Question 1

Whenever the expected inflation rate is positive

Accepted Answer

A)  the real interest rate is greater than the nominal interest rate.
B)  the real interest rate is negative.
C)  the real interest rate is positive.
D)  the nominal interest rate must be equal to the real interest rate.
E)  none of the above

Question 2

Suppose that the nominal interest rate and expected inflation both decrease by 2%.Given this information,we would expect which of the following to occur?

Accepted Answer

A)  an increase in the real interest rate
B)  a reduction in the real interest rate
C)  a reduction in investment
D)  an increase in money demand
E)  both A and C

Question 3

Let: (1) Pt be the price of one unit of a market basket of goods it be the one-year nominal interest rate.Suppose an individual borrows the equivalent of one unit of a composite commodity today.Given this information,which of the following expressions represents (i.e.,is equal to) the amount of the composite commodity one must repay in one year?

Accepted Answer

A)   (1 + it)  (Pet+1)  / (Pt) 
B)   (1 + πet+1)  / (1 + it) 
C)  {(1 + πet+1)  / (1 + it) } - 1
D)  {(1 + it)  (Pt)  / (Pet+1) } - 1
E)  none of the above

Question 4

The nominal interest rate is

Accepted Answer

A)  the interest rate measured in terms of goods.
B)  always less than the real interest rate.
C)  equal to the real interest rate minus the rate of inflation.
D)  the type of interest rate typically reported in the financial pages of newspapers.
E)  equal to the expected rate of inflation.

Question 5

The present discounted value of a future payment becomes smaller when

Accepted Answer

A)  the nominal interest rate decreases.
B)  the payment is made sooner rather than later.
C)  the payment itself decreases.
D)  all of the above
E)  none of the above

Question 6

Under which of the following assumptions would the nominal interest rate be equal to the real interest rate?

Accepted Answer

A)  expected inflation is equal to the nominal interest rate.
B)  expected inflation is equal to the real interest rate.
C)  expected inflation is negative.
D)  expected inflation is equal to zero.
E)  none of the above

Question 7

Suppose the central bank pursues expansionary monetary policy.Such an action will cause

Accepted Answer

A)  the natural real interest rate to rise.
B)  the natural real interest rate to fall.
C)  ambiguous effects on the natural real interest rate.
D)  no effect on the natural real interest rate.

Question 8

To reduce the nominal interest rate in the medium run,what type of policy should the central bank pursue? Explain.

Accepted Answer

To depress i in the medium run...

Question 9

For this question,assume that expected inflation is equal to the nominal interest rate.In this situation,which of the following is correct?

Accepted Answer

A)  the real interest rate is negative
B)  the real interest rate is positive
C)  the real interest rate is higher than the nominal interest rate
D)  the real interest rate is zero

Question 10

When the IS curve is drawn with the nominal interest rate on the vertical axis,a reduction in the expected inflation rate will cause

Accepted Answer

A)  the IS curve to shift rightward.
B)  the IS curve to shift leftward.
C)  the IS curve to become steeper.
D)  the IS curve to become flatter.
E)  no change in the IS curve.

Question 11

Which of the following will NOT cause an increase in the present value of a sequence of payments?

Accepted Answer

A)  a reduction in the current interest rate
B)  a reduction in expected future interest rates
C)  an increase in a future expected payment
D)  none of the above

Question 12

Suppose that the nominal interest rate and expected inflation both increase by 2%.Given this information,we would expect which of the following to occur?

Accepted Answer

A)  a reduction in the real interest rate
B)  an increase in the real interest rate
C)  an increase in investment
D)  a reduction in money demand
E)  both A and C

Question 13

Lower money growth tends to cause

Accepted Answer

A)  higher nominal interest rates (i) in the medium run and no change in real interest rates (r) in the medium run.
B)  no change in i in the medium run and an increase in r in the medium run.
C)  an increase in i in the medium run and no change in r in the medium run.
D)  a reduction in i in the medium run and no change in r in the medium run.

Question 14

If the expected inflation rate is negative,the expected real interest rate must be

Accepted Answer

A)  negative.
B)  less than the nominal interest rate.
C)  equal to the nominal interest rate.
D)  greater than the nominal interest rate.
E)  none of the above

Question 15

Because expected inflation is typically positive,we know that

Accepted Answer

A)  the nominal interest rate is generally less than the real interest rate.
B)  the real interest rate is generally less than the nominal interest rate.
C)  the nominal and real interest rates are generally equal.
D)  the real interest rate is approximately equal to zero.

Question 16

Which of the following is true of the LM curve when the nominal interest rate (rather than the real interest rate) is on the vertical axis?

Accepted Answer

A)  the LM curve becomes downward sloping.
B)  a reduction in expected inflation will have no effect on the position of the LM curve.
C)  a reduction in the expected inflation rate will make the LM curve shift up.
D)  a reduction in the expected inflation rate will make the LM curve shift down.
E)  none of the above

Question 17

Suppose the economy is initially operating at the natural level of output.Now,suppose the central bank reduces the rate of nominal money growth by 3%.Given this information,we would expect that

Accepted Answer

A)  the real interest rate will fall by less than 3% in the medium run.
B)  the real interest rate will fall by exactly 3% in the medium run.
C)  the real interest rate will increase by exactly 3% in the medium run.
D)  none of the above

Question 18

Suppose the economy is initially operating at the natural level of output.Now,suppose the central bank increases the rate of nominal money growth by 3%.Given this information,we would expect that

Accepted Answer

A)  the real interest rate will increase by less than 3% in the medium run.
B)  the real interest rate will increase by exactly 3% in the medium run.
C)  the real interest rate will fall by exactly 3% in the medium run.
D)  none of the above

Question 19

Suppose there is a reduction in government spending.Such a fiscal policy action will cause

Accepted Answer

A)  the natural real interest rate to rise.
B)  the natural real interest rate to fall.
C)  ambiguous effects on the natural real interest rate.
D)  no effect on the natural real interest rate.

Question 20

To reduce the nominal interest rate in the short run,what type of policy should the central bank pursue? Explain.

Accepted Answer

The central bank most likely s...

Exam 14: Expectations: the Basic Tools

The nominal interest rate is

Correct Answer
verified

Suppose the economy is initially operating at the natural level of output.Now,suppose the central bank increases the rate of nominal money growth by 3%.Given this information,we would expect that

Correct Answer
verified

Suppose that the nominal interest rate and expected inflation both decrease by 2%.Given this information,we would expect which of the following to occur?

Correct Answer
verified

If the expected inflation rate is negative,the expected real interest rate must be

Correct Answer
verified

To reduce the nominal interest rate in the short run,what type of policy should the central bank pursue? Explain.

Correct Answer
verified
The central bank most likely s...
View Answer

When the IS curve is drawn with the nominal interest rate on the vertical axis,a reduction in the expected inflation rate will cause

Correct Answer
verified

Suppose there is a reduction in government spending.Such a fiscal policy action will cause

Correct Answer
verified

Which of the following will NOT cause an increase in the present value of a sequence of payments?

Correct Answer
verified

Correct Answer
verified

To reduce the nominal interest rate in the medium run,what type of policy should the central bank pursue? Explain.

Correct Answer
verified
To depress i in the medium run...
View Answer

Because expected inflation is typically positive,we know that

Correct Answer
verified

Under which of the following assumptions would the nominal interest rate be equal to the real interest rate?

Correct Answer
verified

Whenever the expected inflation rate is positive

Correct Answer
verified

Suppose that the nominal interest rate and expected inflation both increase by 2%.Given this information,we would expect which of the following to occur?

Correct Answer
verified

Suppose the economy is initially operating at the natural level of output.Now,suppose the central bank reduces the rate of nominal money growth by 3%.Given this information,we would expect that

Correct Answer
verified

The present discounted value of a future payment becomes smaller when

Correct Answer
verified

For this question,assume that expected inflation is equal to the nominal interest rate.In this situation,which of the following is correct?

Correct Answer
verified

Lower money growth tends to cause

Correct Answer
verified

Suppose the central bank pursues expansionary monetary policy.Such an action will cause

Correct Answer
verified

Which of the following is true of the LM curve when the nominal interest rate (rather than the real interest rate) is on the vertical axis?

Correct Answer
verified

Exam 14: Expectations: the Basic Tools

The nominal interest rate is

Correct AnswerverifiedShow Answer

Suppose the economy is initially operating at the natural level of output.Now,suppose the central bank increases the rate of nominal money growth by 3%.Given this information,we would expect that

Correct AnswerverifiedShow Answer

Suppose that the nominal interest rate and expected inflation both decrease by 2%.Given this information,we would expect which of the following to occur?

Correct AnswerverifiedShow Answer

If the expected inflation rate is negative,the expected real interest rate must be

Correct AnswerverifiedShow Answer

To reduce the nominal interest rate in the short run,what type of policy should the central bank pursue? Explain.

Correct AnswerverifiedThe central bank most likely s...View AnswerShow Answer

When the IS curve is drawn with the nominal interest rate on the vertical axis,a reduction in the expected inflation rate will cause

Correct AnswerverifiedShow Answer

Suppose there is a reduction in government spending.Such a fiscal policy action will cause

Correct AnswerverifiedShow Answer

Which of the following will NOT cause an increase in the present value of a sequence of payments?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

To reduce the nominal interest rate in the medium run,what type of policy should the central bank pursue? Explain.

Correct AnswerverifiedTo depress i in the medium run...View AnswerShow Answer

Because expected inflation is typically positive,we know that

Correct AnswerverifiedShow Answer

Under which of the following assumptions would the nominal interest rate be equal to the real interest rate?

Correct AnswerverifiedShow Answer

Whenever the expected inflation rate is positive

Correct AnswerverifiedShow Answer

Suppose that the nominal interest rate and expected inflation both increase by 2%.Given this information,we would expect which of the following to occur?

Correct AnswerverifiedShow Answer

Suppose the economy is initially operating at the natural level of output.Now,suppose the central bank reduces the rate of nominal money growth by 3%.Given this information,we would expect that

Correct AnswerverifiedShow Answer

The present discounted value of a future payment becomes smaller when

Correct AnswerverifiedShow Answer

For this question,assume that expected inflation is equal to the nominal interest rate.In this situation,which of the following is correct?

Correct AnswerverifiedShow Answer

Lower money growth tends to cause

Correct AnswerverifiedShow Answer

Suppose the central bank pursues expansionary monetary policy.Such an action will cause

Correct AnswerverifiedShow Answer

Which of the following is true of the LM curve when the nominal interest rate (rather than the real interest rate) is on the vertical axis?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
The central bank most likely s...
View Answer

Correct Answer
verified

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Correct Answer
verified

Correct Answer
verified
To depress i in the medium run...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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