Question 1

To reduce economic volatility the Fed should push the economy toward a
A) positive output ratio.
B) negative output ratio.
C) zero output ratio.
D) All of the above are consistent with reduced volatility.

Accepted Answer

A zero output ratio indicates that the economy is producing at its potential output level, which is associated with stable economic conditions and reduced volatility.

Question 2

During recessions natural real GDP
A) falls.
B) increases.
C) remains constant.
D) A, B, or C do occur during any given recession.

Accepted Answer

The answer of During recessions natural real GDP
A) falls.
B) increases.
C)...

Question 3

The lag between changes in the Fed's interest rate target and large responses of output means that the Fed may want to ________ interest rates ________ output recovers to its natural level.
A) raise, after
B) lower, before
C) raise, before
D) lower, after

Accepted Answer

The lag between changes in the Fed's interest rate and output means that it may take some time before the change affects the economy. Therefore, the Fed may want to raise interest rates before output recovers to its natural level to prevent inflationary pressures from building up.

Question 4

Fed policies since the 1980s have attempted to
A) overshoot natural real GDP.
B) undershoot natural real GDP.
C) "stall" the economy whenever natural real GDP is growing too fast.
D) A and B.
E) none of the above.

Accepted Answer

Fed policies since the 1980s have primarily focused on stabilizing inflation and managing economic growth without specifically aiming to overshoot or undershoot natural real GDP. Their goal has been more about maintaining economic stability rather than deliberately stalling the economy or targeting GDP levels beyond the natural rate.

Question 5

Which of the following contributed to the negative output ratio experienced in the 1970s?
A) depreciation of the dollar
B) favorable oil price shocks
C) favorable farm price shocks
D) All of the above

Accepted Answer

The answer of Which of the following contributed to the...

Question 6

When existing stocks of resources are being heavily utilized, actual output is
A) likely to grow much faster than natural output.
B) likely to grow more slowly than natural output.
C) equal to natural output.
D) no longer tied to natural output.

Accepted Answer

The answer of When existing stocks of resources are being...

Question 7

During which of the following years did the Fed fail to pursue a policy aimed at stabilizing the output ratio?
A) 1988
B) 1990
C) 1994
D) 1997

Accepted Answer

The answer of During which of the following years did...

Question 8

Compared to the 1960s, the effectiveness lag is ________ due to ________.
A) shorter, changes in fiscal policy
B) longer, structural changes in the economy
C) shorter, deregulation
D) longer, increased sensitivity of consumer spending to interest rates

Accepted Answer

Structural changes in the economy, such as globalization, automation, and the shift towards a service-based economy, have created a more complex and interconnected system, resulting in a longer effectiveness lag.

Question 9

Which of the following contributed to the positive output ratio experienced in the 1960s?
A) decreased government spending
B) tax decreases
C) favorable oil price shocks
D) favorable farm price shocks

Accepted Answer

The answer of Which of the following contributed to the...

Question 10

Since the mid-1980s, Federal Reserve policies have often been described as attempting
A) accelerated takeoffs.
B) sustained growth.
C) stalling tactics.
D) soft landings.

Accepted Answer

The phrase "soft landing" is often used to describe the Federal Reserve's approach to monetary policy since the mid-1980s. This approach attempts to gradually slow down economic growth and bring inflation under control without causing a recession or significant negative impact on the overall economy.

Question 11

The consensus reached in the late 1990s was that from the 1980s onward the Fed had been
A) quicker to stimulate or restrain the economy when its output fell short of or exceeded its natural level.
B) quicker to stimulate the economy when output fell short of the natural level, but slower to do so when output exceeded the natural level.
C) slower to stimulate the economy when output fell short of the natural level, but quicker to do so when output exceeded its natural level.
D) slower to stimulate or restrain the economy when its output fell short of or exceeded its natural level.

Accepted Answer

The consensus reached in the late 1990s was that from the 1980s onward, the Fed had been quicker to stimulate or restrain the economy when its output fell short of or exceeded its natural level.

Question 12

Supply shocks after 1985
A) forced the Fed to follow restrictive monetary policy and caused a negative output ratio.
B) forced the Fed to follow restrictive monetary policy and caused a positive output ratio.
C) allowed the Fed to follow accommodative monetary policy and caused a negative output ratio.
D) allowed the Fed to follow accommodative monetary policy and push the output ratio toward zero.

Accepted Answer

Supply shocks after 1985 allowed the Federal Reserve (Fed) to adopt an accommodative monetary policy stance, which aimed at mitigating the negative impacts of the shocks on the economy. This approach helped in pushing the output ratio toward a more neutral or zero level, balancing between inflation and unemployment without forcing the economy into a restrictive stance.

Question 13

Which of the following changes should make activist policy makers more confident in their capacity to make good policy recommendations?
A) structural change in the economy
B) changes in multipliers
C) a longer estimated lag for monetary policy
D) none of the above

Accepted Answer

None of the options listed are specific or conclusive enough to give activist policy makers more confidence in their capacity to make good policy recommendations. Structural changes can be unpredictable and multipliers can vary depending on the context, while a longer estimated lag for monetary policy could be seen as a negative development. Without more information or context, none of these options can be considered reliable indicators of effective policy-making.

Question 14

Fed policies since the mid-1980s have been intended to
A) steepen the growth path of natural real GDP.
B) taper down the growth rate of actual real GDP as it approaches natural real GDP.
C) accelerate the growth rate of natural real GDP whenever actual real GDP exceeds it.
D) use the "runway" of natural real GDP as a springboard to faster growth.

Accepted Answer

The Fed's policies since the mid-1980s have been intended to taper down the growth rate of actual real GDP as it approaches natural real GDP in order to prevent inflation from rising too quickly. This approach is known as the Taylor Rule, which aims to adjust interest rates in response to deviations from the target rate of inflation and the level of output relative to its natural rate.

Question 15

During the ________ output tended to exceed its natural level and inflation ________.
A) late 1980s, accelerated
B) 1990s, accelerated
C) 1960s and early 1970s, accelerated
D) early 1980s, decelerated

Accepted Answer

During the period of 1960s and early 1970s, output tended to exceed its natural level and inflation accelerated. This was known as the period of "stagflation" where there was both high inflation and high unemployment despite high levels of government spending.

Question 16

During the ________ output ________ its natural level.
A) late 1990s, exceeded
B) 1960s, deviated relatively little from
C) early 1980s, tended to exceed
D) all of the above

Accepted Answer

The answer of During the ________ output ________ its natural...

Question 17

Policy activists' hope that they can undertake successful stabilization policy is ________ by the fact that natural real GDP ________ during recessions.
A) improved, falls
B) worsened, falls
C) improved, increases
D) worsened, increases

Accepted Answer

The answer of Policy activists' hope that they can undertake...

Question 18

Which of the following types of economic data are revised over time as government data collection agencies receive more complete information?
A) interest rates
B) employment
C) stock prices
D) all of the above

Accepted Answer

Employment data is commonly revised over time as government data collection agencies receive more complete information. Interest rates and stock prices are not typically revised in the same manner.

Question 19

At the end of the 1980s, bank regulators ________ various standards by which bank performance is measured thereby ________ banks willingness to lend.
A) lowered, increasing
B) raised, increasing
C) lowered, decreasing
D) raised, decreasing

Accepted Answer

Bank regulators raised various standards by which bank performance is measured, thereby decreasing banks' willingness to lend.

Question 20

In which of the following years did oil price movements contribute to holding down inflation?
A) 1986
B) 1998
C) 2001
D) All of the above.

Accepted Answer

All of the above years had oil price movements that helped to hold down inflation. In 1986, a worldwide drop in oil prices contributed to lower inflation rates. In 1998, the Asian financial crisis led to lower demand for oil, resulting in lower prices and lower inflation. In 2001, the 9/11 attacks and subsequent economic slowdown led to a drop in oil prices and helped to keep inflation in check.

Quiz 14: Stabilization Policy in the Closed and Open Economy

To reduce economic volatility the Fed should push the economy toward a

During recessions natural real GDP

The lag between changes in the Fed's interest rate target and large responses of output means that the Fed may want to interest rates output recovers to its natural level.

Fed policies since the 1980s have attempted to

Which of the following contributed to the negative output ratio experienced in the 1970s?

When existing stocks of resources are being heavily utilized, actual output is

During which of the following years did the Fed fail to pursue a policy aimed at stabilizing the output ratio?

Compared to the 1960s, the effectiveness lag is due to .

Which of the following contributed to the positive output ratio experienced in the 1960s?

Since the mid-1980s, Federal Reserve policies have often been described as attempting

The consensus reached in the late 1990s was that from the 1980s onward the Fed had been

Supply shocks after 1985

Which of the following changes should make activist policy makers more confident in their capacity to make good policy recommendations?

Fed policies since the mid-1980s have been intended to

During the output tended to exceed its natural level and inflation .

During the output its natural level.

Policy activists' hope that they can undertake successful stabilization policy is by the fact that natural real GDP during recessions.

Which of the following types of economic data are revised over time as government data collection agencies receive more complete information?

At the end of the 1980s, bank regulators various standards by which bank performance is measured thereby banks willingness to lend.

In which of the following years did oil price movements contribute to holding down inflation?