Question 1

A credible,nonaccommodating policy rule has the ________ that it makes a cost-push by workers ________ likely and thus helps to reduce the output loss from controlling inflation.

Accepted Answer

A nonaccommodating policy rule means that the central bank will not respond to increases in inflation by increasing the money supply. This makes it less likely that workers will be able to push for wage increases, which in turn reduces the cost-push inflation that can result from wage increases. This reduction in inflation helps to minimize the output loss associated with controlling inflation. Therefore, an advantage of a nonaccommodating policy rule is that it makes a cost-push by workers less likely.

Question 2

Monetarists contend that ________.

Accepted Answer

Monetarists argue that the key to maintaining full employment and stable economic growth is to control the money supply through a money growth rule, where the central bank should aim to increase the money supply at a constant annual rate. This will ensure price stability and avoid the boom-and-bust cycles of the business cycle. Therefore, monetarists would recommend that the Bank of Canada should adopt and follow a money growth rule.

Question 3

One of the drawbacks of rules based monetary policy is ________.

Accepted Answer

Rules based monetary policy can be too rigid and unable to address unforeseen contingencies, which can limit the effectiveness of the policy in responding to changing economic conditions.

Question 4

One of the drawbacks of rules based monetary policy is ________.

Accepted Answer

Rules based monetary policy relies on pre-determined guidelines and does not allow for discretion or judgment of policy makers. This can lead to inflexibility and potentially inappropriate policy decisions in certain situations.

Question 5

One of the drawbacks of rules based monetary policy is ________.

Accepted Answer

The true model of the economy is often unknown or uncertain, which means a single rule may not be appropriate in all circumstances. This can lead to unintended consequences or ineffective policy implementation.

Question 6

Which of the following views are consistent with the case for nondiscretionary macroeconomic policy?

Accepted Answer

The answer of Which of the following views are consistent...

Question 7

One example where a rules based approach would have improved the economy is ________.

Accepted Answer

The answer of One example where a rules based approach...

Question 8

One of the drawbacks of rules based monetary policy is ________.

Accepted Answer

Rules based monetary policy relies on a specific set of variables and relationships to guide decision making. However, these variables and relationships may change over time, making the policy less effective or even counterproductive.

Question 9

One of the drawbacks of rules based monetary policy is ________.

Accepted Answer

Rules based monetary policy is subject to the Lucas critique, which suggests that policy rules that are based on past relationships between variables may not hold in the future due to changes in economic conditions or the behavior of economic agents. This means that relying solely on a pre-determined rule may not be effective in adjusting to changing economic conditions.

Question 10

The Lucas critique indicates that ________.

Accepted Answer

The Lucas critique argues that expectations are important in determining the outcome of an activist policy. This suggests that policymakers cannot solely rely on historical relationships when implementing economic policies, as people may change their behavior and expectations in response to the policy. This is a challenge to Keynesian economics, which is based on the assumption that people have stable and predictable behavior. So, the Lucas critique indicates that expectations are crucial in the effectiveness of activist policies.

Question 11

Some economists contend that a policy of shifting the aggregate demand curve will be costly because it produces more volatility in both the price level and output.These economists likely are advocates of ________ policy.

Accepted Answer

The answer of Some economists contend that a policy of...

Question 12

Advocates of nondiscretionary policy contend that a discretionary policy of shifting the aggregate ________ curve will be costly because it produces ________ volatility in both the price level and output.

Accepted Answer

The answer of Advocates of nondiscretionary policy contend that a...

Question 13

If expectations about policy affect how wages are set,then the case for a(n)________ policy is much stronger.

Accepted Answer

If expectations about policy affect wages, having a nondiscretionary policy (a policy that is more predictable and rules-based rather than subject to constant changes and discretion) will provide greater certainty and stability for wage setters, potentially leading to better outcomes.

Question 14

Advocates of nondiscretionary policy contend that a policy of shifting the aggregate demand curve will be costly because it produces more volatility in both the price level and output.Thus they favor ________.

Accepted Answer

Advocates of nondiscretionary policy support a constant-money-growth-rate rule, which means a fixed rate of growth in the money supply to stabilize the economy. This approach is less volatile because it reduces uncertainty and provides a predictable framework for monetary policy. It also avoids the potential for government officials to make incorrect decisions regarding the timing and magnitude of discretionary policy changes.

Question 15

The political business cycle can lead to ________.

Accepted Answer

The political business cycle refers to the tendency of politicians to manipulate economic policies in order to maximize their chances of reelection. This often leads to expansionary monetary and fiscal policies, such as lowering interest rates and increasing government spending, in order to stimulate economic growth and reduce unemployment. However, these policies can also be used for short-term gain and can contribute to inflation and debt in the long run. Therefore, the correct answer is choice D, both A and B.

Question 16

Monetarists argue that the Bank of Canada should pursue ________.

Accepted Answer

Monetarists argue that the Bank of Canada should pursue a constant growth rate rule for the money supply, which means that the money supply should increase at a steady rate in order to promote price stability and economic growth. This approach is based on the belief that changes in the money supply have a direct impact on aggregate demand and ultimately on inflation and employment levels. Therefore, the goal of monetary policy should be to maintain a stable and predictable growth rate of the money supply.

Question 17

Advocates of nondiscretionary policy emphasize the importance of a constant money growth rate rule more than the balanced-budget amendment or restrictions on union power because ________.

Accepted Answer

Advocates of nondiscretionary policy believe that excessive money growth is the primary cause of inflation. Therefore, they prioritize a constant money growth rate rule as a means to combat inflation more than the other options listed.

Question 18

If aggregate output is below the natural rate level,advocates of nondiscretionary policy would recommend that the government ________.

Accepted Answer

The answer of If aggregate output is below the natural...

Question 19

The existence of lags prevents the instantaneous adjustment of the economy to policies changing aggregate demand,thereby strengthening the case for ________ policy.

Accepted Answer

The answer of The existence of lags prevents the instantaneous...

Question 20

Evidence indicating that the wage and price adjustment process is extremely slow would strengthen the case for ________.

Accepted Answer

If the wage and price adjustment process is slow, it implies that the economy does not quickly self-correct from shocks. This situation strengthens the case for discretionary policy, where policymakers actively intervene to adjust economic policies based on current economic conditions, rather than relying on automatic stabilizers or predetermined rules.

Quiz 26: The Role of Expectations in Monetary Policy

A credible,nonaccommodating policy rule has the that it makes a cost-push by workers likely and thus helps to reduce the output loss from controlling inflation.

Monetarists contend that ________.

One of the drawbacks of rules based monetary policy is ________.

One of the drawbacks of rules based monetary policy is ________.

One of the drawbacks of rules based monetary policy is ________.

Which of the following views are consistent with the case for nondiscretionary macroeconomic policy?

One example where a rules based approach would have improved the economy is ________.

One of the drawbacks of rules based monetary policy is ________.

One of the drawbacks of rules based monetary policy is ________.

The Lucas critique indicates that ________.

Some economists contend that a policy of shifting the aggregate demand curve will be costly because it produces more volatility in both the price level and output.These economists likely are advocates of ________ policy.

Advocates of nondiscretionary policy contend that a discretionary policy of shifting the aggregate curve will be costly because it produces volatility in both the price level and output.

If expectations about policy affect how wages are set,then the case for a(n) ________ policy is much stronger.

Advocates of nondiscretionary policy contend that a policy of shifting the aggregate demand curve will be costly because it produces more volatility in both the price level and output.Thus they favor ________.

The political business cycle can lead to ________.

Monetarists argue that the Bank of Canada should pursue ________.

Advocates of nondiscretionary policy emphasize the importance of a constant money growth rate rule more than the balanced-budget amendment or restrictions on union power because ________.

If aggregate output is below the natural rate level,advocates of nondiscretionary policy would recommend that the government ________.

The existence of lags prevents the instantaneous adjustment of the economy to policies changing aggregate demand,thereby strengthening the case for ________ policy.

Evidence indicating that the wage and price adjustment process is extremely slow would strengthen the case for ________.