Question 1

The lag for monetary policymakers obtaining information about unemployment is called

Accepted Answer

Data lag refers to the time it takes for policymakers to receive and process data on unemployment.

Question 2

When workers negotiate higher wages but monetary policy is accommodative, the resulting decrease in equilibrium output is due to a shift in _____, while the long-run return to the natural rate of output is due to a shift in

Accepted Answer

The answer of When workers negotiate higher wages but monetary...

Question 3

In a wage-price spiral, when higher wage demands and accommodative monetary policy follow each other, the wage increase is represented by a shift in _____ and the change in monetary policy is represented by a shift in

Accepted Answer

The wage increase is represented by a shift in Aggregate Supply (AS) as higher wages increase production costs, reducing supply. The accommodative monetary policy is represented by a shift in Aggregate Demand (AD) as it increases spending and demand in the economy.

Question 4

Recognition lag is a particularly difficult problem for which variable?

Accepted Answer

Recognition lag is a particularly difficult problem for potential GDP because it can take a long time to identify and measure changes in potential GDP.

Question 5

Which of the following are reasons a monetary policymaker might cause inflation due to excessive money supply growth?

Accepted Answer

All the options listed can lead to a situation where a monetary policymaker might cause inflation due to excessive money supply growth. High employment policies might push for lower unemployment than is sustainable without inflation. Overestimating the level of full employment can lead to too much money being pumped into the economy, thinking it won't cause inflation. High government debt might be financed by printing more money, which also increases the money supply and can lead to inflation.

Question 6

Which lag affects monetary policy the most?

Accepted Answer

The time it takes for an interest rate change to affect the economy (C) is the lag that affects monetary policy the most. This is because even after interest rates are adjusted, it takes time for these changes to permeate through the economy and influence borrowing, spending, and investment behaviors.

Question 7

The problem of determining whether new data is random or represents the economic environment is called

Accepted Answer

Recognition lag refers to the time it takes to identify and understand changes in economic conditions, including determining whether new data represents random fluctuations or actual changes in the economic environment.

Question 8

The money supply is different from other economic variables because

Accepted Answer

The answer of The money supply is different from other...

Question 9

When policy makers want to get out of a recession, they might respond with

Accepted Answer

The answer of When policy makers want to get out...

Question 10

Inflation arising from increased business confidence and investment is an example of

Accepted Answer

Demand-pull inflation occurs when the demand for goods and services exceeds the supply, which can happen when increased business confidence leads to more investment and spending.

Question 11

Effectiveness lags are a problem for monetary policymakers due to the uncertain effect of _____ changes on

Accepted Answer

Monetary policy primarily involves managing interest rates to control inflation, economic growth, and unemployment. Changes in interest rates can influence investment decisions by firms and individuals, but the effect and timing can be uncertain, leading to effectiveness lags.

Question 12

An increase in the money supply leads to a shift in AD in the _____ run and AS in the _____ run.

Accepted Answer

An increase in the money supply initially shifts the Aggregate Demand (AD) curve to the right in the short run as more money in the economy boosts spending. Over the long run, it can lead to inflationary pressures, which can shift the Aggregate Supply (AS) curve as costs of production adjust.

Question 13

A monetary policymaker using a Taylor Rule could cause persistently increasing inflation if

Accepted Answer

The answer of A monetary policymaker using a Taylor Rule...

Question 14

If workers successfully demand higher wages, _____ shifts to the

Accepted Answer

The answer of If workers successfully demand higher wages, _____...

Question 15

Which of the following could cause continually rising prices?

Accepted Answer

The answer of Which of the following could cause continually...

Question 16

The type of lag that can be more serious for monetary policy than fiscal policy is

Accepted Answer

Effectiveness lag is more serious for monetary policy because it takes time for changes in interest rates to affect the economy, whereas fiscal policy can have more immediate effects once implemented.

Question 17

When a central bank buys the bonds of its government to pay for expenditures, it is said to _____ the debt.

Accepted Answer

When a central bank buys government bonds to finance the government's expenditures, it is essentially converting debt into money supply, which is referred to as "monetizing" the debt. This process increases the amount of money in circulation, which can lead to inflation if not managed carefully.

Question 18

Inflation arising from a rise in the price of imported input goods like copper is an example of

Accepted Answer

Cost-push inflation occurs when the prices of production inputs increase, leading to an increase in the cost of the final product. A rise in the price of imported input goods like copper increases production costs, which can lead to higher prices for consumers, fitting the definition of cost-push inflation.

Question 19

If monetary policymakers overestimate the level of full employment, then prices will _____ in the short run and _____ in the long run.

Accepted Answer

If monetary policymakers overestimate the level of full employment, they might implement policies that are too expansionary, leading to increased demand in the economy. This can cause prices to rise in the short run due to the higher demand. In the long run, as the economy adjusts and potential inflationary pressures become realized, prices continue to rise as the value of money decreases.

Question 20

If workers successfully demand higher wages, but monetary policy is not accommodative, then prices will _____ in the short run and _____ in the long run.

Accepted Answer

In the short run, higher wages increase production costs, leading to higher prices. In the long run, if monetary policy is not accommodative, the economy may adjust through reduced demand, causing prices to fall.

Quiz 25: Inflation and Money