Because prices are slow to move in the short-run, when the Federal Reserve lowers the federal funds rate
- A) nominal interest rates rise.
- B) real interest rates fall.
- C) inflation falls.
- D) real interest rates rise.
Answer: B
Because prices are sticky in the short-run, when the Federal Reserve raises the federal funds rate
- A) nominal interest rates fall.
- B) real interest rates rise.
- C) inflation falls.
- D) real interest rates fall.
Answer: B
The monetary policy (MP) curve indicates the relationship between
- A) the Federal Funds Rate and the real interest rate.
- B) the Federal Funds Rate and the inflation rate.
- C) the inflation rate and the expected inflation rate.
- D) the real interest rate the central bank sets and the inflation rate.
Answer: D
The upward slope of the MP curve indicates that
- A) the central bank lowers real interest rates when inflation rises.
- B) the central bank raises real interest rates when inflation falls.
- C) the central bank raises nominal interest rates when inflation rises.
- D) the central bank raises real interest rates when inflation rises.
Answer: D
The Taylor Principle states that central banks raise nominal rates by ________ than any rise in expected inflation so that real interest rates ________ when there is a rise in inflation.
- A) less; rise
- B) more; fall
- C) less; fall
- D) more; rise
Answer: D
An autonomous tightening of monetary policy
- A) causes an upward movement along the monetary policy curve.
- B) causes a downward movement along the monetary policy curve.
- C) shifts the monetary policy curve upward.
- D) shifts the monetary policy curve downward.
Answer: C
An autonomous easing of monetary policy
- A) causes an upward movement along the monetary policy curve.
- B) causes a downward movement along the monetary policy curve.
- C) shifts the monetary policy curve upward.
- D) shifts the monetary policy curve downward.
Answer: D
Based on the Taylor Principle, a central bank's endogenous response of raising interest rates when inflation rises
- A) causes an upward movement along the monetary policy curve.
- B) causes a downward movement along the monetary policy curve.
- C) shifts the monetary policy curve upward.
- D) shifts the monetary policy curve downward.
Answer: A
Based on the Taylor Principle, a central bank's endogenous response of decreasing interest rates when inflation falls
- A) causes an upward movement along the monetary policy curve.
- B) causes a downward movement along the monetary policy curve.
- C) shifts the monetary policy curve upward.
- D) shifts the monetary policy curve downward.
Answer: B
Inflationary pressures caused the FOMC to increase the federal funds rate by ΒΌ of a percentage point in June 2004, and by exactly the same amount at every subsequent FOMC meeting through June of 2006. Theses actions
- A) caused an upward movement along the monetary policy curve.
- B) caused a downward movement along the monetary policy curve.
- C) shifted the monetary policy curve upward.
- D) shifted the monetary policy curve downward.
Answer: A
The Fed's policy actions of reacting to higher inflation by raising the real interest rate during 2004-2006 were
- A) upward movements along the monetary policy curve.
- B) downward movement along the monetary policy curve.
- C) upward shifts of the monetary policy curve.
- D) downward shifts of the monetary policy curve.
Answer: A
When the financial crisis started in August 2007, inflation was rising and the Fed began an aggressive easing lowering of the federal funds rate, which indicated that
- A) the Fed pursued an autonomous monetary policy tightening.
- B) the Fed pursued an autonomous monetary policy easing.
- C) the Fed had an automatic negative response to inflation based on the Taylor rule.
- D) the Fed had an automatic positive response to inflation based on the Taylor rule.
Answer: B
When the financial crisis started in August 2007, inflation was rising and the Fed began an aggressive easing lowering of the federal funds rate, which indicated that
- A) there was an upward movement along the monetary policy curve.
- B) there was a downward movement along the monetary policy curve.
- C) the monetary policy curve shifted upward.
- D) the monetary policy curve shifted downward.
Answer: D
In deriving the aggregate demand curve a ________ inflation rate leads the central bank to ________ real interest rates, thereby ________ the level of equilibrium aggregate output.
- A) higher; raise; lowering
- B) lower; raise; lowering
- C) higher; lower; lowering
- D) higher; lower; raising
Answer: A
The aggregate demand curve is downward sloping because a higher inflation rate leads the central bank to raise ________ interest rates, thereby ________ the level of equilibrium aggregate output., everything else held constant.
- A) real; lowering
- B) real; raising
- C) nominal; lowering
- D) nominal; raising
Answer: A
The aggregate demand curve is downward sloping because a higher inflation rate leads the central bank to ________ real interest rates, thereby ________ the level of equilibrium aggregate output., everything else held constant.
- A) raise; lowering
- B) raise; raising
- C) reduce; lowering
- D) reduce; raising
Answer: A
Everything else held constant, an increase in government spending will cause
- A) aggregate demand to increase.
- B) aggregate demand to decrease.
- C) the quantity of aggregate demand to increase.
- D) the quantity of aggregate demand to decrease.
Answer: A
Everything else held constant, an autonomous easing of monetary policy will cause
- A) the quantity of aggregate demand to increase.
- B) the quantity of aggregate demand to decrease.
- C) aggregate demand to decrease.
- D) aggregate demand to increase.
Answer: D
Everything else held constant, an autonomous tightening of monetary policy will cause
- A) the quantity of aggregate demand to increase.
- B) the quantity of aggregate demand to decrease.
- C) aggregate demand to increase.
- D) aggregate demand to decrease.
Answer: D
Everything else held constant, an autonomous easing of monetary policy will cause
- A) aggregate demand to increase.
- B) aggregate demand to decrease.
- C) the quantity of aggregate demand to increase.
- D) the quantity of aggregate demand to decrease.
Answer: A
Everything else held constant, an increase in autonomous consumer spending will cause the IS curve to shift to the ________ and aggregate demand will ________.
- A) right; increase
- B) right; decrease
- C) left; increase
- D) left; decrease
Answer: A
Everything else held constant, a decrease in autonomous consumer spending will cause the IS curve to shift to the ________ and aggregate demand will ________.
- A) right; increase
- B) right; decrease
- C) left; increase
- D) left; decrease
Answer: D
Everything else held constant, an increase in autonomous planned investment spending will cause the IS curve to shift to the ________ and aggregate demand will ________.
- A) right; increase
- B) right; decrease
- C) left; increase
- D) left; decrease
Answer: A
Everything else held constant, a decrease in autonomous planned investment spending will cause the IS curve to shift to the ________ and aggregate demand will ________.
- A) right; increase
- B) right; decrease
- C) left; increase
- D) left; decrease
Answer: D
Everything else held constant, a decrease in net taxes will cause the IS curve to shift to the ________ and aggregate demand will ________.
- A) right; increase
- B) right; decrease
- C) left; increase
- D) left; decrease
Answer: A
Everything else held constant, an increase in net taxes will cause the IS curve to shift to the ________ and aggregate demand will ________.
- A) right; increase
- B) right; decrease
- C) left; increase
- D) left; decrease
Answer: D
Everything else held constant, an appreciation of the domestic currency will cause the IS curve to shift to the ________ and aggregate demand will ________.
- A) right; increase
- B) right; decrease
- C) left; increase
- D) left; decrease
Answer: D
Everything else held constant, a depreciation of the domestic currency will cause the IS curve to shift to the ________ and aggregate demand will ________.
- A) right; increase
- B) right; decrease
- C) left; increase
- D) left; decrease
Answer: A
Everything else held constant, a decrease in government spending will cause the IS curve to shift to the ________ and aggregate demand will ________.
- A) right; increase
- B) right; decrease
- C) left; increase
- D) left; decrease
Answer: D