Question 1

The outside lag of macroeconomic policy is the:

Accepted Answer

A)  time between a shift in aggregate demand and a shift in aggregate supply.
B)  delay between when a policy change is needed and the policy is implemented.
C)  difference between actual inflation and the target rate of inflation.
D)  delay between when a policy change is implemented and when most of the effects of policy have occurred in the economy.E) None of the above
F) All of the above

Question 2

An inflation dove is someone who:

Accepted Answer

A)  easily anchors inflation expectations.
B)  is not strongly committed to maintaining low inflation.
C)  is committed to maintaining low inflation even at the cost of reduced output and employment.
D)  believes monetary policy is more powerful than fiscal policy.E) B) and C)
F) None of the above

Question 3

The delay between the date a policy change is implemented and the date when most of its effects have occurred in the economy is called the:

Accepted Answer

A)  recessionary gap.
B)  expansionary gap.
C)  outside lag.
D)  inside lag.E) A) and C)
F) B) and C)

Question 4

The Fed cannot achieve a negative real interest rate if the inflation rate is zero or negative because:

Accepted Answer

A)  the nominal interest rate cannot fall below zero.
B)  inflation doves will not permit a negative real interest rate.
C)  zero or negative values of inflation can not be accurately measured.
D)  inflationary expectations are not anchored when the inflation rate is zero.E) None of the above
F) A) and C)

Question 5

The greater the credibility of monetary policy, the ____ likely inflationary expectations are to be anchored and the _____ the recessions caused by adverse inflation shocks.

Accepted Answer

A)  more; shorter
B)  more; longer
C)  less; shorter
D)  less; longerE) A) and D)
F) C) and D)

Question 6

Suppose last year Moe faced a 25% marginal tax rate.This year tax rates have increased and now Moe faces a 30% marginal tax rate.Moe may choose to work more hours this year because:

Accepted Answer

A)  working hours tend to increase over a worker's life in the United States.
B)  the opportunity cost of leisure has increased.
C)  the opportunity cost of leisure has fallen.
D)  he must work more hours to have the same after-tax income this year.E) A) and B)
F) All of the above

Question 7

To accommodate an adverse inflation shock the Fed must ____, while to offset the effect of an increase in aggregate demand the Fed must _____.

Accepted Answer

A)  reduce the inflation rate target; adjust the real interest rate target to the level at which saving equals investment in the long run
B)  increase the inflation rate target; adjust the real interest rate target to the level at which saving equals investment in the long run
C)  maintain the inflation rate target; maintain the real interest rate target
D)  adjust the real interest rate target to the level at which saving equals investment in the long run; reduce the inflation rate targetE) B) and D)
F) A) and D)

Question 8

Reduced macroeconomic variability in the U.S.since 1981 has all of the following benefits except:

Accepted Answer

A)  improving market functioning.
B)  making business planning easier.
C)  reducing resources devoted to managing inflation risks.
D)  allowing the Fed to pursue accommodating policy.E) B) and C)
F) All of the above

Question 9

Someone who is committed to maintaining low inflation even at the short-run cost of reduced output and employment is called a(n) :

Accepted Answer

A)  anchored central banker.
B)  reactionary central banker.
C)  inflation dove.
D)  inflation hawk.E) A) and B)
F) B) and C)

Question 10

People's expectations of future inflation that do not change even if inflation rises temporarily are called _____ inflationary expectations.

Accepted Answer

A)  aggregate
B)  average
C)  anchored
D)  autonomousE) None of the above
F) All of the above

Question 11

A supply-side policy is a policy that:

Accepted Answer

A)  shifts the short-run aggregate supply curve.
B)  shifts the long-run aggregate supply curve.
C)  shifts the aggregated demand curve.
D)  prevents recessionary gaps that shift the AS curve.E) All of the above
F) C) and D)

Question 12

Someone who is not strongly committed to achieving and maintaining low inflation is called a(n) :

Accepted Answer

A)  anchored central banker.
B)  inflation dove.
C)  inflationary central banker.
D)  inflation hawk.E) None of the above
F) B) and D)

Question 13

If the inflation rate equals zero, then a worker's real wage will fall when:

Accepted Answer

A)  the nominal wage increases by less than 1% per year.
B)  the nominal wage decreases.
C)  the nominal wage is constant.
D)  relative prices increase.E) None of the above
F) A) and D)

Question 14

All of the following are examples of U.S.Federal Reserve System independence except that:

Accepted Answer

A)  the Federal Reserve Act does not explicitly prohibit legislative interference in monetary policy.
B)  Federal Reserve Governors are appointed for 14-year terms.
C)  the Federal Reserve controls its own budget.
D)  the Federal Reserve is under no obligation to finance the national deficit.E) A) and B)
F) B) and C)

Question 15

If the professional opinions of economists regarding the natural rate of unemployment vary between 4.5 and 6 percent, then when the actual rate of unemployment equals 5 percent:

Accepted Answer

A)  the natural rate of unemployment equals 5 percent.
B)  there is a recessionary gap.
C)  there is an expansionary gap.
D)  there could be either an expansionary or recessionary gap, or the economy could be at potential output depending on the accuracy of measurement.E) B) and D)
F) A) and B)

Question 16

The inside lag of macroeconomic policy is the:

Accepted Answer

A)  time between a shift in aggregate demand and a shift in aggregate supply.
B)  delay between when a policy change is needed and the policy is implemented.
C)  difference between actual inflation and the target rate of inflation.
D)  delay between when a policy change is implemented and when most of the effects of policy have occurred in the economy.E) All of the above
F) A) and B)

Question 17

If the rate of inflation equals zero then the nominal rate of interest:

Accepted Answer

A)  equals zero.
B)  equals the real rate of interest.
C)  can be negative.
D)  equals the target interest rate.E) A) and D)
F) B) and D)

Question 18

The time between when the fed funds rate is cut and when investment spending increases is an example of:

Accepted Answer

A)  Okun's law.
B)  the outside lag of macroeconomic policy.
C)  anchoring inflationary expectations.
D)  the inside lag of macroeconomic policy.E) B) and C)
F) C) and D)

Question 19

Which of the following characteristics of a central bank is expected to enhance monetary policy credibility?

Accepted Answer

A)  The central bankers'short terms that coincide with the terms of the legislature
B)  Daily central bank actions that are subject to the review and veto of the executive branch of the government
C)  The central bank announcing a numerical inflation target
D)  The central bank's obligation to finance the national deficitE) A) and B)
F) A) and C)

Question 20

The delay between the date a policy change is needed and the date it is implemented is called the:

Accepted Answer

A)  recessionary gap.
B)  expansionary gap.
C)  outside lag.
D)  inside lag.E) A) and D)
F) A) and C)

Exam 14: Macroeconomic Policy

All of the following are examples of U.S.Federal Reserve System independence except that:

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The outside lag of macroeconomic policy is the:

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Suppose last year Moe faced a 25% marginal tax rate.This year tax rates have increased and now Moe faces a 30% marginal tax rate.Moe may choose to work more hours this year because:

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If the professional opinions of economists regarding the natural rate of unemployment vary between 4.5 and 6 percent, then when the actual rate of unemployment equals 5 percent:

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An inflation dove is someone who:

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If the inflation rate equals zero, then a worker's real wage will fall when:

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The inside lag of macroeconomic policy is the:

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People's expectations of future inflation that do not change even if inflation rises temporarily are called _____ inflationary expectations.

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A supply-side policy is a policy that:

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Someone who is committed to maintaining low inflation even at the short-run cost of reduced output and employment is called a(n) :

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The delay between the date a policy change is implemented and the date when most of its effects have occurred in the economy is called the:

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The Fed cannot achieve a negative real interest rate if the inflation rate is zero or negative because:

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To accommodate an adverse inflation shock the Fed must ____, while to offset the effect of an increase in aggregate demand the Fed must _____.

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Which of the following characteristics of a central bank is expected to enhance monetary policy credibility?

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Reduced macroeconomic variability in the U.S.since 1981 has all of the following benefits except:

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The time between when the fed funds rate is cut and when investment spending increases is an example of:

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If the rate of inflation equals zero then the nominal rate of interest:

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The greater the credibility of monetary policy, the ____ likely inflationary expectations are to be anchored and the _____ the recessions caused by adverse inflation shocks.

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The delay between the date a policy change is needed and the date it is implemented is called the:

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Someone who is not strongly committed to achieving and maintaining low inflation is called a(n) :

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To accommodate an adverse inflation shock the Fed must , while to offset the effect of an increase in aggregate demand the Fed must _.

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The greater the credibility of monetary policy, the likely inflationary expectations are to be anchored and the _ the recessions caused by adverse inflation shocks.

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