Question 1

The time it takes for policy makers to obtain data indicating what is happening in the economy is called

Accepted Answer

A)  the data lag.
B)  the recognition lag.
C)  the legislative lag.
D)  the implementation lag.
E)  the effectiveness lag.

Question 2

If aggregate output is below the natural rate level,activists of policies would recommend that the government

Accepted Answer

A)  do nothing.
B)  try to eliminate the high unemployment by attempting to shift the aggregate supply curve to the right.
C)  try to eliminate the high unemployment by attempting to shift the aggregate demand curve to the right.
D)  try to eliminate the high unemployment by attempting to shift the aggregate demand curve to the left.

Question 3

Theoretically,one can distinguish a demand-pull inflation from a cost-push inflation by comparing

Accepted Answer

A)  how fast prices rise relative to wages.
B)  the unemployment rate with its natural rate level.
C)  when prices rise relative to wages.
D)  government debt to real GDP.

Question 4

The real interest rate for investments reflects not only the short-term real interest rate set by the central bank,but also the financial frictions.When the policy rate has hit the floor of zero,to stimulate the economy at given inflation rates,policymakers can

Accepted Answer

A)  lower the financial frictions.
B)  lower the short-term real interest rate.
C)  lower both the short-term real interest rate and the financial frictions.
D)  lower the policy rate.

Question 5

Which of the following is most likely to lead to inflationary monetary policy?

Accepted Answer

A)  declining oil prices
B)  resolution of conflict in the Middle East
C)  the enactment of a free-trade agreement with Mexico
D)  rising unemployment

Question 6

When the economy suffers a permanent negative supply shock and the central bank does not respond by changing the autonomous component of monetary policy,then

Accepted Answer

A)  inflation will be lower.
B)  output will be at its potential.
C)  output will be lower.
D)  inflation will not change.
E)  both A and B.

Question 7

The time it takes for policy makers to be sure of what the data are signaling about the future course of the economy is called

Accepted Answer

A)  the data lag.
B)  the recognition lag.
C)  the legislative lag.
D)  the implementation lag.
E)  the effectiveness lag.

Question 8

When the economy is hit by a negative demand shock and the central bank pursues policies to increase aggregate demand to its initial level,then

Accepted Answer

A)  inflation will be lower.
B)  output will be at its potential.
C)  output will be lower.
D)  inflation will be unchanged.
E)  both B and D.

Question 9

When the economy suffers a permanent negative supply shock and the central bank does not respond by changing the autonomous component of monetary policy,then

Accepted Answer

A)  inflation will be lower.
B)  output will be at its potential.
C)  output will be lower.
D)  inflation will not change.
E)  both B and C.

Question 10

To promote an economic expansion and an exit from the deflationary environment that the Japanese had been experiencing for the past fifteen years,the "Abenomics" aims at

Accepted Answer

A)  increasing inflation target.
B)  increasing inflation expectations.
C)  purchasing long-term bonds.
D)  all of the above.
E)  none of the above.

Question 11

The legislative lag represents

Accepted Answer

A)  the time it takes for policy makers to obtain data indicating what is happening in the economy.
B)  the time it takes for policy makers to be sure of what the data are signaling about the future course of the economy.
C)  the time it takes to pass legislation to implement a particular policy.
D)  the time it takes for policy makers to change policy instruments once they have decided on the new policy.
E)  the time it takes for the policy actually to have an impact on the economy.

Question 12

The existence of lags prevents the instantaneous adjustment of the economy to policies changing aggregate demand,thereby strengthening the case for

Accepted Answer

A)  supply-side policy.
B)  nonactivists.
C)  activists.
D)  demand-management policy.

Question 13

When the economy suffers a permanent negative supply shock and the central bank does not respond by changing the autonomous component of monetary policy,then

Accepted Answer

A)  inflation will be lower.
B)  output will be at its potential.
C)  output will be unchanged.
D)  inflation will be unchanged.

Question 14

Which of the following statements is CORRECT?

Accepted Answer

A)  If most shocks to the economy are aggregate demand shocks or permanent aggregate supply shocks,then policy that stabilizes inflation will also stabilize economic activity,even in the short run.
B)  If temporary supply shocks are more common,then a central bank must choose between stabilizing inflation and stabilizing output in the short run.
C)  Stabilizing economic activity in response to a temporary supply shock results in a larger deviation of inflation from the inflation target rather than a stabilization of inflation.
D)  all of the above.

Question 15

Liquidity provision and asset purchase may not be enough to stimulate the economy unless the these policy actions are able to

Accepted Answer

A)  lower the real interest rate for investments.
B)  lower the short-term real interest rate.
C)  raise the policy rate above zero.
D)  lower the policy rate.

Question 16

Policy makers cannot achieve both price stability and economic activity stability when facing

Accepted Answer

A)  temporary supply shocks.
B)  permanent supply shocks.
C)  demand shocks.
D)  all of the above.

Question 17

When the economy suffers a permanent negative supply shock and the central bank responds by changing the autonomous component of monetary policy to keep inflation at the target inflation rate,then

Accepted Answer

A)  aggregate demand curve shifts leftward.
B)  output will be unchanged.
C)  output will be at its potential.
D)  all of the above.
E)  both A and C.

Question 18

When the economy is hit by a temporary negative supply shock and the central bank does not respond by changing the autonomous component of monetary policy,then in the long run

Accepted Answer

A)  inflation will be lower.
B)  output will be at its potential.
C)  output will be lower.
D)  inflation will be unchanged.
E)  both B and D.

Question 19

The time it takes for policy makers to change policy instruments once they have decided on the new policy is called

Accepted Answer

A)  the data lag.
B)  the recognition lag.
C)  the legislative lag.
D)  the implementation lag.
E)  the effectiveness lag.

Question 20

The Fed's quantitative easing is to purchase ________ to affect credit spreads.

Accepted Answer

A)  long-term securities
B)  short-term securities
C)  both long-term and short-term securities
D)  private assets

Exam 23: Monetary Policy Theory

The real interest rate for investments reflects not only the short-term real interest rate set by the central bank,but also the financial frictions.When the policy rate has hit the floor of zero,to stimulate the economy at given inflation rates,policymakers can

Correct AnswerverifiedShow Answer

The legislative lag represents

Correct AnswerverifiedShow Answer

If aggregate output is below the natural rate level,activists of policies would recommend that the government

Correct AnswerverifiedShow Answer

When the economy suffers a permanent negative supply shock and the central bank does not respond by changing the autonomous component of monetary policy,then

Correct AnswerverifiedShow Answer

The time it takes for policy makers to obtain data indicating what is happening in the economy is called

Correct AnswerverifiedShow Answer

The Fed's quantitative easing is to purchase ________ to affect credit spreads.

Correct AnswerverifiedShow Answer

The time it takes for policy makers to change policy instruments once they have decided on the new policy is called

Correct AnswerverifiedShow Answer

Theoretically,one can distinguish a demand-pull inflation from a cost-push inflation by comparing

Correct AnswerverifiedShow Answer

When the economy is hit by a temporary negative supply shock and the central bank does not respond by changing the autonomous component of monetary policy,then in the long run

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

When the economy suffers a permanent negative supply shock and the central bank responds by changing the autonomous component of monetary policy to keep inflation at the target inflation rate,then

Correct AnswerverifiedShow Answer

Policy makers cannot achieve both price stability and economic activity stability when facing

Correct AnswerverifiedShow Answer

Liquidity provision and asset purchase may not be enough to stimulate the economy unless the these policy actions are able to

Correct AnswerverifiedShow Answer

When the economy is hit by a negative demand shock and the central bank pursues policies to increase aggregate demand to its initial level,then

Correct AnswerverifiedShow Answer

The existence of lags prevents the instantaneous adjustment of the economy to policies changing aggregate demand,thereby strengthening the case for

Correct AnswerverifiedShow Answer

When the economy suffers a permanent negative supply shock and the central bank does not respond by changing the autonomous component of monetary policy,then

Correct AnswerverifiedShow Answer

The time it takes for policy makers to be sure of what the data are signaling about the future course of the economy is called

Correct AnswerverifiedShow Answer

To promote an economic expansion and an exit from the deflationary environment that the Japanese had been experiencing for the past fifteen years,the "Abenomics" aims at

Correct AnswerverifiedShow Answer

Which of the following is most likely to lead to inflationary monetary policy?

Correct AnswerverifiedShow Answer

When the economy suffers a permanent negative supply shock and the central bank does not respond by changing the autonomous component of monetary policy,then

Correct AnswerverifiedShow Answer

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