eco 029 ch 21

1) Because prices are slow to move in the short-run, when the Federal Reserve lowers the federal funds rate A) nominal interest rates rise. B) real interest rates fall. C) inflation falls. D) real interest rates rise.

b

2) Because prices are sticky in the short-run, when the Federal Reserve raises the federal funds rate A) nominal interest rates fall. B) real interest rates rise. C) inflation falls. D) real interest rates fall.

b

7) Everything else held constant, an autonomous easing of monetary policy will cause A) aggregate demand to increase. B) aggregate demand to decrease. C) the quantity of aggregate demand to increase. D) the quantity of aggregate demand to decrease.

a

1) In deriving the aggregate demand curve a ________ inflation rate leads the central bank to ________ real interest rates, thereby ________ the level of equilibrium aggregate output. A) higher; raise; lowering B) lower; raise; lowering C) higher; lower; lowering D) higher; lower; raising

a

10) Everything else held constant, an increase in autonomous planned investment spending will cause the IS curve to shift to the ________ and aggregate demand will ________. A) right; increase B) right; decrease C) left; increase D) left; decrease

a

12) Everything else held constant, a decrease in net taxes will cause the IS curve to shift to the ________ and aggregate demand will ________. A) right; increase B) right; decrease C) left; increase D) left; decrease

a

15) Everything else held constant, a depreciation of the domestic currency will cause the IS curve to shift to the ________ and aggregate demand will ________. A) right; increase B) right; decrease C) left; increase D) left; decrease

a

2) The aggregate demand curve is downward sloping because a higher inflation rate leads the central bank to raise ________ interest rates, thereby ________ the level of equilibrium aggregate output., everything else held constant. A) real; lowering B) real; raising C) nominal; lowering D) nominal; raising

a

3) The aggregate demand curve is downward sloping because a higher inflation rate leads the central bank to ________ real interest rates, thereby ________ the level of equilibrium aggregate output., everything else held constant. A) raise; lowering B) raise; raising C) reduce; lowering D) reduce; raising

a

4) Everything else held constant, an increase in government spending will cause A) aggregate demand to increase. B) aggregate demand to decrease. C) the quantity of aggregate demand to increase. D) the quantity of aggregate demand to decrease.

a

6) Based on the Taylor Principle, a central bank's endogenous response of raising interest rates when inflation rises A) causes an upward movement along the monetary policy curve. B) causes a downward movement along the monetary policy curve. C) shifts the monetary policy curve upward. D) shifts the monetary policy curve downward.

a

8) Everything else held constant, an increase in autonomous consumer spending will cause the IS curve to shift to the ________ and aggregate demand will ________. A) right; increase B) right; decrease C) left; increase D) left; decrease

a

8) Inflationary pressures caused the FOMC to increase the federal funds rate by ¼ of a percentage point in June 2004, and by exactly the same amount at every subsequent FOMC meeting through June of 2006. Theses actions A) caused an upward movement along the monetary policy curve. B) caused a downward movement along the monetary policy curve. C) shifted the monetary policy curve upward. D) shifted the monetary policy curve downward.

a

9) The Fed's policy actions of reacting to higher inflation by raising the real interest rate during 2004-2006 were A) upward movements along the monetary policy curve. B) downward movement along the monetary policy curve. C) upward shifts of the monetary policy curve. D) downward shifts of the monetary policy curve.

a

A movement to the right along a given MP curve means A. inflation is increasing. B. expected future inflation has increased. C. an autonomous policy tightening has occurred. D. the federal funds rate is held constant

a

How does an autonomous tightening or easing of monetary policy by the Fed affect the MP​ curve? A. When the Fed decides to raise the real interest rate at any given inflation​ rate, the MP curve shifts upward. Monetary policy​ easing, a decision to lower the real interest rate at any given inflation​ rate, shifts the MP curve downward. B. When the Fed decides to lower the real interest rate at any given inflation​ rate, the MP curve shifts upward. Monetary policy​ easing, a decision to raise the real interest rate at any given inflation​ rate, shifts the MP curve downward. C. When the Fed decides to raise the real interest rate at any given inflation​ rate, the MP curve shifts downward. Monetary policy​ easing, a decision to lower the real interest rate at any given inflation​ rate, shifts the MP curve upward. D. None of the above are correct.

a

Suppose that a new Fed chair is​ appointed, and his or her approach to monetary policy can be summarized by the following​ statement: "I care only about increasing​ employment; inflation has been at very low levels for quite some​ time; my priority is to ease monetary policy to promote​ employment." How would you expect the monetary policy curve to be​ affected, if at​ all? A. The MP curve will shift downward because decreasing unemployment results in a loosening of monetary policy. B. The MP curve will shift upward because decreasing unemployment results in a loosening of monetary policy. C. The MP curve will shift downward because decreasing unemployment results in a tightening of monetary policy. D. The MP curve will shift upward because decreasing unemployment results in a tightening of monetary policy.

a

The MP curve gives the relationship between the A. real interest rate and the inflation rate. B. nominal interest rate and aggregate output. C. real interest rate and aggregate output. D. nominal interest rate and the inflation rate.

a

When r increases​, this causes a movement along​ the________ curve, and shifts the ​_________ curve. A. ​IS; AD B. ​AD; MP C. ​MP; AD D. ​MP; IS

a

Which of the following causes the MP curve to shift​ down? A. an autonomous easing of monetary policy B. an autonomous tightening of monetary policy C. a decrease in inflation D. an increase in inflation

a

Which of the following represents a movement along a given AD​ curve? A. Inflation​ decreases, the real interest rate​ decreases, and aggregate output increases. B. Inflation​ increases, the real interest rate​ decreases, and aggregate output increases. C. Inflation​ decreases, the real interest rate​ decreases, and aggregate output decreases. D. Inflation​ increases, the real interest rate​ increases, and aggregate output increases.

a

10) When the financial crisis started in August 2007, inflation was rising and the Fed began an aggressive easing lowering of the federal funds rate, which indicated that A) the Fed pursued an autonomous monetary policy tightening. B) the Fed pursued an autonomous monetary policy easing. C) the Fed had an automatic negative response to inflation based on the Taylor rule. D) the Fed had an automatic positive response to inflation based on the Taylor rule

b

7) Based on the Taylor Principle, a central bank's endogenous response of decreasing interest rates when inflation falls A) causes an upward movement along the monetary policy curve. B) causes a downward movement along the monetary policy curve. C) shifts the monetary policy curve upward. D) shifts the monetary policy curve downward.

b

How is an autonomous tightening or easing of monetary policy different than a change in the real interest rate due to a change in the current inflation​ rate? A. Tightening or easing of monetary policy may cause a change in the responsiveness of the real interest rate to the inflation​ rate, not in its autonomous component. B. With a tightening or easing of monetary​ policy, some projected changes in monetary policy independent of the current inflation rate may occur. C. Tightening or easing of monetary policy is reflected as a movement along the monetary curve rather than an upward or downward shift of the curve. D. Autonomous tightening or easing of monetary policy is based on a change in the nominal interest​ rate, not the real interest rate.

b

Suppose that taxes are decreased and the central bank conducts an autonomous easing of monetary policy. What will be the​ result? A. The IS curve shifts​ left, the MP curve shifts​ up, and the AD curve shifts left . B. The IS curve shifts​ right, the MP curve shifts​ down, and the AD curve shifts right. C. The IS curve shifts​ left, the MP curve shifts​ down, and the AD curve shifts right. D. The IS curve shifts​ right, the MP curve shifts​ up, and there is an ambiguous effect on the AD curve.

b

The Taylor principle A. leads to higher real interest rates when inflation decreases. B. holds when lambda greater than λ>0. C. implies the IS curve is downward sloping. D. leads a raise of the nominal interest rate equal to the rise in inflation.

b

4) An autonomous tightening of monetary policy A) causes an upward movement along the monetary policy curve. B) causes a downward movement along the monetary policy curve. C) shifts the monetary policy curve upward. D) shifts the monetary policy curve downward.

c

Any factor that shifts the​ __________ curve shifts the​ __________ curve in the​ __________ direction. A. ​IS; AD; opposite B. ​MP; IS; same C. ​IS; AD; same D. ​MP; IS; opposite

c

1) The monetary policy (MP) curve indicates the relationship between A) the Federal Funds Rate and the real interest rate. B) the Federal Funds Rate and the inflation rate. C) the inflation rate and the expected inflation rate. D) the real interest rate the central bank sets and the inflation rate.

d

11) Everything else held constant, a decrease in autonomous planned investment spending will cause the IS curve to shift to the ________ and aggregate demand will ________. A) right; increase B) right; decrease C) left; increase D) left; decrease

d

11) When the financial crisis started in August 2007, inflation was rising and the Fed began an aggressive easing lowering of the federal funds rate, which indicated that A) there was an upward movement along the monetary policy curve. B) there was a downward movement along the monetary policy curve. C) the monetary policy curve shifted upward. D) the monetary policy curve shifted downward.

d

13) Everything else held constant, an increase in net taxes will cause the IS curve to shift to the ________ and aggregate demand will ________. A) right; increase B) right; decrease C) left; increase D) left; decrease

d

14) Everything else held constant, an appreciation of the domestic currency will cause the IS curve to shift to the ________ and aggregate demand will ________. A) right; increase B) right; decrease C) left; increase D) left; decrease

d

16) Everything else held constant, a decrease in government spending will cause the IS curve to shift to the ________ and aggregate demand will ________. A) right; increase B) right; decrease C) left; increase D) left; decrease

d

2) The upward slope of the MP curve indicates that A) the central bank lowers real interest rates when inflation rises. B) the central bank raises real interest rates when inflation falls. C) the central bank raises nominal interest rates when inflation rises. D) the central bank raises real interest rates when inflation rises.

d

3) The Taylor Principle states that central banks raise nominal rates by ________ than any rise in expected inflation so that real interest rates ________ when there is a rise in inflation. A) less; rise B) more; fall C) less; fall D) more; rise

d

5) An autonomous easing of monetary policy A) causes an upward movement along the monetary policy curve. B) causes a downward movement along the monetary policy curve. C) shifts the monetary policy curve upward. D) shifts the monetary policy curve downward.

d

5) Everything else held constant, an autonomous easing of monetary policy will cause A) the quantity of aggregate demand to increase. B) the quantity of aggregate demand to decrease. C) aggregate demand to decrease. D) aggregate demand to increase.

d

6) Everything else held constant, an autonomous tightening of monetary policy will cause A) the quantity of aggregate demand to increase. B) the quantity of aggregate demand to decrease. C) aggregate demand to increase. D) aggregate demand to decrease.

d

9) Everything else held constant, a decrease in autonomous consumer spending will cause the IS curve to shift to the ________ and aggregate demand will ________. A) right; increase B) right; decrease C) left; increase D) left; decrease

d

How do changes in planned expenditures affect the aggregate demand​ curve? A. The aggregate demand curve shifts to the right if autonomous​ consumption, autonomous​ investment, autonomous net​ exports, government​ purchases, or taxes decrease. B. The aggregate demand curve shifts to the left if autonomous​ consumption, autonomous​ investment, autonomous net​ exports, or government purchases​ increase, or if taxes decrease. C. The aggregate demand curve shifts to the right if autonomous​ consumption, autonomous​ investment, autonomous net​ exports, government​ purchases, or taxes increase. D. The aggregate demand curve shifts to the right if autonomous​ consumption, autonomous​ investment, autonomous net​ exports, or government purchases​ increase, or if taxes decrease.

d

Why is it necessary for the MP curve to have an upward​ slope? A. An​ upward-sloping MP curve encourages consumer and business spending. B. If the MP curve has an upward​ slope, it indicates an increase in output and a decrease in unemployment. C. If the MP curve has an upward​ slope, then more liquidity will occur in the banking system. D. An​ upward-sloping MP curve keeps inflation from spinning out of control

d