Question 1

If workers push for wages that are beyond what productivity gains can justify ________.

Accepted Answer

If workers push for wages that are beyond what productivity gains can justify, it may lead to a temporary negative supply shock. This is because the production costs will increase, which can lead to a decrease in the supply of goods and services or higher prices. The other options (A and C) are not necessarily true in this scenario. A positive output gap (A) does not necessarily ensue, and the Federal Reserve easing monetary policy (C) may not always be the response to a negative supply shock.

Question 2

If the inflation rate target is 2%,the current inflation rate is 1%,and the output gap is minus 2%,then according to the Taylor rule,the nominal federal funds rate should be ________ percent.

Accepted Answer

The answer of If the inflation rate target is 2%,the...

Question 3

If the economy is in a long-run equilibrium when the Federal Reserve decides that its inflation target is too low and chooses to raise it,________.

Accepted Answer

Raising the inflation target would lead the Federal Reserve to ease monetary policy, which is consistent with a downward shift of the MP curve (making money cheaper to borrow), leading to a rightward shift of the AD curve (increasing demand). This easing of monetary policy would, in the short run, increase aggregate demand, but in the long run, it would lead to a decrease in short-run aggregate supply as costs adjust upwards, driving the long-run equilibrium level of inflation up.

Question 4

Which of the following statements is correct?

Accepted Answer

The Federal Reserve can influence inflation rates in the short term but cannot target any inflation rate in the long run due to various economic factors and constraints. Additionally, the equilibrium real interest rate and long-run aggregate output are determined by real economic factors such as productivity and demographics, not by monetary policy adjustments. Therefore, all of the statements are correct in highlighting the limitations of autonomous monetary policy adjustments by the Federal Reserve in the long run.

Question 5

If the economy is in a long-run equilibrium when the Federal Reserve decides that its inflation target is too low and chooses to raise it,________.

Accepted Answer

When the Federal Reserve decides to raise its inflation target, it would likely ease monetary policy by lowering the real interest rate to stimulate the economy, leading to an increase in aggregate demand. This increase in demand can generate a positive output gap, where actual output exceeds potential output. Over time, this can lead to an increase in prices and wages as the economy adjusts, which would decrease short-run aggregate supply (AS) until a new long-run equilibrium is reached at a higher level of inflation. Thus, all of the given statements are correct in this context.

Question 6

If the economy is in a long-run equilibrium when the Federal Reserve decides that its inflation target is too low and chooses to raise it,________.

Accepted Answer

If the Federal Reserve decides to raise its inflation target, it is indicating that it wants to increase inflation from its current level. To do this, the Federal Reserve would likely conduct an easing of monetary policy by lowering the real interest rate for any given inflation rate. Lowering the real interest rate would increase aggregate demand and stimulate economic growth, which would lead to a higher level of inflation.

Question 7

Is the Taylor rule of greater use to activist or to nonactivist policy makers?

Accepted Answer

The answer of Is the Taylor rule of greater use...

Question 8

If the economy is in a long-run equilibrium when the Federal Reserve decides that its inflation target is too low and chooses to raise it,________.

Accepted Answer

The answer of If the economy is in a long-run...

Question 9

If the economy is in a long-run equilibrium when the Federal Reserve decides that its inflation target is too low and chooses to raise it,________.

Accepted Answer

In the long run, potential output is determined by factors such as labor force, technology, and capital stock. Changes in monetary policy cannot affect these factors, so potential output would be unaffected. However, if the Fed raises its inflation target, this would lead to higher inflation in the long run as prices adjust to the new target. Meanwhile, real interest rates (i.e. interest rates adjusted for inflation) would be unaffected since the increase in inflation expectations would be offset by the increase in the Fed's target. Therefore, Choice B is the best answer.

Question 10

Is the Taylor rule compatible with a hierarchical mandate?

Accepted Answer

The answer of Is the Taylor rule compatible with a...

Question 11

Since 2010,the federal funds rate has been well below the rate suggested by the Taylor rule.A likely explanation for the discrepancy is that ________.

Accepted Answer

The answer of Since 2010,the federal funds rate has been...

Question 12

If the economy is in a long-run equilibrium when the Federal Reserve decides that its inflation target is too low and chooses to raise it,________.

Accepted Answer

Raising the inflation target would more likely lead to an easing of monetary policy to stimulate higher inflation, but this would typically involve lowering real interest rates, not raising them, to encourage borrowing and spending. None of the provided options accurately describe this scenario.

Question 13

If the inflation rate target is 2%,the current inflation rate is also 2%,and the output gap is zero,then according to the Taylor rule,the nominal federal funds rate should be ________ percent.

Accepted Answer

The Taylor rule formula is: Federal Funds Rate = Natural Rate of Interest + Current Inflation + 0.5(Inflation Gap) + 0.5(Output Gap). Assuming the natural rate of interest is 2% (a common assumption), and given that the current inflation is 2%, the inflation gap is 0 (since the target inflation is also 2%), and the output gap is 0, the calculation would be: 2% (Natural Rate) + 2% (Current Inflation) = 4%. Therefore, according to the Taylor rule, the nominal federal funds rate should be 4 percent.

Question 14

An activist policy to promote high employment ________.

Accepted Answer

An activist policy to promote high employment may lead to both temporary negative supply shock and increase in aggregate demand, which could cause inflationary pressures. Additionally, high employment might incentivize workers to push for higher wages beyond what productivity gains can justify, leading to inflationary pressures. Therefore, option D is correct - it includes all three possible outcomes.

Question 15

If the inflation rate target is 2%,the current inflation rate is 3%,and the output gap is 2%,then according to the Taylor rule,the nominal federal funds rate should be ________ percent.

Accepted Answer

The answer of If the inflation rate target is 2%,the...

Question 16

Which of the following statements is correct?

Accepted Answer

The answer of Which of the following statements is correct?
...

Question 17

If workers push for wages that are beyond what productivity gains can justify ________.

Accepted Answer

When workers push for wages beyond what productivity gains justify, it can lead to a temporary negative supply shock as businesses face higher costs, potentially leading to higher prices. This situation can also result in a negative output gap, where actual output is less than potential output, potentially increasing unemployment if not addressed by policy measures such as those by the Federal Reserve. If the Federal Reserve eases monetary policy to increase aggregate demand in response to the negative supply shock, it could lead to a price-wage spiral, where wages and prices continuously push each other higher. Therefore, all of the given scenarios are possible outcomes.

Question 18

"With autonomous changes in the policy interest rate,the Federal Reserve cannot determine the long run equilibrium level of the real interest rate or potential output and will only be able to determine inflation." This statement is consistent with ________.

Accepted Answer

This statement is consistent with all of the provided notions. The idea that the Federal Reserve cannot determine the long-run equilibrium level of the real interest rate or potential output but can determine inflation aligns with the concepts of shifts in the monetary policy (MP) curve affecting the aggregate demand (AD) and aggregate supply (AS) curves without changing the long-run aggregate supply (LRAS), the long-run independence between nominal and real variables, and monetary neutrality. These concepts collectively suggest that while monetary policy can influence nominal variables like inflation in the short run, real variables such as the real interest rate and potential output are determined by real factors in the long run, unaffected by monetary policy.

Question 19

Macroeconomic Shocks & Policies 
-On the graphs above,show how the central bank implements a decrease in the inflation target.In words,explain why the change in the real interest rate is temporary.

Accepted Answer

The answer of Macroeconomic Shocks & Policies 
-On the graphs...

Question 20

Cost-push inflation is to ________ as demand-pull inflation is to ________.

Accepted Answer

Cost-push inflation is when the cost of production increases, leading to higher prices for goods and services, while demand-pull inflation is caused by an increase in demand for goods or services that outpaces the supply, leading to higher prices. The pair of words in option A (impatience and inaccuracy) do not relate to inflation, while B, C, and D relate to other economic concepts. Therefore, option A is the best choice.

Quiz 13: Macroeconomic Policy and Aggregate Demand and Supply Analysis

If workers push for wages that are beyond what productivity gains can justify ________.

If the inflation rate target is 2%,the current inflation rate is 1%,and the output gap is minus 2%,then according to the Taylor rule,the nominal federal funds rate should be ________ percent.

If the economy is in a long-run equilibrium when the Federal Reserve decides that its inflation target is too low and chooses to raise it,________.

Which of the following statements is correct?

If the economy is in a long-run equilibrium when the Federal Reserve decides that its inflation target is too low and chooses to raise it,________.

If the economy is in a long-run equilibrium when the Federal Reserve decides that its inflation target is too low and chooses to raise it,________.

Is the Taylor rule of greater use to activist or to nonactivist policy makers?

If the economy is in a long-run equilibrium when the Federal Reserve decides that its inflation target is too low and chooses to raise it,________.

If the economy is in a long-run equilibrium when the Federal Reserve decides that its inflation target is too low and chooses to raise it,________.

Is the Taylor rule compatible with a hierarchical mandate?

Since 2010,the federal funds rate has been well below the rate suggested by the Taylor rule.A likely explanation for the discrepancy is that ________.

If the economy is in a long-run equilibrium when the Federal Reserve decides that its inflation target is too low and chooses to raise it,________.

If the inflation rate target is 2%,the current inflation rate is also 2%,and the output gap is zero,then according to the Taylor rule,the nominal federal funds rate should be ________ percent.

An activist policy to promote high employment ________.

If the inflation rate target is 2%,the current inflation rate is 3%,and the output gap is 2%,then according to the Taylor rule,the nominal federal funds rate should be ________ percent.

Which of the following statements is correct?

If workers push for wages that are beyond what productivity gains can justify ________.

"With autonomous changes in the policy interest rate,the Federal Reserve cannot determine the long run equilibrium level of the real interest rate or potential output and will only be able to determine inflation." This statement is consistent with ________.

Macroeconomic Shocks & Policies -On the graphs above,show how the central bank implements a decrease in the inflation target.In words,explain why the change in the real interest rate is temporary.

Cost-push inflation is to as demand-pull inflation is to .