Question 1

A negative real shock is often amplified,creating short-run aggregate supply and aggregate demand shocks due to:

Accepted Answer

A)  sticky wages and flexible prices. 
B)  flexible wages and sticky prices. 
C)  sticky wages and prices. 
D)  flexible wages and prices. 
A)  sticky wages and flexible prices. 
B)  flexible wages and sticky prices. 
C)  sticky wages and prices. 
D)  flexible wages and prices.

Question 2

A decrease in the price level is called:

Accepted Answer

A)  reversing course. 
B)  Volcker's regret. 
C)  disinflation. 
D)  deflation. 
A)  reversing course. 
B)  Volcker's regret. 
C)  disinflation. 
D)  deflation.

Question 3

It is easier for a central bank to stabilize both inflation and real growth following an aggregate demand shock than following a real shock.

Accepted Answer

A) True 
 B)False

Question 4

Use the following to answer questions  
Figure: Negative Supply Shock  
-(Figure: Negative Supply Shock)Refer to the figure.This economy initially begins at point A and a negative supply shock takes it to point Y.If the Fed reacts by increasing money growth by 3%,this would take the economy to:

Accepted Answer

A)  point A. 
B)  point B. 
C)  point X. 
D)  point V. 
A)  point A. 
B)  point B. 
C)  point X. 
D)  point V.

Question 5

The recession that began in 2001 was:

Accepted Answer

A)  long and deep. 
B)  short,but very deep. 
C)  mild and had little effect on unemployment. 
D)  mild and didn't last long,but employment never recovered. 
A)  long and deep. 
B)  short,but very deep. 
C)  mild and had little effect on unemployment. 
D)  mild and didn't last long,but employment never recovered.

Question 6

A nominal GDP rule requires the Fed to adjust money growth enough to offset changes in velocity.

Accepted Answer

A) True 
 B)False

Question 7

To offset the effect of negative growth in money velocity ( $\vec { v }$ ),the central bank should:

Accepted Answer

A)  decrease the growth rate of the money supply. 
B)  increase the growth rate of the money supply. 
C)  apply a policy that stabilizes the growth in money velocity. 
D)  apply a policy that reduces the growth in money velocity. 
A)  decrease the growth rate of the money supply. 
B)  increase the growth rate of the money supply. 
C)  apply a policy that stabilizes the growth in money velocity. 
D)  apply a policy that reduces the growth in money velocity.

Question 8

A reduction in the rate of inflation is called:

Accepted Answer

A)  reversing course. 
B)  Volcker's regret. 
C)  disinflation. 
D)  deflation. 
A)  reversing course. 
B)  Volcker's regret. 
C)  disinflation. 
D)  deflation.

Question 9

In a worst-case scenario,the Federal Reserve is least successful at counteracting a negative:

Accepted Answer

A)  AD shock. 
B)  real shock. 
C)  velocity shock. 
D)  spending shock. 
A)  AD shock. 
B)  real shock. 
C)  velocity shock. 
D)  spending shock.

Question 10

Because the Fed can easily provide too much or too little response to economic shocks,many economists advocate:

Accepted Answer

A)  policy discretion. 
B)  policy rules. 
C)  no response to any shock. 
D)  a wait-and-see policy. 
A)  policy discretion. 
B)  policy rules. 
C)  no response to any shock. 
D)  a wait-and-see policy.

Question 11

A reduction in the rate of inflation is called:

Accepted Answer

A)  deflation. 
B)  disinflation. 
C)  stagflation. 
D)  devaluation. 
A)  deflation. 
B)  disinflation. 
C)  stagflation. 
D)  devaluation.

Question 12

When uncertainty causes a delay in investment activity,it leads to a:

Accepted Answer

A)  scarcity of information. 
B)  delay in action by the Fed. 
C)  coordination failure. 
D)  bandwagon effect. 
A)  scarcity of information. 
B)  delay in action by the Fed. 
C)  coordination failure. 
D)  bandwagon effect.

Question 13

One reason the Fed has difficulty adjusting to a decrease in aggregate demand is that it must spend time persuading politicians to agree to its actions.

Accepted Answer

A) True 
 B)False

Question 14

Economists who think that the Fed is likely to make a lot of mistakes believe that the Fed is best advised to:

Accepted Answer

A)  adjust to every aggregate supply shock. 
B)  adjust to every aggregate demand shock. 
C)  follow a consistent policy. 
D)  follow a discretionary policy. 
A)  adjust to every aggregate supply shock. 
B)  adjust to every aggregate demand shock. 
C)  follow a consistent policy. 
D)  follow a discretionary policy.

Question 15

When the Fed increases the money supply to counteract a negative real shock:

Accepted Answer

A)  growth usually returns to the level it was before the shock. 
B)  half of the increase is seen in growth and half in inflation. 
C)  inflation increases a lot and growth increases a little. 
D)  growth remains stuck at the level of the negative real shock. 
A)  growth usually returns to the level it was before the shock. 
B)  half of the increase is seen in growth and half in inflation. 
C)  inflation increases a lot and growth increases a little. 
D)  growth remains stuck at the level of the negative real shock.

Question 16

What is the appropriate monetary policy in response to a positive demand shock that leaves the economy operating above its long-run potential growth rate?

Accepted Answer

The appropriate policy is a decrease in

Question 17

The Federal Reserve can offset a negative shock to aggregate demand with a decrease in the money growth rate.

Accepted Answer

A) True 
 B)False

Question 18

The bandwagon effect causes investment to be:

Accepted Answer

A)  evenly distributed over time. 
B)  unevenly distributed over time. 
C)  more responsive to monetary policy changes during recessions. 
D)  more responsive to monetary policy changes during expansions. 
A)  evenly distributed over time. 
B)  unevenly distributed over time. 
C)  more responsive to monetary policy changes during recessions. 
D)  more responsive to monetary policy changes during expansions.

Question 19

Explain why the Federal Reserve did not reduce the growth rate of the money supply in response to rising oil prices in 2007 and 2008.

Accepted Answer

Rising oil prices are a negative real sh

Question 20

Which is a limitation of monetary policy in stabilizing the economy?

Accepted Answer

A)  Central banks have too much control over the money supply. 
B)  Most central bank policymakers are controlled by the government. 
C)  Monetary policy is subject to uncertain lags. 
D)  Central banks have no discretion over policy tools. 
A)  Central banks have too much control over the money supply. 
B)  Most central bank policymakers are controlled by the government. 
C)  Monetary policy is subject to uncertain lags. 
D)  Central banks have no discretion over policy tools.

Exam 16: Monetary Policy

A negative real shock is often amplified,creating short-run aggregate supply and aggregate demand shocks due to:

A decrease in the price level is called:

It is easier for a central bank to stabilize both inflation and real growth following an aggregate demand shock than following a real shock.

Use the following to answer questions Figure: Negative Supply Shock -(Figure: Negative Supply Shock)Refer to the figure.This economy initially begins at point A and a negative supply shock takes it to point Y.If the Fed reacts by increasing money growth by 3%,this would take the economy to:

The recession that began in 2001 was:

A nominal GDP rule requires the Fed to adjust money growth enough to offset changes in velocity.

To offset the effect of negative growth in money velocity ( v⃗\vec { v }v ),the central bank should:

A reduction in the rate of inflation is called:

In a worst-case scenario,the Federal Reserve is least successful at counteracting a negative:

Because the Fed can easily provide too much or too little response to economic shocks,many economists advocate:

A reduction in the rate of inflation is called:

When uncertainty causes a delay in investment activity,it leads to a:

One reason the Fed has difficulty adjusting to a decrease in aggregate demand is that it must spend time persuading politicians to agree to its actions.

Economists who think that the Fed is likely to make a lot of mistakes believe that the Fed is best advised to:

When the Fed increases the money supply to counteract a negative real shock:

What is the appropriate monetary policy in response to a positive demand shock that leaves the economy operating above its long-run potential growth rate?

The Federal Reserve can offset a negative shock to aggregate demand with a decrease in the money growth rate.

The bandwagon effect causes investment to be:

Explain why the Federal Reserve did not reduce the growth rate of the money supply in response to rising oil prices in 2007 and 2008.

Which is a limitation of monetary policy in stabilizing the economy?

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

To offset the effect of negative growth in money velocity ( $\vec { v }$ ),the central bank should: