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EC 305-Exam1-Ch8

Macro

Question	Answer
If a central bank is uncertain about whether an economic disturbance is temporary or permanent, it should	make frequent and modest policy changes and adjust policies based on feedback
Which of the following is NOT a way in which a central bank can conduct its monetary policy?	by changing the rate of capital accumulation to influence aggregate supply
A central bank that wants to stabilize the economy in the short run should try to	affect aggregate demand through open market operations
In the short run, a central bank can most easily stimulate economic activity by	influencing aggregate demand and accepting a higher price level in the future
Which of the following is true about Ben Bernanke as Chair of the Board of Governors of the U.S. Federal Reserve?	his first term started in 2006 and he was reappointed in 2010 by President Obama
If it is clear that an economic disturbance is only transitory, a central bank’s best policy response may be to	react moderately or not at all because a major policy change may itself be destabilizing
If a central bank wants to avoid high inflation in an economic boom it can	-try to lower investment spending though open market purchases -raise interest rates in an effort to affect aggregate supply -lower bank reserves by buying government bonds E)none of the above
Central banks generally conduct their monetary policy with two goals in mind: to keep economic activity high and to keep inflation low; however, they have to recognize that	-monetary policy can affect economic activity only in short-run -they can control inflation fairly effectively but may not be able to influence GDP growth -a lower interest rate now may mean higher a inflation rate in the future E)all of the above
If the inflation rate starts to increase, a central bank most likely will	change short-term interest rates though open market sales
An appropriate policy response by a central bank to an increase in the inflation rate is to	sell government bonds to the public
The U.S. Federal Reserve’s Open Market Committee (the FOMC)	-meets regularly to decide on its monetary policy actions -formally makes decision by voting on monetary policy changes -sometimes reveals its intentions in advance to increase transparency -does not follow a clearly established policy rule
The U.S. Fed can most effectively achieve an established federal funds rate target by	undertaking open market operations to influence bank reserves
The federal funds rate is the interest rate that	banks have to pay when they get a loan from another bank
By lowering short-term interest rates, a central bank can stimulate economic activity	-since it encourages more investment spending -since more durable consumption goods will be bought -but only in the short run -but it may lead to a higher price level E)all of the above
Which of the following is NOT a result of monetary policy?	the level of potential GDP will change
When conducting expansionary monetary policy, central banks have to keep in mind that	-there is a conflict between keeping inflation low and economic activity high -unemployment can be lowered in the short run but at the cost of higher prices in the long run
Which of the following is FALSE?	in the long run, monetary policy has no effect on nominal GDP
Many economists believe that	most short-term stabilization of the economy should be done through monetary policy
The U.S. Fed “sets” interest rates by	buying or selling Treasury bills
Monetary policy is best conducted by	focusing on a sustainable goal rather than maintaining full employment at all times
When a central bank engages in inflation targeting	little or no weight is given to the output gap
When a central bank engages in inflation targeting, then	the Taylor rule can still be used as a guide as long as the output coefficient is set to zero
If a central bank follows an activist monetary policy rule,	-full emplymnt can always be maintained with little or no inflation -the focus is generally on expected future econ condtns while current economic condtns ignored -the focus is on the l-run inflation rate with little concern about unemp E)none
Assume the Fed wants to stimulate economic activity through expansionary monetary policy. Which of the following is FALSE?	real money balances will increase as we move along the AD-curve from left to right
The Taylor rule	helps a central bank in setting its target interest rates based on current economic conditions
The Taylor rule implies that a central bank should adjust interest rates frequently	whenever output or inflation deviates from the desired levels
The rule that tells a central bank how to set interest rates in response to changes in economic activity is known as the	Taylor rule
Which of the following equations most accurately describes the Taylor rule?	it = 2 + πt + 0.5(πt – πt) + 0.5[100(Yt –Yt)/Y*t]
If a central bank wants to make sure that its policy actions are successful in manipulating interest rates to stabilize the economy around its full-employment level it should	be prepared to make modest and frequent adjustments after receiving feedback on how its actions affect the economy
A central bank that follows the Taylor rule	sets interest rates based on current economic conditions
The Taylor rule suggests to a central bank	-to set int rates in response to change in econ actvty -int rates should be inc by 1.5% if infl goes 1% above its target -int rates should be inc by 0.5% if the GDP gap rises by 1% -real int rates be incr to cool off the econ if infl rises E)all
Slowing economic activity by increasing interest rates will generally be successful since	-investment spending will be reduced -spending on durable goods will be reduced
Assume that the inflation coefficient is negative in the Taylor rule, This implies that	the economy is likely to experience runaway inflation
The Taylor rule	allows for strict inflation targeting as long as the output coefficient is zero
The Taylor rule	is an activist monetary policy rule
According to the Taylor rule, if the current inflation rate is 2.8%, output is 2% below the full-employment level, and the central bank’s announced inflation target is 2%, at what level should the central bank set the nominal interest rate?	4.2%
The Taylor rule allows for strict inflation targeting as long as	the output coefficient is zero
According to the Taylor rule, if the central bank’s announced inflation target is 2%, the current inflation rate is 2%, and output is 1% below the full-employment level, at what level should the central bank set the nominal interest rate?	3.5%
In the Taylor rule, if the output coefficient β is set to zero, then the central bank	engages in strict inflation targeting
In the Taylor rule, if the output coefficient α is set to zero, then the central bank	engages in real GDP targeting
If a central bank engages in inflation targeting, then	it will not change interest rates in response to output fluctuations
Assume the central bank’s announced inflation target is 2%, output is 2% below the full-employment level, and the Taylor rule suggests that the central bank sets the nominal interest rate at 4.5%. What is most likely the current inflation rate?	3.6%
In the Taylor rule, if the inflation coefficient α is much larger than the output coefficient β, then the central bank	-is mostly concerned w/ mntning full-emplmnt -will inc int rates more aggrvly when output decr than when infl heats up -will decr int rates more aggrvly when otpt decr than when infl heats up -is engaging in strict inflation targeting E)none
According to the Taylor rule, if the current inflation rate is 3.2%, output is 1% above the full-employment level, and the central bank’s announced inflation target is 2%, at what level should the central bank set the nominal interest rate?	6.3%
Assume the current inflation rate is 2.4% and output is at the full-employment level. If the central bank has set nominal interest rates at 5.6%, what is the central bank’s inflation target if it follows the Taylor rule?	0%
Assume a central bank announced a zero percent inflation target. If the current inflation rate is 2.4%, and output is at the full-employment level, at what level should the central bank set the nominal interest rate according to the Taylor rule?	3.6%
Assume the central bank announced a 2% inflation target and has set the nominal interest rate at 5.0%. If actual inflation is 2.8%, by how much is output off the full-employment level?	-0.4%
According to the Taylor rule, if the central bank announced a zero percent inflation target but the current inflation rate is 2% and output is 2% below the full-employment level, at what level should the central bank set the nominal interest rate?	4%
According to the Taylor rule, if the central bank announced a zero percent inflation target but the current inflation rate is 2% and output is at the full-employment level, at what level should the central bank set the nominal interest rate?	5%
Short-run monetary policy changes should	allow for modest adjustments once feedback from previous changes is available

Created by: jwtroupe

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EC 305-Exam1-Ch8

Macro

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