Question 1

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

Accepted Answer

Tax decreases in the 1960s, particularly under the Kennedy administration, helped stimulate economic growth, contributing to a positive output ratio.

Question 2

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

Accepted Answer

The effectiveness lag, which is the time it takes for fiscal policy to have an impact on the economy, is longer due to structural changes in the economy. The economy has become more complex, with a greater number of industries and a greater integration with the global economy, so it takes longer for changes in policy to make an impact.

Question 3

A clear-cut "rules versus discretion" debate is no longer possible because those economists advocating rules for ________,such as ________,must leave the Fed with plenty of discretionary power.

Accepted Answer

The answer of A clear-cut "rules versus discretion" debate is...

Question 4

Economists who really do want to take discretion away from the Fed,by imposing rules on ________,face the problem of ________.

Accepted Answer

Imposing rules on policy instruments can lead to slippages between the instruments and the target variables, which may require some discretion from the Fed to achieve the desired outcomes. Therefore, economists who advocate for rules-based policies face the problem of how to avoid such slippages and ensure that the Fed adheres to the chosen rules while preserving sufficient flexibility to respond to changing economic conditions.

Question 5

David and Christian Romer's estimate of monetary policy's current effectiveness lag,defined as the time necessary for a policy change to have one-half its ultimate effect on GDP,is approximately ________ months.

Accepted Answer

The Romer's estimate of monetary policy's current effectiveness lag is approximately 19 months, as per the question statement. Therefore, the correct option is (D).

Question 6

The Fed's interest rate response to the rising output ratio experienced from 1997 to 1999 is explained by

Accepted Answer

The Fed's interest rate response during 1997 to 1999 can be attributed to a combination of factors: beneficial supply shocks that helped lower inflation rates, efforts to mitigate the effects of the Asian financial crisis, and uncertainty regarding the natural levels of output and unemployment. These factors collectively influenced the Fed's monetary policy decisions during that period.

Question 7

The longest lag monetary policy suffers is the ________ lag.

Accepted Answer

The answer of The longest lag monetary policy suffers is...

Question 8

Gordon's plots of the effectiveness lags of monetary policy over the periods 1961-1975,1976-1990,and 1991-2007 show the effectiveness lags have become ________ and the overall response of GDP to monetary policy has ________.

Accepted Answer

The answer of Gordon's plots of the effectiveness lags of...

Question 9

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

Accepted Answer

None of the options listed address the competency or confidence of policy makers in making good policy recommendations. Structural changes in the economy, changes in multipliers, and longer estimated lags for monetary policy all relate to the impact or effectiveness of policies, but not to the capacity of policy makers to make good recommendations.

Question 10

During the ________ output ________ its natural level.

Accepted Answer

The correct answer is A because during the late 1990s, output exceeded its natural level.

Question 11

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

Accepted Answer

Employment data are revised over time as government data collection agencies receive more complete information, such as data from unemployment insurance claims or surveys. Interest rates and stock prices are not typically revised in the same way.

Question 12

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

Accepted Answer

The period of the 1960s and early 1970s saw a phenomenon known as "stagflation" where output (economic growth) was low, but inflation was high. This contradicted the traditional economic theory of the time, which held that inflation and economic growth were positively correlated.

Question 13

What is the only policy instrument the Fed really can control directly and precisely?

Accepted Answer

The Federal Reserve directly and precisely controls high-powered money, also known as the monetary base, which includes currency in circulation and reserves held at the Fed. This control is exercised through open market operations and other monetary policy tools.

Question 14

Monetary policy has one clear advantage over fiscal policy by virtue of its very short

Accepted Answer

The answer of Monetary policy has one clear advantage over...

Question 15

The widespread,but not universal,consensus among economists would be to respond to

Accepted Answer

The widespread consensus among economists is to respond to an adverse demand shock with a policy to offset the shock. This could be achieved through measures such as fiscal stimulus or monetary policy that boost demand and stimulate economic activity. However, in the case of an adverse supply shock, there is not a universal consensus. Some economists may argue for an accommodating policy, such as lowering interest rates to encourage investment and stimulate supply. Others may argue for an extinguishing policy, such as reducing government spending or raising taxes to reduce demand and dampen inflationary pressures. Thus, the best choice is C, which reflects the consensus approach to responding to an adverse demand shock.

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

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

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

A clear-cut "rules versus discretion" debate is no longer possible because those economists advocating rules for ,such as ,must leave the Fed with plenty of discretionary power.

Economists who really do want to take discretion away from the Fed,by imposing rules on ,face the problem of .