Exam 16: Inflation and Monetary Policy

A) a zero inflation rate will be reached
B) a recession will not occur
C) inflationary expectations will fall
D) the natural rate of unemployment will rise
E) structural unemployment will start to decrease

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A) shows the Fed's employment options
B) is vertical because the Fed refuses to change the unemployment rate in the long run
C) indicates that the Fed cannot affect the unemployment rate in the long run
D) is fixed permanently
E) measures recessionary pressures

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A) the persistence of cyclical unemployment
B) the instability of the inflation rate
C) new legislation that attempts to avoid financial panics
D) the difficulty of determining what normal unemployment means
E) conflicting objectives among its member banks

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A) attempted to guarantee stability of the banking system
B) was a reaction to the savings and loan crisis
C) added full employment to the list of objectives for the Fed
D) strengthened deposit insurance programs
E) pledged the Fed to keep the inflation rate low

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A) A neutralization response
B) A constant interest rate response
C) A constant money supply response
D) A constant tax rate response
E) A constant government spending response.

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A) The long-run aggregate supply curve would shift to the right.
B) The aggregate supply curve would shift downward.
C) Unemployment would increase.
D) The price level would increase.
E) The aggregate demand curve would shift to the left.

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A) Encouraging investment
B) Regulating foreign trade
C) Minimizing the interest payments on the national debt
D) Achieving a low and stable rate of inflation
E) Keeping the interest rate low.

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A) A decrease in government spending
B) A supply shock that shifts the aggregate supply curve downward
C) Unemployment below the natural rate
D) Growing consumer pessimism
E) A negative spending shock.

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A) By slowing the continuing downward shift of the aggregate supply curve
B) By increasing the money supply
C) By slowing the continuing leftward shift of the aggregate demand curve
D) By decreasing the required reserve ratio
E) By slowing the continuing rightward shift of the aggregate demand curve.

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A) The Fed can only shift the curve in the short run.
B) In the short run,the Fed can shift the curve,but in the long run,the Fed can only move along it.
C) In both the short run and the long run,the Fed can only shift the curve,it can never move along the curve.
D) In both the short run and the long run,the Fed can only move the economy along the curve;it can never shift the curve.
E) In the short run,the Fed can move the economy along the curve,but in the long run,the Fed can only chose which short run Phillips curve to be on.

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A) Money demand would not change,real GDP would not change,the interest rate would decrease,and there would be partial crowding out.
B) Money demand would not change,real GDP would not change,the interest rate would increase,and there would be complete crowding out.
C) Money demand would increase,real GDP would not change,the interest rate would increase,and there would be partial crowding out.
D) Money demand would not change,real GDP would increase,the interest rate would decrease,and there would be complete crowding out.
E) Money demand would increase,real GDP would not change,the interest rate would decrease,and there would be complete crowding out.

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A) the short-run tradeoff between inflation and unemployment
B) short- and long-run tradeoffs between unemployment and inflation
C) the long-run tradeoff between inflation and unemployment
D) the income distribution effects of inflation
E) short-run fluctuations in GDP

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A) inflationary expectations will increase and the Phillips curve will shift downward in the short run.
B) inflationary expectations will not change and the Phillips curve will remain in its current position in the short run.
C) inflationary expectations will decrease and the Phillips curve will shift downward in the short run.
D) inflationary expectations will stay constant and the Phillips curve will shift downward in the short run.
E) inflationary expectations will not change and the Phillips curve will become horizontal in the short run.

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A) the Fed reacts in anticipation of the news to prevent speculation
B) financial markets are often irrational
C) financial markets prefer recessions to spending shocks
D) stock and bond holders fear the Fed's reaction to possible overheating
E) newspapers may be confused about the performance of financial markets

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A) is always constant.
B) is always equal to 5%.
C) can vary over time and from country to country.
D) has been rising in recent years in the U.S.
E) is very similar across countries.

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A) A higher wage rate
B) A lower interest rate
C) Lower taxes paid by the employed
D) Costs of updating prices
E) Lost earnings of the unemployed.

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