Question 1

The goal of maximum sustainable employment is roughly equivalent to achieving ________.
A)the natural rate of unemployment
B)an inflation target that is slightly above zero
C)the elimination of frictional and structural unemployment
D)all of the above
E)none of the above

Accepted Answer

Maximum sustainable employment aims to achieve the natural rate of unemployment, which is the rate of unemployment that exists when the economy is at its potential output and there is no cyclical unemployment. Therefore, choice A is the best option. Choice B is incorrect because achieving maximum sustainable employment does not necessarily require an inflation target that is slightly above zero. Choice C is incorrect because frictional and structural unemployment are types of unemployment that cannot be completely eliminated.

Question 2

A good reason for policy makers to pursue a goal of stabilizing economic activity is that ________.
A)high inflation is always accompanied by high variability of inflation
B)high unemployment causes human misery and lost output
C)in a stable economy,there is little or no structural inflation
D)all of the above
E)none of the above

Accepted Answer

High unemployment leads to human suffering and a loss of potential economic output, making it a key reason for policymakers to aim for economic stability.

Question 3

Every six weeks,the Federal Open Market Committee (FOMC)meets to discuss monetary policy.This discussion is mainly focused on ________.
A)information of the equilibrium real interest rate from the past three years
B)the current month's release of the CPI by the BLS
C)the three year projections of the equilibrium real interest rate
D)the past 18 month history and future 18 month projections of the discount rate
E)none of the above

Accepted Answer

The FOMC meetings mainly focus on the three-year projections of the equilibrium real interest rate, as this helps to guide their decisions on monetary policy. The other options listed may be taken into consideration, but they are not the main focus of the meetings.

Question 4

A good reason for policy makers to pursue a goal of stabilizing economic activity is that ________.
A)high unemployment is always accompanied by high variability of unemployment
B)in a stable economy,there is little or no frictional unemployment
C)in a stable economy,there is little or no structural inflation
D)all of the above
E)none of the above

Accepted Answer

Stabilizing economic activity is pursued for various reasons, but the statements given in options A, B, and C are not universally accurate or direct reasons for policy makers to pursue economic stability. High unemployment does not always correlate with high variability of unemployment, a stable economy can still have frictional unemployment as it's a natural part of the job market, and structural inflation is related to factors other than just economic stability.

Question 5

Suppose that inflation is at the target rate and output has fallen substantially below potential output.A central bank with a primary objective of price stability should ________.
A)do nothing,because inflation cannot rise when unemployment is high
B)ease monetary policy,to avoid a decrease in the inflation rate
C)do nothing,because stabilizing economic activity is not a primary objective
D)ease monetary policy,because avoiding high unemployment is more important than avoiding high inflation
E)none of the above

Accepted Answer

When output falls substantially below potential output, it can lead to deflationary pressures or a decrease in the inflation rate. Easing monetary policy can help stimulate economic activity, bringing output closer to its potential and avoiding a decrease in the inflation rate, which aligns with the central bank's objective of price stability.

Question 6

Which of the following is a likely objective of monetary policy?
A)achieving price stability
B)stabilizing economic activity
C)closing the output gap to zero
D)all of the above
E)none of the above

Accepted Answer

Monetary policy aims to manage the economy by controlling the money supply and interest rates. Its objectives include achieving price stability, stabilizing economic activity, and closing the output gap to zero, making all of the listed options correct objectives of monetary policy.

Question 7

Shocks to the macroeconomy will cause a change in the equilibrium real interest rate,except ________.
A)permanent supply shocks
B)aggregate demand shocks
C)temporary supply shocks
D)all of the above
E)none of the above

Accepted Answer

The answer of Shocks to the macroeconomy will cause a...

Question 8

Which of the following is a likely objective of monetary policy?
A)achieving a zero inflation gap
B)stabilizing economic activity
C)avoiding large changes in unemployment
D)all of the above
E)none of the above

Accepted Answer

All of the above are likely objectives of monetary policy. Monetary policy aims to achieve low and stable inflation, which reduces uncertainty for households and businesses and supports long-term economic growth. It also seeks to stabilize economic activity by influencing interest rates and the availability of credit, which affects investment and consumption decisions. Additionally, monetary policy can play a role in avoiding large changes in unemployment by promoting sustainable economic growth and avoiding recessions or other economic crises.

Question 9

Frictional unemployment is to ________ as structural unemployment is to ________.
A)search;mismatch
B)temperature;rigidity
C)job training;output gap
D)all of the above
E)none of the above

Accepted Answer

Frictional unemployment arises from workers searching for suitable jobs and employers searching for suitable workers, while structural unemployment results from a mismatch between the skills and qualifications of workers and the available job openings. Therefore, the best choice is A: frictional unemployment is to search, while structural unemployment is to mismatch. The other choices are not related to the concepts of frictional and structural unemployment.

Question 10

Many borrowers defaulted on subprime mortgages ultimately disrupting financial markets by August 2007.Which of the following is a likely result of this increase in financial frictions?
A)The AD curve likely shifted left which caused a positive inflation gap.
B)The AD curve likely shifted right which caused a positive inflation gap.
C)The AD curve likely shifted left which caused an upward movement along the MP curve to a higher general equilibrium interest rate.
D)The AD curve likely did not shift.
E)none of the above

Accepted Answer

The answer of Many borrowers defaulted on subprime mortgages ultimately...

Question 11

The equilibrium real interest rate is the rate ________.
A)at which the output gap is zero
B)at which the inflation rate is low
C)controlled by the central bank
D)all of the above
E)none of the above

Accepted Answer

The equilibrium real interest rate is the rate at which the output gap is zero, meaning the economy is producing at its full capacity without generating inflationary or deflationary pressures.

Question 12

A central bank with a hierarchical mandate will seek ________ as a condition of pursuing other goals.
A)stable inflation
B)high employment
C)moderate interest rates
D)the approval of the legislature
E)none of the above

Accepted Answer

A central bank with a hierarchical mandate will prioritize stable inflation above other goals, such as high employment or moderate interest rates. This means that the central bank may adjust its policies to maintain price stability even if it means sacrificing other objectives.

Question 13

A change in the equilibrium real interest rate may result from ________.
A)an autonomous monetary policy
B)a change in the central bank's target inflation rate
C)a change in expected inflation
D)all of the above
E)none of the above

Accepted Answer

The answer of A change in the equilibrium real interest...

Question 14

Every six weeks,the Federal Open Market Committee (FOMC)meets to discuss how to best adjust ________ to accommodate shocks that shift the level of ________.
A)the equilibrium real interest rate;the target Fed Funds rate
B)the target Fed Funds rate;the equilibrium real interest rate
C)the 3 month T-bill rate;the inflation gap
D)target rate of inflation;money demand
E)none of the above

Accepted Answer

The FOMC discusses how to adjust the target Fed Funds rate to accommodate shocks that shift the level of the equilibrium real interest rate. The target Fed Funds rate is the rate at which banks lend overnight balances to each other, and adjusting it can affect the overall level of interest rates in the economy. The equilibrium real interest rate is the rate that balances the supply and demand for loanable funds in the economy, and shifts in factors such as productivity, demographics, and technology can influence its level.

Question 15

In recent decades,the trend among central banks has been to adopt ________.
A)high employment as a central goal
B)a dual mandate that gives equal weight to both price stability and low unemployment.
C)price stability as a central goal
D)a target of zero inflation
E)none of the above

Accepted Answer

The trend among central banks in recent decades has been to adopt price stability as a central goal. This means that central banks aim to maintain low and stable inflation rates. While some central banks, like the Federal Reserve in the United States, have a dual mandate that gives weight to both price stability and low unemployment, price stability has remained a central goal for most central banks around the world.

Question 16

How do the hierarchical and dual mandates differ in terms of macroeconomic consequences?

Accepted Answer

The answer of How do the hierarchical and dual mandates...

Question 17

Some central banks pursue price stability before they pursue other goals.Which of the following central banks have this kind of hierarchical mandate?
I.Bank of England
Ii.Bank of Canada
Iii.European Central Bank
Iv.Federal Reserve (U.S.A. )
A)i,ii,and iv only
B)i and iii only
C)i and iv only
D)ii,iii,and iv only
E)none of the above

Accepted Answer

The answer of Some central banks pursue price stability before...

Question 18

Ceteris Paribus,if current output has fallen below potential ________.
A)a positive inflation gap will ensue
B)it is likely that the equilibrium real rate has fallen below the policy rate
C)a negative unemployment gap will ensue
D)it is likely that the equilibrium real rate has risen above the policy rate
E)none of the above

Accepted Answer

When current output falls below potential, it often indicates that the equilibrium real interest rate (the interest rate at which the economy would be at its potential output) has fallen below the policy rate set by the central bank. This discrepancy can lead to decreased investment and spending, further suppressing economic activity.

Question 19

Which of the following is a primary objective of macroeconomic policy?
A)achieving a zero rate of unemployment
B)achieving a zero rate of inflation
C)stabilizing economic activity
D)all of the above
E)none of the above

Accepted Answer

The primary objective of macroeconomic policy is to stabilize economic activity in order to promote steady and sustainable economic growth over time. While policymakers may aim for low unemployment and inflation rates, these are typically regarded as secondary goals that are best achieved indirectly through stabilizing the economy as a whole.

Question 20

Which of the following is a primary objective of monetary policy?
A)achieving a zero natural rate of unemployment
B)targeting a zero rate of inflation
C)achieving price stability
D)all of the above
E)none of the above

Accepted Answer

Achieving price stability is a primary objective of monetary policy. While achieving a zero natural rate of unemployment and targeting a zero rate of inflation are important goals, they are not the primary objectives of monetary policy.

Quiz 13: Macroeconomic Policy and Aggregate Demand and Supply Analysis

The goal of maximum sustainable employment is roughly equivalent to achieving ________.

A good reason for policy makers to pursue a goal of stabilizing economic activity is that ________.

Every six weeks,the Federal Open Market Committee (FOMC) meets to discuss monetary policy.This discussion is mainly focused on ________.

A good reason for policy makers to pursue a goal of stabilizing economic activity is that ________.

Suppose that inflation is at the target rate and output has fallen substantially below potential output.A central bank with a primary objective of price stability should ________.

Which of the following is a likely objective of monetary policy?

Shocks to the macroeconomy will cause a change in the equilibrium real interest rate,except ________.

Which of the following is a likely objective of monetary policy?

Frictional unemployment is to as structural unemployment is to .

Many borrowers defaulted on subprime mortgages ultimately disrupting financial markets by August 2007.Which of the following is a likely result of this increase in financial frictions?

The equilibrium real interest rate is the rate ________.

A central bank with a hierarchical mandate will seek ________ as a condition of pursuing other goals.

A change in the equilibrium real interest rate may result from ________.

Every six weeks,the Federal Open Market Committee (FOMC) meets to discuss how to best adjust to accommodate shocks that shift the level of .

In recent decades,the trend among central banks has been to adopt ________.

How do the hierarchical and dual mandates differ in terms of macroeconomic consequences?

Some central banks pursue price stability before they pursue other goals.Which of the following central banks have this kind of hierarchical mandate? I.Bank of England Ii.Bank of Canada Iii.European Central Bank Iv.Federal Reserve (U.S.A. )

Ceteris Paribus,if current output has fallen below potential ________.

Which of the following is a primary objective of macroeconomic policy?

Which of the following is a primary objective of monetary policy?

Quiz 13: Macroeconomic Policy and Aggregate Demand and Supply Analysis

The goal of maximum sustainable employment is roughly equivalent to achieving ________.

A good reason for policy makers to pursue a goal of stabilizing economic activity is that ________.

Every six weeks,the Federal Open Market Committee (FOMC) meets to discuss monetary policy.This discussion is mainly focused on ________.

A good reason for policy makers to pursue a goal of stabilizing economic activity is that ________.

Suppose that inflation is at the target rate and output has fallen substantially below potential output.A central bank with a primary objective of price stability should ________.

Which of the following is a likely objective of monetary policy?

Shocks to the macroeconomy will cause a change in the equilibrium real interest rate,except ________.

Which of the following is a likely objective of monetary policy?

Frictional unemployment is to ________ as structural unemployment is to ________.

Many borrowers defaulted on subprime mortgages ultimately disrupting financial markets by August 2007.Which of the following is a likely result of this increase in financial frictions?

The equilibrium real interest rate is the rate ________.

A central bank with a hierarchical mandate will seek ________ as a condition of pursuing other goals.

A change in the equilibrium real interest rate may result from ________.

Every six weeks,the Federal Open Market Committee (FOMC) meets to discuss how to best adjust ________ to accommodate shocks that shift the level of ________.

In recent decades,the trend among central banks has been to adopt ________.

How do the hierarchical and dual mandates differ in terms of macroeconomic consequences?

Some central banks pursue price stability before they pursue other goals.Which of the following central banks have this kind of hierarchical mandate? I.Bank of England Ii.Bank of Canada Iii.European Central Bank Iv.Federal Reserve (U.S.A. )

Ceteris Paribus,if current output has fallen below potential ________.

Which of the following is a primary objective of macroeconomic policy?

Which of the following is a primary objective of monetary policy?

Frictional unemployment is to as structural unemployment is to .

Every six weeks,the Federal Open Market Committee (FOMC) meets to discuss how to best adjust to accommodate shocks that shift the level of .