Question 1

The Fed can only boost market confidence if its policy is credible.

Accepted Answer

A) True 
 B)False

Question 2

Suppose the central bank targets a low rate of unemployment.If a negative real shock occurs,the real growth rate will be:

Accepted Answer

A)  higher if the central bank counters the shock than if it does not react. 
B)  lower if the central bank counters the shock than if it does not react. 
C)  the same whether the central bank counters the shock or not. 
D)  higher or lower if the central bank counters the shock than if it does not react,depending on people's expectations. 
A)  higher if the central bank counters the shock than if it does not react. 
B)  lower if the central bank counters the shock than if it does not react. 
C)  the same whether the central bank counters the shock or not. 
D)  higher or lower if the central bank counters the shock than if it does not react,depending on people's expectations.

Question 3

Disinflation in the 1980s would have been shorter if:

Accepted Answer

A)  the Fed had more discretionary actions. 
B)  monetary policy had been more credible. 
C)  prices had been stickier. 
D)  the economy had been hit by more real shocks. 
A)  the Fed had more discretionary actions. 
B)  monetary policy had been more credible. 
C)  prices had been stickier. 
D)  the economy had been hit by more real shocks.

Question 4

If the Fed overreacts to a negative spending shock by increasing money growth too much:

Accepted Answer

A)  both real GDP growth and inflation will decrease more than the Fed prefers. 
B)  both real GDP growth and inflation will increase more than the Fed prefers. 
C)  real GDP growth will increase more and inflation will increase less than the Fed prefers. 
D)  real GDP growth will increase less and inflation will increase more than the Fed prefers. 
A)  both real GDP growth and inflation will decrease more than the Fed prefers. 
B)  both real GDP growth and inflation will increase more than the Fed prefers. 
C)  real GDP growth will increase more and inflation will increase less than the Fed prefers. 
D)  real GDP growth will increase less and inflation will increase more than the Fed prefers.

Question 5

Disinflation is:

Accepted Answer

A)  a decrease in prices;that is,a negative inflation rate. 
B)  a reduction in the rate of inflation. 
C)  an increase in prices. 
D)  an increase in the rate of inflation. 
A)  a decrease in prices;that is,a negative inflation rate. 
B)  a reduction in the rate of inflation. 
C)  an increase in prices. 
D)  an increase in the rate of inflation.

Question 6

_____ and _____ are some of the most important aggregate demand shifters,and _____ is one of the Federal Reserve's most powerful tools.

Accepted Answer

A)  Money;resources;the money supply 
B)  Fear;confidence;market confidence 
C)  Interest rate;exchange rate;currency control 
D)  Exports;imports;the exchange rate 
A)  Money;resources;the money supply 
B)  Fear;confidence;market confidence 
C)  Interest rate;exchange rate;currency control 
D)  Exports;imports;the exchange rate

Question 7

A negative shock to AD will cause the inflation rate to increase in:

Accepted Answer

A)  the short run only. 
B)  the long run only. 
C)  both the short run and the long run. 
D)  neither the short run nor the long run. 
A)  the short run only. 
B)  the long run only. 
C)  both the short run and the long run. 
D)  neither the short run nor the long run.

Question 8

What do many economists think contributed to the greater than 13% inflation rates experienced by the United States in the 1980s?

Accepted Answer

A)  The Fed was inflexible in its rule of 3% growth. 
B)  The Fed did not do enough to increase money supply. 
C)  The Fed overstimulated the economy with too much money in the 1970s. 
D)  The Fed did not react to the oil shocks of the 1970s. 
A)  The Fed was inflexible in its rule of 3% growth. 
B)  The Fed did not do enough to increase money supply. 
C)  The Fed overstimulated the economy with too much money in the 1970s. 
D)  The Fed did not react to the oil shocks of the 1970s.

Question 9

In practice,the Fed has been able to totally offset all spending shocks by changing the growth rate of the money supply.

Accepted Answer

A) True 
 B)False

Question 10

If the Federal Reserve responds to shocks too often in the wrong direction or with the wrong strength,GDP will increase rather than decrease.

Accepted Answer

A) True 
 B)False

Question 11

In case of a major oil shock,a central bank can achieve low inflation and unemployment by applying discretionary monetary policy actions.

Accepted Answer

A) True 
 B)False

Question 12

Disinflation is more painful when the central bank:

Accepted Answer

A)  increases the rate of inflation. 
B)  runs out of money. 
C)  is credible. 
D)  is not credible. 
A)  increases the rate of inflation. 
B)  runs out of money. 
C)  is credible. 
D)  is not credible.

Question 13

What is a "disinflation" policy? What dilemma does it present for the Fed?

Accepted Answer

A disinflation policy is a policy to red

Question 14

Monetary authorities in a country face the following situation: Consumers are not spending,investment is low,and unemployment is relatively high.Explain how monetary policy could work to improve this situation.

Accepted Answer

Unemployment and low aggregate demand ar

Question 15

When a negative real shock hits the economy,in the absence of any monetary intervention:

Accepted Answer

A)  both inflation and real growth will decrease. 
B)  inflation increases,but real growth decreases. 
C)  inflation decreases,but real growth increases. 
D)  both inflation and real growth will increase. 
A)  both inflation and real growth will decrease. 
B)  inflation increases,but real growth decreases. 
C)  inflation decreases,but real growth increases. 
D)  both inflation and real growth will increase.

Question 16

If the Fed sets a target rate of inflation below 4%,it is an example of the Fed using:

Accepted Answer

A)  a monetary policy rule. 
B)  discretion. 
C)  unofficial influence. 
D)  the bully pulpit. 
A)  a monetary policy rule. 
B)  discretion. 
C)  unofficial influence. 
D)  the bully pulpit.

Question 17

An increase in the money supply typically affects the economy with a lag that varies in time from:

Accepted Answer

A)  1 to 2 months. 
B)  3 to 6 months. 
C)  6 to 18 months. 
D)  18 to 36 months. 
A)  1 to 2 months. 
B)  3 to 6 months. 
C)  6 to 18 months. 
D)  18 to 36 months.

Question 18

_____ is a significant reduction in the rate of inflation,while _____ is a reduction in the level of prices.

Accepted Answer

A)  Stagflation;deflation 
B)  Disinflation;stagflation 
C)  Deflation;disinflation 
D)  Disinflation;deflation 
A)  Stagflation;deflation 
B)  Disinflation;stagflation 
C)  Deflation;disinflation 
D)  Disinflation;deflation

Question 19

If a real economic shock shifts the LRAS curve to the left,which of the following will NOT further reduce real GDP growth and inflation?

Accepted Answer

A)  a decrease in money growth 
B)  uncertainty that reduces consumption 
C)  a monetary policy rule that is credible 
D)  loss of market confidence about the power of monetary policy 
A)  a decrease in money growth 
B)  uncertainty that reduces consumption 
C)  a monetary policy rule that is credible 
D)  loss of market confidence about the power of monetary policy

Question 20

Which BEST describes U.S.economic conditions in the 1980s?

Accepted Answer

A)  Deflation occurred because the Fed reacted too much to AD shocks. 
B)  High inflation occurred because the Fed reacted too little to AD shocks. 
C)  High real growth occurred because of the deliberate actions of the Fed. 
D)  Disinflation occurred because of the deliberate actions of the Fed. 
A)  Deflation occurred because the Fed reacted too much to AD shocks. 
B)  High inflation occurred because the Fed reacted too little to AD shocks. 
C)  High real growth occurred because of the deliberate actions of the Fed. 
D)  Disinflation occurred because of the deliberate actions of the Fed.

Exam 16: Monetary Policy

The Fed can only boost market confidence if its policy is credible.

Suppose the central bank targets a low rate of unemployment.If a negative real shock occurs,the real growth rate will be:

Disinflation in the 1980s would have been shorter if:

If the Fed overreacts to a negative spending shock by increasing money growth too much:

Disinflation is:

_____ and _____ are some of the most important aggregate demand shifters,and _____ is one of the Federal Reserve's most powerful tools.

A negative shock to AD will cause the inflation rate to increase in:

What do many economists think contributed to the greater than 13% inflation rates experienced by the United States in the 1980s?

In practice,the Fed has been able to totally offset all spending shocks by changing the growth rate of the money supply.

If the Federal Reserve responds to shocks too often in the wrong direction or with the wrong strength,GDP will increase rather than decrease.

In case of a major oil shock,a central bank can achieve low inflation and unemployment by applying discretionary monetary policy actions.

Disinflation is more painful when the central bank:

What is a "disinflation" policy? What dilemma does it present for the Fed?

Monetary authorities in a country face the following situation: Consumers are not spending,investment is low,and unemployment is relatively high.Explain how monetary policy could work to improve this situation.

When a negative real shock hits the economy,in the absence of any monetary intervention:

If the Fed sets a target rate of inflation below 4%,it is an example of the Fed using:

An increase in the money supply typically affects the economy with a lag that varies in time from:

_____ is a significant reduction in the rate of inflation,while _____ is a reduction in the level of prices.

If a real economic shock shifts the LRAS curve to the left,which of the following will NOT further reduce real GDP growth and inflation?

Which BEST describes U.S.economic conditions in the 1980s?

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

___ and _ are some of the most important aggregate demand shifters,and ___ is one of the Federal Reserve's most powerful tools.

_ is a significant reduction in the rate of inflation,while _ is a reduction in the level of prices.