Question 1

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, and therefore emphasize the importance of a constant money growth rate rule.

Question 2

Monetarists argue that the Bank of Canada should pursue ________.

Accepted Answer

Monetarists believe in a constant growth rate rule, which means that the central bank should adjust the money supply in a systematic manner to achieve a steady rate of growth of the money supply. This approach aims to promote price stability and long-term economic growth by keeping the money supply growth rate in line with the growth rate of the economy.

Question 3

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 credible, nonaccommodating policy rule establishes expectations of lower inflation, which reduces the bargaining power of workers, making them less likely to push for higher wages. This reduces the cost-push inflationary pressure and minimizes the output loss associated with controlling inflation.

Question 4

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 5

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 6

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

Accepted Answer

A rules-based approach, such as implementing regulations and government intervention, could have potentially prevented or mitigated the effects of the Great Depression by addressing issues such as speculative trading and inadequate banking regulations.

Question 7

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

Accepted Answer

Rules based monetary policy can be too rigid a system and may not be flexible enough to address unexpected events or contingencies. This inflexibility can limit the effectiveness of the policy and make it difficult to adapt to changing economic circumstances.

Question 8

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

Accepted Answer

Rules based monetary policy relies on a specific relationship between economic variables to determine policy actions. However, these relationships may not hold in the future as economic conditions change. This can make it difficult for policymakers to make accurate decisions based on the rules alone.

Question 9

Monetarists contend that ________.

Accepted Answer

Monetarists believe that to stabilize the economy, the Bank of Canada should follow a pre-determined rule for increasing the money supply at a steady pace. By doing so, they believe that inflation can be avoided and the economy can operate at its full capacity.

Question 10

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

Accepted Answer

Rules based monetary policy may not take into account specific economic circumstances or the subjective judgment of policymakers. This can limit flexibility and potentially lead to suboptimal outcomes.

Question 11

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

Accepted Answer

Rules based monetary policies rely on a single rule to guide decision making, but the true model of the economy is complex and not fully understood. Therefore, a single rule may not be appropriate and could have unintended consequences.

Question 12

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 13

The political business cycle can lead to ________.

Accepted Answer

The political business cycle is the phenomenon where politicians manipulate economic policy to win votes, which can lead to expansionary monetary and/or fiscal policy. This can lead to economic instability and inflation if not managed properly. Additionally, it can create opportunities for corruption as politicians may use their power to benefit themselves or their supporters. Therefore, both choices A and B are potentially outcomes of the political business cycle.

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 favor a constant-money-growth-rate rule, as it provides stability and predictability in the economy, and avoids the cost of volatility in both the price level and output that come with shifting the aggregate demand curve.

Question 15

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 16

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

Accepted Answer

Rules based monetary policy is subject to the Lucas critique which states that economic agents will adjust their behavior in response to changes in policy. This means that if a specific rule is implemented, such as targeting a specific inflation rate, the public will anticipate this and behavior in a way that could undermine the effectiveness of the policy.

Question 17

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 18

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.

Question 19

The Lucas critique indicates that ________.

Accepted Answer

The Lucas critique argues that expectations are important in determining the outcome of an activist policy. It suggests that when individuals or firms are aware of a policy change, they may alter their behavior in response, rendering the policy ineffective or counterproductive. Therefore, policymakers must take into account how their actions may alter expectations and adjust their decisions accordingly.

Question 20

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

Accepted Answer

The answer of If expectations about policy affect how wages...

Quiz 25: The Role of Expectations in Monetary Policy

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 ________.

Monetarists argue that the Bank of Canada should pursue ________.

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.

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.

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 ________.

Monetarists contend that ________.

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

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

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

The political business cycle can lead to ________.

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

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

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

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

The Lucas critique indicates that ________.

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