Question 1

When we raise the federal funds rate by 2 percent for every 1 percent increase in the inflation rate, this is an example of:

Accepted Answer

This is an example of a monetary policy rule as it describes how the Federal Reserve adjusts interest rates in response to changes in inflation.

Question 2

A policy rule that dictates what interest rates monetary policy should follow is:

Accepted Answer

A policy rule that dictates what interest rates monetary policy should follow often takes into account the current state of the economy. This means it adjusts based on economic indicators such as inflation and unemployment rates, rather than being fixed or solely at the discretion of individuals or written down as a constant guideline.

Question 3

The simple monetary policy rule discussed in the chapter "dictates" the:

Accepted Answer

The simple monetary policy rule dictates the choice of federal funds rate, which is the interest rate at which depository institutions lend balances to each other overnight. This rate is directly controlled by the Federal Reserve through open market operations, and changes in the federal funds rate can affect the broader economy through a variety of channels including investment, consumption, and employment.

Question 4

Which of the following best describes movement along the AD curve?

Accepted Answer

Movement along the AD curve is typically caused by changes in the inflation rate affecting interest rates, which in turn influence investment levels.

Question 5

The simple monetary policy rule discussed at length in the text is:

Accepted Answer

The answer of The simple monetary policy rule discussed at...

Question 6

In the simple monetary policy rule  , 
Measures:

Accepted Answer

The answer of In the simple monetary policy rule ...

Question 7

If  is relatively high, monetary policy is relatively ________ and the AD curve is ________.

Accepted Answer

A high value for 11eab38d_0703_edfc_a5fb_93b9f304d72d_TB6622_11 indicates an aggressive monetary policy, which is likely to shift the AD curve to the right. However, it is not necessarily the case that the AD curve becomes steep or vertical, as the slope of the AD curve depends on many other factors besides monetary policy. Therefore, option C is the best choice as it reflects the aggressive monetary policy, but does not make any assumptions about the shape of the AD curve.

Question 8

The aggregate demand (AD) curve is given by:

Accepted Answer

The answer of The aggregate demand (AD) curve is given...

Question 9

Consider the monetary rule  . If the inflation rate is 4 percent, the marginal product of capital is 2 percent, and the target rate of inflation is 3 percent, then the real interest rate should be ________ percent.

Accepted Answer

The answer of Consider the monetary rule  . If...

Question 10

The simple monetary policy rule may contain which of the following?

Accepted Answer

The answer of The simple monetary policy rule may contain...

Question 11

The simple monetary policy rule  implies that if:

Accepted Answer

The answer of The simple monetary policy rule  implies...

Question 12

If  is close to zero, monetary policy is relatively ________ and the AD curve is ________.

Accepted Answer

The code 11eab38d_0704_150d_a5fb_373eb4749a52_TB6622_11 refers to an economic variable that is not provided in the question. Without information about this variable, it is impossible to accurately determine the answer. Therefore, the question cannot be answered.

Question 13

Combining the IS and monetary policy rule curves gives us:

Accepted Answer

Combining the IS (Investment-Savings) curve, which represents equilibrium in the goods market, with the monetary policy rule curve, which represents the central bank's response to changes in the economy, gives us the aggregate demand curve. This curve shows the total demand for goods and services in an economy at different price levels.

Question 14

Using the simple monetary rule, if the inflation rate is 2 percent below the target inflation rate and the marginal product of capital is 1 percent, the Federal Reserve will:

Accepted Answer

The simple monetary rule, such as the Taylor Rule, requires information on the target inflation rate, the actual inflation rate, and the output gap to determine the appropriate interest rate adjustment. The marginal product of capital alone is not sufficient to determine the Federal Reserve's action.

Question 15

As of 2016, which country has an explicit inflation target of 2 percent?

Accepted Answer

Japan has an explicit inflation target of 2 percent as of 2016, which was introduced in 2013 as part of Abenomics economic policies. The other countries listed may have inflation targets, but they are not explicitly set at 2 percent.

Question 16

If  is close to zero, the AD curve is:

Accepted Answer

The answer of If  is close to zero, the...

Question 17

The simple monetary policy rule may contain which of the following?

Accepted Answer

The simple monetary policy rule, such as the Taylor Rule, typically includes the inflation rate as a key component to guide interest rate decisions.

Question 18

As of 2016, which country has an explicit inflation target of 3 percent?

Accepted Answer

As of 2016, none of the listed options had an explicit inflation target of 3 percent. The United States, through the Federal Reserve, targets a 2 percent inflation rate over the long run. The United Kingdom, via the Bank of England, also has a target of 2 percent. Japan, through the Bank of Japan, aimed for a 2 percent inflation target as part of its monetary policy framework. The European Central Bank, which manages monetary policy for the euro area, similarly targets inflation below, but close to, 2 percent over the medium term.

Question 19

In the simple monetary policy rule  , 
Represents:

Accepted Answer

The answer of In the simple monetary policy rule ...

Question 20

If  in the simple monetary rule and the inflation rate is 2 percent below the target inflation rate, the Federal Reserve will:

Accepted Answer

The answer of If  in the simple monetary rule...

Quiz 13: Stabilization Policy and the Asad Framework

When we raise the federal funds rate by 2 percent for every 1 percent increase in the inflation rate, this is an example of:

A policy rule that dictates what interest rates monetary policy should follow is:

The simple monetary policy rule discussed in the chapter "dictates" the:

Which of the following best describes movement along the AD curve?

The simple monetary policy rule discussed at length in the text is:

In the simple monetary policy rule , Measures:

If is relatively high, monetary policy is relatively and the AD curve is .

The aggregate demand (AD) curve is given by:

Consider the monetary rule . If the inflation rate is 4 percent, the marginal product of capital is 2 percent, and the target rate of inflation is 3 percent, then the real interest rate should be ________ percent.

The simple monetary policy rule may contain which of the following?

The simple monetary policy rule implies that if:

If is close to zero, monetary policy is relatively and the AD curve is .

Combining the IS and monetary policy rule curves gives us:

Using the simple monetary rule, if the inflation rate is 2 percent below the target inflation rate and the marginal product of capital is 1 percent, the Federal Reserve will:

As of 2016, which country has an explicit inflation target of 2 percent?

If is close to zero, the AD curve is:

The simple monetary policy rule may contain which of the following?

As of 2016, which country has an explicit inflation target of 3 percent?

In the simple monetary policy rule , Represents:

If in the simple monetary rule and the inflation rate is 2 percent below the target inflation rate, the Federal Reserve will: