Question 1

Monetary policy works best to counteract:

Accepted Answer

A)  negative aggregate demand shocks. 
B)  negative supply shocks. 
C)  positive supply shocks. 
D)  LRAS shocks. 
A)  negative aggregate demand shocks. 
B)  negative supply shocks. 
C)  positive supply shocks. 
D)  LRAS shocks.

Question 2

Explain the role of "expectations" and "credibility" in monetary policy when the policy goal is fighting inflation and keeping it low.

Accepted Answer

Expectations are important because an in

Question 3

In the face of a negative shock to consumer confidence,politicians are on the fence about whether to implement policies based on the advice of economists or to make decisions on the basis of Tarot card readings.What would happen during the period in which they are making up their minds about which strategy to pursue?

Accepted Answer

A) 
$\vec { v }$ would rise 
B) 
$\vec { v }$ would fall 
C) 
$\vec { Y } _ { R }$ would rise 
D) 
$\vec{ P }$ would rise 
A) 
$\vec { v }$ would rise 
B) 
$\vec { v }$ would fall 
C) 
$\vec { Y } _ { R }$ would rise 
D) 
$\vec{ P }$ would rise

Question 4

A negative real shock causes the economy's:

Accepted Answer

A)  AD and SRAS curves to shift inward. 
B)  AD and LRAS curves to shift inward. 
C)  SRAS and LRAS curves to shift inward. 
D)  AD curve only to shift inward. 
A)  AD and SRAS curves to shift inward. 
B)  AD and LRAS curves to shift inward. 
C)  SRAS and LRAS curves to shift inward. 
D)  AD curve only to shift inward.

Question 5

If the economy is hit by a negative real shock that reduces real GDP growth below its long-run potential rate,which of the following is the appropriate monetary policy to move real GDP growth back to the long-run rate without raising inflation?

Accepted Answer

A)  Increase the growth rate of the money supply. 
B)  Decrease the growth rate of the money supply. 
C)  Keep the growth rate of the money supply constant while lowering interest rates. 
D)  No monetary policy can achieve this goal. 
A)  Increase the growth rate of the money supply. 
B)  Decrease the growth rate of the money supply. 
C)  Keep the growth rate of the money supply constant while lowering interest rates. 
D)  No monetary policy can achieve this goal.

Question 6

Monetary policy is a _____ means of popping a bubble,because monetary policy _____ push down the price of specific commodities.

Accepted Answer

A)  good;can 
B)  good;can't 
C)  crude;can 
D)  crude;can't 
A)  good;can 
B)  good;can't 
C)  crude;can 
D)  crude;can't

Question 7

Briefly explain why the Fed is not very effective when a negative real shock occurs.

Accepted Answer

A negative real shock raises inflation a

Question 8

Use the following to answer questions 50-54:
Figure: Monetary Policy and Demand Shocks  
-(Figure: Monetary Policy and Demand Shocks)Refer to the figure.In the figure,assume the initial real growth rate of the economy is 3% when a negative aggregate demand shock shifts the AD curve from AD1 to AD2.As a result of the Fed's policy response,the AD curve shifts to AD5 in the short run.Which of the following is TRUE about the Fed's policy response?

Accepted Answer

A)  The Fed responded too little to the shock. 
B)  The Fed responded too much to the shock. 
C)  The Fed provided just the right amount of response to the shock. 
D)  The Fed was too fast in responding to the shock. 
A)  The Fed responded too little to the shock. 
B)  The Fed responded too much to the shock. 
C)  The Fed provided just the right amount of response to the shock. 
D)  The Fed was too fast in responding to the shock.

Question 9

Explain carefully why monetary policy deals more successfully with aggregate demand shocks than real shocks.

Accepted Answer

Monetary policy affects the economy by s

Question 10

The economy's SRAS curve is:

Accepted Answer

A)  upward sloping. 
B)  downward sloping. 
C)  vertical. 
D)  horizontal. 
A)  upward sloping. 
B)  downward sloping. 
C)  vertical. 
D)  horizontal.

Question 11

Suppose the Fed reacts to an economic shock and quickly restores the economy to its long-run potential growth rate.It is most likely that this shock was:

Accepted Answer

A)  an aggregate demand shock. 
B)  a real shock. 
C)  a productivity shock. 
D)  a supply shock. 
A)  an aggregate demand shock. 
B)  a real shock. 
C)  a productivity shock. 
D)  a supply shock.

Question 12

According to Milton Friedman,if the economy's long-run growth rate is 3%,then the Fed should set the annual money growth rate at:

Accepted Answer

A)  3%. 
B)  less than 3%. 
C)  more than 3%. 
D)  3% plus or minus an amount to compensate for any shocks. 
A)  3%. 
B)  less than 3%. 
C)  more than 3%. 
D)  3% plus or minus an amount to compensate for any shocks.

Question 13

If the Fed attempts to pop a bubble on a boom such as housing,what sector of the economy is it most sure of having the ability to influence?

Accepted Answer

A)  residential real estate 
B)  residential and commercial real estate 
C)  the GDP of the broader economy 
D)  consumer spending in general 
A)  residential real estate 
B)  residential and commercial real estate 
C)  the GDP of the broader economy 
D)  consumer spending in general

Question 14

The Fed boosts market confidence by stabilizing AD in times of uncertainty.

Accepted Answer

A) True 
 B)False

Question 15

In the long run,a negative real shock will cause the inflation rate to:

Accepted Answer

A)  increase. 
B)  decrease. 
C)  remain unchanged. 
D)  become more difficult to predict. 
A)  increase. 
B)  decrease. 
C)  remain unchanged. 
D)  become more difficult to predict.

Question 16

Monetary policy is more effective in changing real GDP growth if the policy is more credible.

Accepted Answer

A) True 
 B)False

Question 17

The Federal Reserve must operate in real time even though a lot of the data about the state of the economy are unknown.

Accepted Answer

A) True 
 B)False

Question 18

Disinflation occurs when the Fed:

Accepted Answer

A)  raises the growth rate of the money supply. 
B)  reduces the growth rate of the money supply. 
C)  sets the money supply growth rate above the inflation rate. 
D)  does nothing when a shock occurs. 
A)  raises the growth rate of the money supply. 
B)  reduces the growth rate of the money supply. 
C)  sets the money supply growth rate above the inflation rate. 
D)  does nothing when a shock occurs.

Question 19

Monetary policy is:

Accepted Answer

A)  equally effective in dealing with real shocks and aggregate demand shocks. 
B)  more effective in dealing with real shocks than with aggregate demand shocks. 
C)  less effective in dealing with real shocks than with aggregate demand shocks. 
D)  totally ineffective in dealing with real shocks and aggregate demand shocks. 
A)  equally effective in dealing with real shocks and aggregate demand shocks. 
B)  more effective in dealing with real shocks than with aggregate demand shocks. 
C)  less effective in dealing with real shocks than with aggregate demand shocks. 
D)  totally ineffective in dealing with real shocks and aggregate demand shocks.

Question 20

In the case of a negative shock to aggregate demand,the central bank should:

Accepted Answer

A)  decrease the rate of growth of the money supply to control inflation. 
B)  increase the rate of growth of the money supply to restore spending growth. 
C)  decrease the rate of growth of the price level to keep real growth high. 
D)  do nothing. 
A)  decrease the rate of growth of the money supply to control inflation. 
B)  increase the rate of growth of the money supply to restore spending growth. 
C)  decrease the rate of growth of the price level to keep real growth high. 
D)  do nothing.

Monetary policy works best to counteract:

Explain the role of "expectations" and "credibility" in monetary policy when the policy goal is fighting inflation and keeping it low.

A negative real shock causes the economy's:

If the economy is hit by a negative real shock that reduces real GDP growth below its long-run potential rate,which of the following is the appropriate monetary policy to move real GDP growth back to the long-run rate without raising inflation?

Monetary policy is a _ means of popping a bubble,because monetary policy _ push down the price of specific commodities.

Briefly explain why the Fed is not very effective when a negative real shock occurs.

Explain carefully why monetary policy deals more successfully with aggregate demand shocks than real shocks.

The economy's SRAS curve is:

Suppose the Fed reacts to an economic shock and quickly restores the economy to its long-run potential growth rate.It is most likely that this shock was:

According to Milton Friedman,if the economy's long-run growth rate is 3%,then the Fed should set the annual money growth rate at:

If the Fed attempts to pop a bubble on a boom such as housing,what sector of the economy is it most sure of having the ability to influence?

The Fed boosts market confidence by stabilizing AD in times of uncertainty.

In the long run,a negative real shock will cause the inflation rate to:

Monetary policy is more effective in changing real GDP growth if the policy is more credible.

The Federal Reserve must operate in real time even though a lot of the data about the state of the economy are unknown.

Disinflation occurs when the Fed:

Monetary policy is:

In the case of a negative shock to aggregate demand,the central bank should:

The Big Ideas

The Power of Trade

Supply and Demand

Equilibrium- How Supply and Demand

Price Ceilings and Floors

GDP and the Measurement of Progress

The Wealth of Nations and Economic Growth

Growth,capital Accumulation

Saving,investment,and the Financial System

Stock Markets and Personal Finance

Unemployment and Labor Force Participation

Inflation and the Quantity Theory of Money

Business Fluctuations

Transmission and Amplification Mechanisms

The Federal Reserve System

The Federal Budget- Taxes and Spending

Fiscal Policy

International Trade

International Finance

Political Economy and Public Choice

Filters

Exam 16: Monetary Policy

Monetary policy works best to counteract:

Explain the role of "expectations" and "credibility" in monetary policy when the policy goal is fighting inflation and keeping it low.

A negative real shock causes the economy's:

If the economy is hit by a negative real shock that reduces real GDP growth below its long-run potential rate,which of the following is the appropriate monetary policy to move real GDP growth back to the long-run rate without raising inflation?

Monetary policy is a _____ means of popping a bubble,because monetary policy _____ push down the price of specific commodities.

Briefly explain why the Fed is not very effective when a negative real shock occurs.

Explain carefully why monetary policy deals more successfully with aggregate demand shocks than real shocks.

The economy's SRAS curve is:

Suppose the Fed reacts to an economic shock and quickly restores the economy to its long-run potential growth rate.It is most likely that this shock was:

According to Milton Friedman,if the economy's long-run growth rate is 3%,then the Fed should set the annual money growth rate at:

If the Fed attempts to pop a bubble on a boom such as housing,what sector of the economy is it most sure of having the ability to influence?

The Fed boosts market confidence by stabilizing AD in times of uncertainty.

In the long run,a negative real shock will cause the inflation rate to:

Monetary policy is more effective in changing real GDP growth if the policy is more credible.

The Federal Reserve must operate in real time even though a lot of the data about the state of the economy are unknown.

Disinflation occurs when the Fed:

Monetary policy is:

In the case of a negative shock to aggregate demand,the central bank should:

The Big Ideas

The Power of Trade

Supply and Demand

Equilibrium- How Supply and Demand

Price Ceilings and Floors

GDP and the Measurement of Progress

The Wealth of Nations and Economic Growth

Growth,capital Accumulation

Saving,investment,and the Financial System

Stock Markets and Personal Finance

Unemployment and Labor Force Participation

Inflation and the Quantity Theory of Money

Business Fluctuations

Transmission and Amplification Mechanisms

The Federal Reserve System

The Federal Budget- Taxes and Spending

Fiscal Policy

International Trade

International Finance

Political Economy and Public Choice

Filters

Monetary policy is a _ means of popping a bubble,because monetary policy _ push down the price of specific commodities.