Exam 18: Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Policy makers have adequate information to know what appropriate monetary policies to adopt.

The interest rate that the Fed currently targets is the federal funds rate.

The supply-of-money curve is almost perfectly inelastic because:

In the long run, inflation results from increases in a nation's money supply that exceed increases in its output of goods and services.

When Fed policy is being used to offset an inflationary gap, which of interest rates, investment, net exports and aggregate demand moves in the opposite direction from the others?​

When the Fed unexpectedly increases the money supply, it will cause an increase in aggregate demand because:​

If M increases faster than V decreases:

During the sixteenth century, Spanish conquistadors like Hernando Cortes overwhelmed the Aztecs and other indigenous peoples in America by pillaging their cities, and taking their gold and silver. The gold and silver was sent back to Spain, causing its money supply to increase tenfold. Assuming V remained stable and Q increased slightly, what do you think happened to prices in Spain during this period?

In the equation of exchange, an increase in M of 8 percent could be accompanied by changes in velocity, the price level and real GDP of:​

If the monetary authorities persistently expand the money supply at a rapid rate, the probable result will be:​

The Fed sometimes works to partly offset or even neutralize the effects of fiscal policy with monetary policy

What effects does operating in an open economy add to expansionary monetary policy? To contractionary monetary policy?​

If there is currently a recessionary gap in the economy the Fed could work toward recovery by increasing the money supply and decreasing the interest rate.

When the Fed is pursuing expansionary monetary policy it will tend to reduce the demand for the dollar and increase net exports, other things equal.​

If the demand for money increases, but the Fed keeps the money supply the same:

The Fed would engage in ____ it wanted to address an inflationary gap.

Based on the situation depicted in the graph below, which of the following would be an appropriate monetary policy response?​

The steeper the short-run aggregate supply curve over the relevant range, the more contractionary monetary policy will reduce prices and the less it will decrease real output.

An expansionary monetary policy is likely to increase real output more than just temporarily:​

When the money supply decreases, other things being equal,​