Question 1

Refer to the following figure when answering the following questions.
Figure 12.11: Change in Inflation by Month  
-Consider Figure 12.11. You are Federal Reserve chairman Volcker and today's date is mid-1977. You suggest the appropriate policy would be to ________. You reevaluate your policy in mid-1979 and conclude that you ________; using the Phillips curve, you see the country is now in ________.

Accepted Answer

A)   lower taxes; failed to tame inflation; debt
B)   lower interest rates; failed at taming inflation; a recession
C)   raise interest rates; failed at taming inflation; expansion
D)   raise interest rates; succeeded in taming inflation; a recession
E)   raise taxes; succeeded in taming inflation; debtF) B) and E)
G) A) and C)

Question 2

Refer to the following figure when answering the following questions.
Figure 12.10: Output Gap: 1990-2000  
-Consider Figure 12.10, which shows the output gap  from 1990 to 2000, by quarter. If this is all the information you have, during the period 1993.1-1993.4, from the Phillips curve, you would conclude that:

Accepted Answer

A) inflation is decelerating, Δ\DeltaΔ π\piπ<\lt< 0. B) inflation is accelerating, Δ\DeltaΔ π\piπ>\gt> 0. C) unemployment is falling. D) unemployment is rising. E) Not enough information is given. F) All of the above G) D) and E)

Question 3

"Adaptive expectations" implies that firms adjust their inflation expectations immediately.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is the mission of the Federal Reserve Bank?
i. Preserve price stability
ii. Foster economic growth and employment
iii. Ensure taxes are fair

Accepted Answer

A)   i only
B)   ii only
C)   iii only
D)   i and ii
E)   i and iiiF) A) and E)
G) A) and C)

Question 5

Refer to the following figure when answering the following questions.
Figure 12.2: IS-MP Curve 
-Consider Figure 12.2. If the stock market drops sharply, there is a loss in consumer and investor confidence and the economy moves from point ________. To prevent a ________, the Fed ________, and the economy moves from point ________.

Accepted Answer

A)   a to d; recession; lowers interest rates; d to b
B)   d to c; recession; lowers interest rates; c to b
C)   c to b; bubble; raises interest rates; b to c
D)   a to d; recession; lowers interest rates; d to c
E)   Not enough information is given.F) A) and E)
G) A) and C)

Question 6

The most immediate and visible form of inflation shock is:

Accepted Answer

A)   the real wage.
B)   the price of corn.
C)   the price of oil.
D)   growth in the stock market.
E)   bond prices.F) A) and E)
G) A) and D)

Question 7

When economists say "sticky inflation," they mean:

Accepted Answer

A)   inflation does not immediately react to changes in monetary policy.
B)   inflation adjusts quickly.
C)   inflation does not react directly to changes in fiscal policy.
D)   taxes do not react to changes in prices.
E)   inflation never responds to monetary policy.F) A) and B)
G) None of the above

Question 8

In most advanced economies, central banks target ________ to conduct monetary policy.

Accepted Answer

A)   tax rates
B)   the money supply
C)   interest rates
D)   government debt
E)   exchange ratesF) B) and E)
G) A) and B)

Question 9

If the central bank targets the interest rate, the money:

Accepted Answer

A)   demand curve is flat.
B)   supply curve is vertical.
C)   supply curve slopes upward.
D)   supply curve is flat.
E)   demand curve is vertical.F) B) and D)
G) A) and B)

Question 10

With adaptive expectations, the Phillips curve can be written as:

Accepted Answer

A)    .
B)    .
C)    .
D)    .
E)    .F) A) and E)
G) B) and E)

Question 11

The link between real and nominal interest rates is summarized in:

Accepted Answer

A)   the MP curve.
B)   the Phillips curve.
C)   Okun's law.
D)   the Fisher equation.
E)   Jones's equality.F) B) and E)
G) C) and D)

Question 12

Refer to the following figure when answering the following questions.
Figure 12.2: IS-MP Curve 
-Consider Figure 12.2. If the Fed lowers interest rates and there are no aggregate demand shocks, the economy moves from point ________ to ________.

Accepted Answer

A)   e; b
B)   d; c
C)   d; a
D)   e; d
E)   Not enough information is given.F) C) and E)
G) A) and C)

Question 13

Refer to the following figure when answering the following questions.
Figure 12.12: Money Market 
-Starting at any equilibrium in Figure 12.12, if the Fed loosens money, the money market would move from point:

Accepted Answer

A)   A to B.
B)   A to D.
C)   B to D.
D)   C to A.
E)   Not enough information is given.F) C) and D)
G) B) and D)

Question 14

The federal funds rate is:

Accepted Answer

A)   equal to the rate of inflation.
B)   the interest rate at which banks borrow from the Federal Reserve.
C)   the interest rate at which banks borrow from and loan to each other overnight.
D)   an interest rate that is some fixed amount above the prime lending rate.
E)   the return to stock markets over the long term.F) A) and B)
G) C) and E)

Question 15

Which of the following is the mission of the Federal Reserve Bank?
i. Preserve price stability
ii. Foster stable fiscal policy
iii. Ensure taxes are fair

Accepted Answer

A)   ii only
B)   i only
C)   iii only
D)   i and ii
E)   i and iiiF) B) and C)
G) A) and D)

Question 16

When the Federal Reserve increases the interest rate, the MP curve shifts up and potential output falls.

Accepted Answer

A) True 
 B)False

Question 17

You have been asked to spend a week or so as the Fed chairman. It will turn out to be a very interesting week. If your goal is to stabilize inflation and economic activity, what would be your response to the following three events? Consider each event individually, independent from the others:
(a) a rapid rise in the stock markets rapidly increases people's wealth;
(b) Chilean citizens get a sudden taste for Buffalo hot wings (they must be made in Buffalo); and
(c) firms begin to grow anxious about the decline in consumer confidence.

Accepted Answer

(a) This would be a positive demand shoc...

Question 18

The term structure of interest rates is a way of looking at bond rates with different maturity periods.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following scenarios best describes the short-run model?

Accepted Answer

A)   
B)   
C)   
D)   
E)   None of these answers is correct.F) B) and C)
G) C) and D)

Question 20

What is the main policy tool available to the Federal Reserve?

Accepted Answer

A)   the discount rate
B)   the federal funds rate
C)   government expenditures
D)   printing money
E)   taxesF) A) and E)
G) D) and E)

Exam 12: Monetary Policy and the Phillips Curve

Refer to the following figure when answering the following questions. Figure 12.2: IS-MP Curve -Consider Figure 12.2. If the stock market drops sharply, there is a loss in consumer and investor confidence and the economy moves from point . To prevent a , the Fed , and the economy moves from point .

Correct Answer
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Which of the following is the mission of the Federal Reserve Bank? i. Preserve price stability ii. Foster stable fiscal policy iii. Ensure taxes are fair

Correct Answer
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Correct Answer
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Correct Answer
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"Adaptive expectations" implies that firms adjust their inflation expectations immediately.

Correct Answer
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When economists say "sticky inflation," they mean:

Correct Answer
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The federal funds rate is:

Correct Answer
verified

Which of the following is the mission of the Federal Reserve Bank? i. Preserve price stability ii. Foster economic growth and employment iii. Ensure taxes are fair

Correct Answer
verified

If the central bank targets the interest rate, the money:

Correct Answer
verified

Refer to the following figure when answering the following questions. Figure 12.12: Money Market -Starting at any equilibrium in Figure 12.12, if the Fed loosens money, the money market would move from point:

Correct Answer
verified

What is the main policy tool available to the Federal Reserve?

Correct Answer
verified

Refer to the following figure when answering the following questions. Figure 12.2: IS-MP Curve -Consider Figure 12.2. If the Fed lowers interest rates and there are no aggregate demand shocks, the economy moves from point to .

Correct Answer
verified

When the Federal Reserve increases the interest rate, the MP curve shifts up and potential output falls.

Correct Answer
verified

In most advanced economies, central banks target ________ to conduct monetary policy.

Correct Answer
verified

The link between real and nominal interest rates is summarized in:

Correct Answer
verified

Which of the following scenarios best describes the short-run model?

Correct Answer
verified

The term structure of interest rates is a way of looking at bond rates with different maturity periods.

Correct Answer
verified

Correct Answer
verified
(a) This would be a positive demand shoc...
View Answer

The most immediate and visible form of inflation shock is:

Correct Answer
verified

With adaptive expectations, the Phillips curve can be written as:

Correct Answer
verified

Exam 12: Monetary Policy and the Phillips Curve

Correct AnswerverifiedShow Answer

Which of the following is the mission of the Federal Reserve Bank? i. Preserve price stability ii. Foster stable fiscal policy iii. Ensure taxes are fair

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

"Adaptive expectations" implies that firms adjust their inflation expectations immediately.

Correct AnswerverifiedShow Answer

When economists say "sticky inflation," they mean:

Correct AnswerverifiedShow Answer

The federal funds rate is:

Correct AnswerverifiedShow Answer

Which of the following is the mission of the Federal Reserve Bank? i. Preserve price stability ii. Foster economic growth and employment iii. Ensure taxes are fair

Correct AnswerverifiedShow Answer

If the central bank targets the interest rate, the money:

Correct AnswerverifiedShow Answer

Refer to the following figure when answering the following questions. Figure 12.12: Money Market -Starting at any equilibrium in Figure 12.12, if the Fed loosens money, the money market would move from point:

Correct AnswerverifiedShow Answer

What is the main policy tool available to the Federal Reserve?

Correct AnswerverifiedShow Answer

Refer to the following figure when answering the following questions. Figure 12.2: IS-MP Curve -Consider Figure 12.2. If the Fed lowers interest rates and there are no aggregate demand shocks, the economy moves from point ________ to ________.

Correct AnswerverifiedShow Answer

When the Federal Reserve increases the interest rate, the MP curve shifts up and potential output falls.

Correct AnswerverifiedShow Answer

In most advanced economies, central banks target ________ to conduct monetary policy.

Correct AnswerverifiedShow Answer

The link between real and nominal interest rates is summarized in:

Correct AnswerverifiedShow Answer

Which of the following scenarios best describes the short-run model?

Correct AnswerverifiedShow Answer

The term structure of interest rates is a way of looking at bond rates with different maturity periods.

Correct AnswerverifiedShow Answer

Correct Answerverified(a) This would be a positive demand shoc...View AnswerShow Answer

The most immediate and visible form of inflation shock is:

Correct AnswerverifiedShow Answer

With adaptive expectations, the Phillips curve can be written as:

Correct AnswerverifiedShow Answer

Correct Answer
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Refer to the following figure when answering the following questions. Figure 12.2: IS-MP Curve -Consider Figure 12.2. If the Fed lowers interest rates and there are no aggregate demand shocks, the economy moves from point to .

Correct Answer
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(a) This would be a positive demand shoc...
View Answer

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Correct Answer
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