Question 1

The time it takes from when a policy is enacted to when it affects the economy is known as the______ lag.

Accepted Answer

The effectiveness lag is the time it takes for a policy to have an actual impact on the economy after it has been implemented.

Question 2

A decrease in the money supply is an example of a(n)_____ policy.

Accepted Answer

A decrease in the money supply is a contractionary policy. This is because it reduces the amount of money available in the economy, which can help to slow down inflation and prevent overheating.

Question 3

The Fed uses_____ monetary policy to cause the economy to grow faster in the short run.A(n)_____ In the money supply is an example of such a policy.

Accepted Answer

An expansionary monetary policy involves increasing the money supply, which can lead to lower interest rates and higher borrowing and spending, ultimately stimulating economic growth in the short run. Option A and C involve contradictory policies that are not aimed at increasing economic growth, whereas option D involves a contractionary monetary policy that would have the opposite effect on economic growth.

Question 4

The lag between when a change in policy is decided and when it is put into action is referred to as the _____lag.

Accepted Answer

The lag between when a change in policy is decided and when it is put into action is referred to as the implementation lag. This is the time it takes for policymakers to establish the rules, regulations, and procedures necessary to carry out the change in policy. The implementation lag can be affected by a variety of factors, including bureaucratic procedures, resource availability, and resistance from stakeholders.

Question 5

Monetary policy can affect the level of output

Accepted Answer

Monetary policy primarily affects the level of output in the short run by influencing interest rates, investment, and consumption. In the long run, its effects are neutralized as prices adjust.

Question 6

In the U.S., data on potential output come from

Accepted Answer

The Congressional Budget Office is responsible for providing estimates and projections of potential output and other economic variables for the U.S. economy. This information is used by policymakers to inform decisions on fiscal policy and other matters.

Question 7

In case of business cycles, if output rises above the trend line

Accepted Answer

When output rises above the trend line, it means that the economy is expanding and there is an increase in the demand for labor. This leads to a decrease in unemployment. However, as there is increased demand for goods and services, it leads to an increase in prices, which causes inflation to rise. Therefore, unemployment falls and inflation rises.

Question 8

When the Fed adopts a contractionary monetary policy, the interest rate at which the Fed lends to other banks will be expected to _____and the money supply in the economy would be expected to _____.

Accepted Answer

Contractionary monetary policy involves increasing interest rates to reduce inflation and slow down economic growth. This makes borrowing more expensive, which reduces the money supply in the economy.

Question 9

In comparison to when monetary policy is not contractionary, under a contractionary monetary policy, the unemployment rate is____ and the inflation rate is____ over time.

Accepted Answer

Under a contractionary monetary policy, the central bank raises interest rates and reduces the money supply to curb inflation, which can slow economic growth and increase unemployment in the short term. Therefore, the unemployment rate is higher, and the inflation rate is lower over time.

Question 10

The lag that arises because it takes time for policymakers to choose a course of action is referred to as the _____lag.

Accepted Answer

The lag that arises because it takes time for policymakers to choose a course of action is referred to as the decision lag.

Question 11

The lag that arises because policymakers may not immediately get up-to-date statistics on economic variables is known as the_____ lag.

Accepted Answer

The data lag refers to the delay between the time when economic data is generated and the time when it becomes available to policymakers.

Question 12

The longest economic expansion in U.S.history occurred from

Accepted Answer

The longest economic expansion in U.S. history occurred from 1991 to 2001, also known as the "dot-com boom" or the "Clinton boom." This period saw a sustained period of economic growth, low unemployment rates, and strong stock market performance, fueled in part by the growth of the internet and technology industries.

Question 13

The Fed uses____ monetary policy to cause the economy to grow slower in the short run.A(n)_____ In the money supply is an example of such a policy.

Accepted Answer

The Fed's contractionary monetary policy aims to slow down the economy by decreasing the money supply, which leads to higher interest rates and less borrowing/spending. Therefore, the correct choice is D - contractionary; a decrease.

Question 14

The lag that arises because the random nature of economic data may make it difficult for policy makers to fully understand the state of the economy is referred to as the_____ lag.

Accepted Answer

Lag is a delay in time. In this context, recognition lag refers to the delay in recognizing that the economy is in a particular state or condition. Policy makers may not immediately recognize a recession, for example, until they see several quarters of negative growth. This recognition lag may make it difficult for policy makers to take appropriate actions in a timely manner.

Question 15

The unemployment rate when the economy is producing output equal to its potential is known as

Accepted Answer

The answer is C because the term "natural rate of unemployment" refers to the level of unemployment that exists when the economy is producing at its potential output. It is considered a "natural" or normal level of unemployment because it is the result of structural factors such as changes in technology and demographics, rather than cyclical factors such as recessions or booms.

Question 16

The amount of output that would be produced by an economy if resources were being utilized at a high rate that is sustainable in the long run is referred to as the

Accepted Answer

Potential output refers to the level of output that an economy can sustainably produce when all resources are being utilized at a high rate. It takes into account factors such as technology, capital, labor, and natural resources, and is often used as a benchmark for measuring the performance of an economy. B, C, and D are not commonly used terms in economics to describe the amount of output an economy can sustainably produce.

Question 17

In case of business cycles, if output falls below the trend line

Accepted Answer

When output falls below the trend line during a business cycle, it indicates a recessionary period. During such periods, the demand for goods and services decreases, leading firms to reduce output and lay off workers, causing unemployment to rise. However, as the overall demand decreases, the prices tend to fall, leading to a decline in inflation. Therefore, the correct choice is C- where unemployment rises and inflation falls.

Question 18

When the Fed uses its policy tools to smooth out the business cycle, the policy is referred to as a(n)

Accepted Answer

Stabilization policy refers to the use of monetary or fiscal policies by the government to reduce the fluctuations in economic growth and dampen the effects of the business cycle. The Federal Reserve, as the central bank of the United States, employs various policy tools to stabilize the economy, such as adjusting interest rates, changing the reserve requirement, and conducting open market operations. Therefore, choice A, stabilization policy, is the most appropriate term for the Fed's efforts to smooth out the business cycle. The other options, Pareto-efficient policy, contractionary policy, and expansionary policy, do not accurately describe the Fed's role in stabilizing the economy.

Question 19

In comparison to when monetary policy is not expansionary, under an expansionary monetary policy, the unemployment rate is ____and the inflation rate is_____ over time.

Accepted Answer

Under an expansionary monetary policy, the central bank increases the money supply, making it easier for businesses and consumers to access credit, and lowering the cost of borrowing. As a result, more people are likely to take out loans to invest or spend, leading to an increase in demand for goods and services. This in turn leads to higher economic growth and lower unemployment rates as more people find jobs. However, the increased demand can also lead to higher prices which may eventually increase inflation rates. Therefore, the unemployment rate is likely to be lower, while the inflation rate is likely to be higher under an expansionary monetary policy.

Question 20

An increase in the money supply is an example of a(n)_____ policy.

Accepted Answer

An increase in the money supply is an example of an expansionary policy because it aims to stimulate economic growth and increase aggregate demand by making it easier for consumers and businesses to access credit and finance investment. This policy is typically pursued during times of sluggish economic activity or recession.

Quiz 17: Monetary Policy: Goals and Tradeoffs

The time it takes from when a policy is enacted to when it affects the economy is known as the______ lag.

A decrease in the money supply is an example of a(n) _____ policy.

The Fed uses_ monetary policy to cause the economy to grow faster in the short run.A(n) _ In the money supply is an example of such a policy.

The lag between when a change in policy is decided and when it is put into action is referred to as the _____lag.

Monetary policy can affect the level of output

In the U.S., data on potential output come from

In case of business cycles, if output rises above the trend line

When the Fed adopts a contractionary monetary policy, the interest rate at which the Fed lends to other banks will be expected to _and the money supply in the economy would be expected to _.

In comparison to when monetary policy is not contractionary, under a contractionary monetary policy, the unemployment rate is and the inflation rate is over time.

The lag that arises because it takes time for policymakers to choose a course of action is referred to as the _____lag.

The lag that arises because policymakers may not immediately get up-to-date statistics on economic variables is known as the_____ lag.

The longest economic expansion in U.S.history occurred from

The Fed uses monetary policy to cause the economy to grow slower in the short run.A(n) _ In the money supply is an example of such a policy.

The lag that arises because the random nature of economic data may make it difficult for policy makers to fully understand the state of the economy is referred to as the_____ lag.

The unemployment rate when the economy is producing output equal to its potential is known as

The amount of output that would be produced by an economy if resources were being utilized at a high rate that is sustainable in the long run is referred to as the

In case of business cycles, if output falls below the trend line

When the Fed uses its policy tools to smooth out the business cycle, the policy is referred to as a(n)

In comparison to when monetary policy is not expansionary, under an expansionary monetary policy, the unemployment rate is and the inflation rate is_ over time.

An increase in the money supply is an example of a(n) _____ policy.

Quiz 17: Monetary Policy: Goals and Tradeoffs

The time it takes from when a policy is enacted to when it affects the economy is known as the______ lag.

A decrease in the money supply is an example of a(n) _____ policy.

The Fed uses_____ monetary policy to cause the economy to grow faster in the short run.A(n) _____ In the money supply is an example of such a policy.

The lag between when a change in policy is decided and when it is put into action is referred to as the _____lag.

Monetary policy can affect the level of output

In the U.S., data on potential output come from

In case of business cycles, if output rises above the trend line

When the Fed adopts a contractionary monetary policy, the interest rate at which the Fed lends to other banks will be expected to _____and the money supply in the economy would be expected to _____.

In comparison to when monetary policy is not contractionary, under a contractionary monetary policy, the unemployment rate is____ and the inflation rate is____ over time.

The lag that arises because it takes time for policymakers to choose a course of action is referred to as the _____lag.

The lag that arises because policymakers may not immediately get up-to-date statistics on economic variables is known as the_____ lag.

The longest economic expansion in U.S.history occurred from

The Fed uses____ monetary policy to cause the economy to grow slower in the short run.A(n) _____ In the money supply is an example of such a policy.

The lag that arises because the random nature of economic data may make it difficult for policy makers to fully understand the state of the economy is referred to as the_____ lag.

The unemployment rate when the economy is producing output equal to its potential is known as

The amount of output that would be produced by an economy if resources were being utilized at a high rate that is sustainable in the long run is referred to as the

In case of business cycles, if output falls below the trend line

When the Fed uses its policy tools to smooth out the business cycle, the policy is referred to as a(n)

In comparison to when monetary policy is not expansionary, under an expansionary monetary policy, the unemployment rate is ____and the inflation rate is_____ over time.

An increase in the money supply is an example of a(n) _____ policy.

The Fed uses_ monetary policy to cause the economy to grow faster in the short run.A(n) _ In the money supply is an example of such a policy.

When the Fed adopts a contractionary monetary policy, the interest rate at which the Fed lends to other banks will be expected to _and the money supply in the economy would be expected to _.

In comparison to when monetary policy is not contractionary, under a contractionary monetary policy, the unemployment rate is and the inflation rate is over time.

The Fed uses monetary policy to cause the economy to grow slower in the short run.A(n) _ In the money supply is an example of such a policy.

In comparison to when monetary policy is not expansionary, under an expansionary monetary policy, the unemployment rate is and the inflation rate is_ over time.