the economy starts at long-run equilibrium and then aggregate supply shifts right,the central bank would have to

Accepted Answer

A) increase the money supply,which causes output to move closer to its long-run equilibrium. 
B) increase the money supply,which causes output to move farther from long-run equilibrium. 
C) decrease the money supply,which causes output to move closer to its long-run equilibrium. 
D) decrease the money supply,which causes output to move farther from long-run equilibrium. 
A) increase the money supply,which causes output to move closer to its long-run equilibrium. 
B) increase the money supply,which causes output to move farther from long-run equilibrium. 
C) decrease the money supply,which causes output to move closer to its long-run equilibrium. 
D) decrease the money supply,which causes output to move farther from long-run equilibrium.

Question 5

Assume a central bank follows a rule that requires it to take steps to keep the price level constant.If the price level fell because of a decrease in aggregate demand and an increase in aggregate supply that kept output unchanged,then

Accepted Answer

A) the central bank would have to raise interest rates which would decrease output. 
B) the central bank would have to raise interest rates which would increase output. 
C) the central bank would have to reduce interest rates which would decrease output. 
D) the central bank would have to reduce interest rates which would increase output. 
A) the central bank would have to raise interest rates which would decrease output. 
B) the central bank would have to raise interest rates which would increase output. 
C) the central bank would have to reduce interest rates which would decrease output. 
D) the central bank would have to reduce interest rates which would increase output.

Question 6

If a central bank had to give up its discretion and follow a rule that required it to keep inflation low,

Accepted Answer

A) the short-run Phillips curve would shift up. 
B) the short-run Phillips curve would shift down. 
C) the long-run Phillips curve would shift right. 
D) the long-run Phillips curve would shift left. 
A) the short-run Phillips curve would shift up. 
B) the short-run Phillips curve would shift down. 
C) the long-run Phillips curve would shift right. 
D) the long-run Phillips curve would shift left.

Question 7

When the Federal Open Market Committee meets it

Accepted Answer

A) looks only at the state of economy to determine how to conduct monetary operations in order to follow the monetary policy rule set by law. 
B) looks at the state of the economy and economic forecasts to determine how to conduct monetary operations in order to follow the monetary policy rule set by law. 
C) looks only at the state of the economy to determine the target it will set for the federal funds rate. 
D) looks at the state of the economy and economic forecasts to determine the target it will set for the federal funds rate. 
A) looks only at the state of economy to determine how to conduct monetary operations in order to follow the monetary policy rule set by law. 
B) looks at the state of the economy and economic forecasts to determine how to conduct monetary operations in order to follow the monetary policy rule set by law. 
C) looks only at the state of the economy to determine the target it will set for the federal funds rate. 
D) looks at the state of the economy and economic forecasts to determine the target it will set for the federal funds rate.

Question 8

The Federal Open Market Committee meets about

Accepted Answer

A) every six days. 
B) every six weeks. 
C) every six months. 
D) every sixteen months. 
A) every six days. 
B) every six weeks. 
C) every six months. 
D) every sixteen months.

Question 9

According to the political business cycle theory,if the Fed wanted to see a President re-elected,prior to the election it might

Accepted Answer

A) buy bonds to raise interest rates. 
B) buy bonds to reduce interest rates. 
C) sell bonds to raise interest rates. 
D) sell bonds to reduce interest rates. 
A) buy bonds to raise interest rates. 
B) buy bonds to reduce interest rates. 
C) sell bonds to raise interest rates. 
D) sell bonds to reduce interest rates.

Question 10

Suppose that the central bank must follow a rule that requires it to increase the money supply when the price level falls and decrease the money supply when the price level rises.If the economy starts from long-run equilibrium and aggregate supply shifts left,the central bank must

Accepted Answer

A) decrease the money supply so interest rates rise. 
B) decrease the money supply so interest rates fall. 
C) increase the money supply so interest rates rise. 
D) increase the money supply so interest rates fall. 
A) decrease the money supply so interest rates rise. 
B) decrease the money supply so interest rates fall. 
C) increase the money supply so interest rates rise. 
D) increase the money supply so interest rates fall.

Question 11

Edward Prescott and Finn Kydland won the Nobel Prize in Economics in 2004.One of their contributions was to argue that if a central bank could convince people to expect zero inflation,then the Fed would be tempted to raise output by increasing inflation.This possibility is known as

Accepted Answer

A) inflation targeting. 
B) the monetary policy reaction lag. 
C) the time inconsistency of policy. 
D) the sacrifice ratio dilemma. 
A) inflation targeting. 
B) the monetary policy reaction lag. 
C) the time inconsistency of policy. 
D) the sacrifice ratio dilemma.

Question 12

Paul Volcker,former chair of the Fed,implemented

Accepted Answer

A) contractionary policy which increased the popularity of the U.S.president who had appointed him. 
B) contractionary policy which decreased the popularity of the U.S.president who had appointed him. 
C) expansionary policy which increased the popularity of the U.S.president who had appointed him. 
D) expansionary policy which decreased the popularity of the U.S.president who had appointed him. 
A) contractionary policy which increased the popularity of the U.S.president who had appointed him. 
B) contractionary policy which decreased the popularity of the U.S.president who had appointed him. 
C) expansionary policy which increased the popularity of the U.S.president who had appointed him. 
D) expansionary policy which decreased the popularity of the U.S.president who had appointed him.

Question 13

Some people believe that monetary policy should be made by rule rather than by discretion.One of their beliefs is that

Accepted Answer

A) setting a policy rule will limit the abuse of power of policymakers. 
B) policymakers can better influence the political business cycle in their favor when following a policy rule. 
C) a policy rule provides policymakers with the greatest flexibility to manage inflation. 
D) if the Fed was required to follow a low-inflation policy,the economy would face a less favorable short-run trade-off between inflation and unemployment. 
A) setting a policy rule will limit the abuse of power of policymakers. 
B) policymakers can better influence the political business cycle in their favor when following a policy rule. 
C) a policy rule provides policymakers with the greatest flexibility to manage inflation. 
D) if the Fed was required to follow a low-inflation policy,the economy would face a less favorable short-run trade-off between inflation and unemployment.

Question 14

If there is a political business cycle and the Federal Reserve supports the incumbent,then we should expect that prior to elections

Accepted Answer

A) interest rates and output would rise. 
B) interest rates would rise and output would fall. 
C) interest rates would fall and output would rise. 
D) interest rates and output would fall. 
A) interest rates and output would rise. 
B) interest rates would rise and output would fall. 
C) interest rates would fall and output would rise. 
D) interest rates and output would fall.

Question 15

Suppose that the central bank must follow a rule that requires it to increase the money supply when the price level falls and decrease the money supply when the price level rises.If the economy starts from long-run equilibrium and aggregate demand shifts right,the central bank must

Accepted Answer

A) decrease the money supply,which will move output back towards its long-run level. 
B) decrease the money supply,which will move output farther from its long-run level. 
C) increase the money supply,which will move output back towards its long-run level. 
D) increase the money supply,which will move output farther from its long-run level. 
A) decrease the money supply,which will move output back towards its long-run level. 
B) decrease the money supply,which will move output farther from its long-run level. 
C) increase the money supply,which will move output back towards its long-run level. 
D) increase the money supply,which will move output farther from its long-run level.

Question 16

If there is a political business cycle and the Federal Reserve supports the incumbent,then we should expect that prior to elections the Fed would

Accepted Answer

A) raise interest rates to shift aggregate demand left. 
B) raise interest rates to shift aggregate demand right. 
C) reduce interest rates to shift aggregate demand left. 
D) reduce interest rates to shift aggregate demand right. 
A) raise interest rates to shift aggregate demand left. 
B) raise interest rates to shift aggregate demand right. 
C) reduce interest rates to shift aggregate demand left. 
D) reduce interest rates to shift aggregate demand right.

Question 17

The time inconsistency of policy implies that

Accepted Answer

A) what policymakers say they will do is generally what they will do,but people don't believe them because of current policy. 
B) when people expect that inflation will be low,it is easier for the Fed to increase output by increasing the money supply. 
C) people will believe Fed policy will be less inflationary than the Fed claims. 
D) what policymakers say they will do is usually not what they do,but people believe them anyway. 
A) what policymakers say they will do is generally what they will do,but people don't believe them because of current policy. 
B) when people expect that inflation will be low,it is easier for the Fed to increase output by increasing the money supply. 
C) people will believe Fed policy will be less inflationary than the Fed claims. 
D) what policymakers say they will do is usually not what they do,but people believe them anyway.

Exam 23: Six Debates Over Macroeconomic Policy: Should Monetary Policy Be Made by Rule Rather Than by Discretion

A 1977 amendment to the Federal Reserve Act of 1913

If people in countries that have had persistently high inflation are skeptical about efforts to reduce inflation,the short-run Phillips curve will remain far to the

Assume a central bank follows a rule that requires it to take steps to keep the price level constant.If the price level rose because of an increase in aggregate demand and a decrease in aggregate supply that kept output unchanged,then

Suppose that the central bank is required to follow a monetary policy rule to stabilize prices.If the economy starts at long-run equilibrium and then aggregate supply shifts right,the central bank would have to

Assume a central bank follows a rule that requires it to take steps to keep the price level constant.If the price level fell because of a decrease in aggregate demand and an increase in aggregate supply that kept output unchanged,then

If a central bank had to give up its discretion and follow a rule that required it to keep inflation low,

When the Federal Open Market Committee meets it

The Federal Open Market Committee meets about

According to the political business cycle theory,if the Fed wanted to see a President re-elected,prior to the election it might

Suppose that the central bank must follow a rule that requires it to increase the money supply when the price level falls and decrease the money supply when the price level rises.If the economy starts from long-run equilibrium and aggregate supply shifts left,the central bank must

Edward Prescott and Finn Kydland won the Nobel Prize in Economics in 2004.One of their contributions was to argue that if a central bank could convince people to expect zero inflation,then the Fed would be tempted to raise output by increasing inflation.This possibility is known as

Paul Volcker,former chair of the Fed,implemented

Some people believe that monetary policy should be made by rule rather than by discretion.One of their beliefs is that

If there is a political business cycle and the Federal Reserve supports the incumbent,then we should expect that prior to elections

Suppose that the central bank must follow a rule that requires it to increase the money supply when the price level falls and decrease the money supply when the price level rises.If the economy starts from long-run equilibrium and aggregate demand shifts right,the central bank must

If there is a political business cycle and the Federal Reserve supports the incumbent,then we should expect that prior to elections the Fed would

The time inconsistency of policy implies that

Ten Principles of Economics

Ten Principles of Economics: How People Make Decisions

Ten Principles of Economics: How People Interact

Ten Principles of Economics: How the Economy As a Whole Works

Ten Principles of Economics: Part A

Ten Principles of Economics: Part B

Thinking Like an Economist

Thinking Like an Economist: The Economist As Scientist

Thinking Like an Economist: The Economist As Policy Adviser

Thinking Like an Economist: Why Economists Disagree

Thinking Like an Economist: Lets Get Going

Thinking Like an Economist: Graphing a Brief Review

Thinking Like an Economist: Part A

Thinking Like an Economist: Part B

Interdependence and the Gains From Trade

Interdependence and the Gains From Trade: A Parable for the Modern Economy

Interdependence and the Gains From Trade: Comparative Advantage the Driving Force of Specialization

Interdependence and the Gains From Trade: Applications of Comparative Advantage

Interdependence and the Gains From Trade: Conclusion

Interdependence and the Gains From Trade: Part A

Interdependence and the Gains From Trade: Part B

The Market Forces of Supply and Demand

The Market Forces of Supply and Demand:Markets and Competition

The Market Forces of Supply and Demand: Demand

The Market Forces of Supply and Demand: Supply

The Market Forces of Supply and Demand: Supply and Demand Together

The Market Forces of Supply and DemandConclusion How Prices Allocate Resources

The Market Forces of Supply and Demand: Part A

The Market Forces of Supply and Demand: Part B

Elasticity and Its Applications

Elasticity and Its Applications: The Elasticity of Demand

Elasticity and Its Applications: The Elasticity of Supply

Elasticity and Its Applications: Three Applications of Supply,demand,and Elasticity

Elasticity and Its Applications: Part A

Elasticity and Its Applications: Part B

Supply Demand and Government Policies

Supply Demand and Government Policies: Controls on Prices

Supply Demand and Government Policies: Taxes

Supply Demand and Government Policies: Part A

Supply Demand and Government Policies: Part B

Consumers Producers and the Efficiency of Markets

Consumers Producers and the Efficiency of Markets: Consumer Surplus

Consumers Producers and the Efficiency of Markets: Producer Surplus

Consumers Producers and the Efficiency of Markets: Market Efficiency

Consumers Producers and the Efficiency of Markets: Conclusion Market Efficiency and Market Failure

Consumers Producers and the Efficiency of Markets: Part A

Consumers Producers and the Efficiency of Markets: Part B

Application the Cost of Taxation

Application the Cost of Taxation: The Deadweight Loss of Taxation

Application the Cost of Taxation: The Determinants of the Deadweight Loss

Application the Cost of Taxation: Deadweight Loss and Tax Revenue As Taxes Vary

Application the Cost of Taxation: Conclusion

Application the Cost of Taxation: Part A

Application the Cost of Taxation: Part B

Application International Trade

Application International Trade: The Determinants of Trade

Application International Trade: The Winners and Losers From Trade

Application International Trade: The Arguments for Restricting Trade

Application International Trade: Conclusion

Application International Trade: Part A

Application International Trade: Part B

Measuring a Nations Income