FINA 460 (Chapter 5)

Which of the following events may cause inflation, at least in the short-run? Answers: 1. Excess demand due to inappropriate monetary policy. 2. An economic shock in the supply of a crucial material. 3. Workers' salaries and other profits grow at a faster rate than the economic growth rate. 4. All of the above

Selected Answer: All of the above

What is the natural rate of unemployment? Answers: 1. Around 2% 2. Between 6.5% and 8% 3. Between 4% and 6%

Selected Answer: Between 4% and 6%

Why is a stable currency the most beneficial to the U.S. economy? Answers: 1. A stronger US dollar benefits everyone in the U.S. economy. 2. A weaker US dollar benefits everyone in the U.S. economy. 3. A strong U.S. dollar benefits the U.S. tech firms because a big proportion of their revenue is generated overseas. 4. Both stronger and weaker currencies may be detrimental to the U.S. economy.

Selected Answer: Both stronger and weaker currencies may be detrimental to the U.S. economy.

Which of the following statements is correct? Answers: 1. Full employment is a goal of the Fed. 2. Frictional unemployment is harmful to an economy because an unemployment rate of zero is better to an economy. 3. Given that zero unemployment is not a feasible aim, the appropriate goal of the Fed is actually a high level of employment. 4. All of the above

Selected Answer: Given that zero unemployment is not a feasible aim, the appropriate goal of the Fed is actually a high level of employment.

Which of the following statements is (are) correct? I. Inflation in developed economies is always the result of excessive demand due to inappropriate monetary or fiscal policy. II. Stagflation is a condition of both high inflation and recession. III. To cure stagflation, a central bank should just use expansionary monetary policy to stimulate the economy. Answers: 1. II only 2. III only 3. I and II from the above 4. I and III from the above 5. II and III from the above

Selected Answer: II only

Which of the following statements regarding economic growth is incorrect? Answers: 1. It is not a goal of the Fed because the Fed can only make changes to monetary policy. 2. It is closely related to the goal of high employment. 3. It is a goal of the Fed. The goal is to increase an economy's output of goods and services.

Selected Answer: It is not a goal of the Fed because the Fed can only make changes to monetary policy.

Which of the following goals are often perceived in conflicts, at least in the short run? Answers: 1. Low inflation and stable exchange rate. 2. Low unemployment and high economic growth. 3. Low unemployment and stable exchange rate 4. Low unemployment and stable prices.

Selected Answer: Low unemployment and stable prices.

When an economy is operating below full capacity, an expansionary monetary policy may . Answers: 1. Cause more people to lose jobs. 2. Cause high inflation 3. Stimulate the economy

Selected Answer: Stimulate the economy

Which of the below statements is CORRECT? Answers: 1. The best known intermediate target is money supply. 2. The Fed can use its policy to directly influence both operating targets and intermediate targets. 3. Operating targets stand between intermediate targets and the goals of monetary policy. 4. Intermediate targets are variables that directly respond to the central bank's tools.

Selected Answer: The best known intermediate target is money supply.

The Fed can directly influence variables such as ________. Answers: 1. Foreign exchange rate 2. Unemployment rate 3. The federal funds rate 4. M2

Selected Answer: The federal funds rate

The standard way of measuring ________ is the change in a major price index. Answers: 1. economic growth 2. consumer behavior 3. inflation 4. unemployment

Selected Answer: inflation