Question 1

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

Accepted Answer

Fed policies, particularly those related to monetary policy, aim to stabilize the economy by adjusting interest rates and controlling inflation. One of their goals is to moderate the growth rate of actual real GDP to align it more closely with the potential or natural level of GDP, thereby avoiding overheating the economy or causing inflation to rise uncontrollably. This approach helps in maintaining sustainable economic growth over time.

Question 2

Quarterly data for the years 1988-93 for the nominal federal funds interest rate and the output ratio show that the Fed

Accepted Answer

The Federal Reserve (Fed) typically raises interest rates to cool down an overheating economy, which is indicated by a high output ratio. This action is taken to control inflation and stabilize economic growth.

Question 3

Fiscal policy in the United States is hampered by its particularly long ________ lag.

Accepted Answer

Fiscal policy in the United States is particularly hampered by its legislative lag, which refers to the time it takes for Congress to discuss, propose, and pass legislation related to fiscal policy changes. This process can be lengthy due to political negotiations and deliberations.

Question 4

The deregulation of thrift institutions in the 1970s and 1980s have made their deposits and thus their ability to finance mortgages ________ sensitive to movements in the market interest rate,thus ________ the monetary policy multiplier.

Accepted Answer

Deregulation made thrift institutions more sensitive to interest rate changes, which means they now have less ability to finance mortgages. This results in a lowering of the monetary policy multiplier.

Question 5

The switch to flexible exchange rates in 1973 has made the effect of monetary policy on net exports a ________ important component of the monetary policy multiplier process,and thus has ________ the effectiveness lag.

Accepted Answer

The switch to flexible exchange rates in 1973 has made the effect of monetary policy on net exports a more important component of the monetary policy multiplier process, as exchange rate changes can affect the competitiveness of a country's exports. This has lengthened the effectiveness lag, as changes in exchange rates may take time to fully impact net exports.

Question 6

Which of the following groups of economic forecasters have been able to forecast "turning points" when the economy turned up or down?

Accepted Answer

Economic forecasting, especially predicting turning points in the economy, is notoriously difficult and uncertain. Historically, no specific group of forecasters, whether from the Federal Reserve (the Fed), other government branches, or private firms, has consistently and accurately predicted these turning points.

Question 7

Based on the record of past business cycles as well as Fed behavior,we can estimate that for expansionary monetary policy the overall lag is approximately

Accepted Answer

Based on the record of past business cycles, the overall lag for an expansionary monetary policy is estimated to be around 20 months. Of this, around three-quarters or 15 months is the effectiveness lag, which is the time it takes for changes in monetary policy to affect the economy.

Question 8

The one main difficulty with a nominal GDP target rule for monetary policy is that it

Accepted Answer

The answer of The one main difficulty with a nominal...

Question 9

Observers of the economy often complain that indicators of economic activity are often contradictory.This is an example of the ________ lag.

Accepted Answer

The recognition lag refers to the time it takes for policymakers and economic observers to recognize that a change in economic activity has occurred. In this case, the complaint that economic indicators are contradictory suggests that there may be confusion or delay in recognizing changes in the economy, leading to a recognition lag.

Question 10

Which of the following is likely to have the shortest transmission lag?

Accepted Answer

The answer of Which of the following is likely to...

Question 11

Typically the data lag is about

Accepted Answer

The answer of Typically the data lag is about
...

Question 12

Fed policies since the 1980s have attempted to

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 13

The major difference between the lag in monetary policy versus the lag in fiscal policy stems from the

Accepted Answer

Legislative lag is more significant in fiscal policy because it involves government decisions on spending and taxation, which require approval from various branches of government and can be time-consuming. Monetary policy, managed by central banks, can be adjusted more swiftly without the need for legislative approval.

Question 14

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

Accepted Answer

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

Question 15

Policy makers usually wait for ________ months of data to confirm a change.

Accepted Answer

Policy makers usually wait for two months of data to confirm a change.

Question 16

Data indicate that the economy's response to monetary policy became noticeably weaker and more stretched out during

Accepted Answer

The period from 1991 to 2007 is characterized by a noticeable weakening and elongation in the economy's response to monetary policy, partly due to structural changes in the economy and financial system, including globalization, technological advancements, and changes in financial regulation.

Question 17

With lags in monetary policy,an effective expansionary policy must be initiated many months ________ the start of the economic downturn it is intended to moderate,and this requires ________ economic forecasts.

Accepted Answer

An effective expansionary policy must be initiated before the start of the economic downturn it is intended to moderate, which means "before" is the correct choice for the first blank. Additionally, this requires generating accurate economic forecasts, which makes "generating accurate" the correct choice for the second blank.

Question 18

During which of the following decades has the output ratio been staying closest to zero?

Accepted Answer

The answer of During which of the following decades has...

Question 19

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

Accepted Answer

The phrase "soft landings" is commonly associated with Federal Reserve policies since the mid-1980s. A soft landing refers to a gradual slowdown in economic growth that avoids a recession or economic contraction. The Federal Reserve attempts to achieve this by carefully managing interest rates and monetary policy.

Question 20

The measure of the effectiveness lag for a change in monetary policy is the length of time necessary for ________ of the ultimate effect to be felt.

Accepted Answer

The measure of the effectiveness lag for a change in monetary policy is the length of time necessary for one-half of the ultimate effect to be felt.

Quiz 14: The Goals, tools, and Rules of Monetary Policy