Question 1

Explain why workers have an incentive to expect a certain level of inflation.

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Question 2

Because you are an economics student, your parents are always asking you about the macroeconomy. Over the past few months, they have seen the economy expanding at a very fast pace and your parents are worried about inflation. Your parents ask you, "What type of monetary policy do you expect the Federal Reserve to conduct if it expected high levels of inflation on the horizon?" Explain your answer.

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Question 3

You have just been chosen as an economist on the Board of Governors for the Federal Reserve. After years of constant growth, the U.S. economy begins to fall into a recession. What type of monetary policy do you suggest to the board and why?

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Question 4

Explain the impact of contractionary monetary policy on the entire macroeconomy in the short run. Be sure to use a step-by-step analysis of the macroeconomy.

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Question 5

Explain the impact of expansionary monetary policy on the entire macroeconomy in the short run. Be sure to use a step-by-step analysis of the macroeconomy.

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Question 6

Explain how expansionary monetary policy can lead to inflation, and discuss the types of individuals who are hurt by unexpected inflation.

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Question 7

Starting at macroeconomic equilibrium at full employment, show the effects of expansionary monetary policy in the long run using an aggregate demand-aggregate supply (AD-AS) model and discuss.

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Question 8

Starting at macroeconomic equilibrium at full employment, show the effects of contractionary monetary policy in the long run using an aggregate demand-aggregate supply (AD-AS) model and discuss.

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Question 9

If people anticipate the strategies of the central bank:

Accepted Answer

If people anticipate the strategies of the central bank, they will have already adjusted their behavior, limiting the impact of monetary policy. This means that the effects of monetary policy will be extremely limited.

Question 10

Active monetary policy:

Accepted Answer

Active monetary policy refers to the deliberate use of monetary policy by central banks to stabilize the economy, specifically countering macroeconomic expansions and contractions. It is aimed at achieving economic goals such as price stability, full employment, and economic growth. It has a real effect on the economy in the short and long run. The ruling party does not dictate how central banks should conduct monetary policy, as central banks are independent institutions.

Question 11

Before the development of expectations theory:

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...

Question 12

Answer the following questions using an aggregate demand-aggregate supply model when appropriate.
a. Use a graph to represent an economy at long-run equilibrium.
b. Now graph what happens when aggregate demand decreases.
c. Referring to your graph, is this economy in an expansion or recession now?
d. Continuing with the economy you have graphed earlier, what type of monetary policy would you suggest be taken by the Federal Reserve?
e. What will this policy you suggested do to your aggregate demand-aggregate supply model?

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Question 13

Explain the difference between expansionary monetary policy and contractionary monetary policy.

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Question 14

Explain the difference between "real" and "nominal" effects concerning monetary policy and its effect on the economy.

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Question 15

Consider this excerpt from the textbook: "In the fall of 2007, it was clear that the U.S. economy was slowing. The unemployment rate rose from 4.4% to 5% between May and June 2007, and real GDP grew by just 1.7% in the fourth quarter. The U.S. economy officially entered recession in December 2007. We now know that the nation's economy was entering several years of low growth and high unemployment. Many economists believe that a decline in aggregate demand was one cause of the recession." What did the Federal Reserve do in response to this decline in aggregate demand?

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The answer of Consider this excerpt from the textbook: "In...

Question 16

Answer the following questions using an aggregate demand-aggregate supply model when appropriate.
a. Use an aggregate demand-aggregate supply model to represent an economy at long-run equilibrium.
b. Show what happens on your model when aggregate demand increases.
c. Is the economy you modeled in an expansion or recession now?
d. Continuing with the economy you are building, what type of monetary policy would you suggest be taken by the Federal Reserve?
e. What will your suggested policy do to your aggregate demand-aggregate supply model in the short run?

Accepted Answer

The answer of Answer the following questions using an aggregate...

Question 17

Since the early 1980s, the Federal Reserve has moved toward which type of monetary policy?

Accepted Answer

The Federal Reserve has moved towards a more passive monetary policy since the early 1980s. This means that the Fed is less likely to actively intervene in the economy and is more likely to let market forces dictate economic outcomes.

Question 18

Starting at macroeconomic equilibrium at full employment, show the effect of completely expected expansionary monetary policy using an aggregate demand-aggregate supply (AD-AS) model and discuss.

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Question 19

Consider this excerpt from the textbook: "From 1929 to 1933, prior to the establishment of federal deposit insurance, over 9,000 banks failed in the United States. Because of these bank failures, people began holding their money outside the banking system. This action contributed to a significant contraction in the money supply. . . . After peaking at $676 billion in 1931, the M2 money supply fell to just $564 billion in 1933. This drastic decline was one of the major causes of the Great Depression." Looking back on the Great Depression, what do most economists believe the Federal Reserve should have done to try to limit the negative effects of the Depression?

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Question 20

Passive monetary policy:

Accepted Answer

Passive monetary policy is when central banks purposefully choose to only stabilize money and price levels through monetary policy. This means that they do not actively try to counteract macroeconomic expansions and contractions, but rather only aim to maintain stability in the economy through monetary policy.

Quiz 18: Monetary Policy

Explain why workers have an incentive to expect a certain level of inflation.

You have just been chosen as an economist on the Board of Governors for the Federal Reserve. After years of constant growth, the U.S. economy begins to fall into a recession. What type of monetary policy do you suggest to the board and why?

Explain the impact of contractionary monetary policy on the entire macroeconomy in the short run. Be sure to use a step-by-step analysis of the macroeconomy.

Explain the impact of expansionary monetary policy on the entire macroeconomy in the short run. Be sure to use a step-by-step analysis of the macroeconomy.

Explain how expansionary monetary policy can lead to inflation, and discuss the types of individuals who are hurt by unexpected inflation.

Starting at macroeconomic equilibrium at full employment, show the effects of expansionary monetary policy in the long run using an aggregate demand-aggregate supply (AD-AS) model and discuss.

Starting at macroeconomic equilibrium at full employment, show the effects of contractionary monetary policy in the long run using an aggregate demand-aggregate supply (AD-AS) model and discuss.

If people anticipate the strategies of the central bank:

Active monetary policy:

Before the development of expectations theory:

Explain the difference between expansionary monetary policy and contractionary monetary policy.

Explain the difference between "real" and "nominal" effects concerning monetary policy and its effect on the economy.

Since the early 1980s, the Federal Reserve has moved toward which type of monetary policy?

Starting at macroeconomic equilibrium at full employment, show the effect of completely expected expansionary monetary policy using an aggregate demand-aggregate supply (AD-AS) model and discuss.

Passive monetary policy: