ECO 029 Chapter 21 - MyEconLab

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 upward because decreasing unemployment results in a tightening of monetary policy. B. The MP curve will shift downward 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 loosening of monetary policy.

B. The MP curve will shift downward because decreasing unemployment results in a loosening of monetary policy.

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

D. Inflation​ decreases, the real interest rate​ decreases, and aggregate output increases.

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

D. aggregate demand to increase

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, or government purchases​ increase, or if taxes decrease. B. The aggregate demand curve shifts to the right if autonomous​ consumption, autonomous​ investment, autonomous net​ exports, government​ purchases, or 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 left if autonomous​ consumption, autonomous​ investment, autonomous net​ exports, or government purchases​ increase, or if taxes decrease.

A. The aggregate demand curve shifts to the right if autonomous​ consumption, autonomous​ investment, autonomous net​ exports, or government purchases​ increase, or if taxes decrease.

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 downward. Monetary policy​ easing, a decision to lower the real interest rate at any given inflation​ rate, shifts the MP curve upward. B. 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. C. 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. D. None of the above are correct.

B. 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.

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. An​ upward-sloping MP curve keeps inflation from spinning out of control. D. If the MP curve has an upward​ slope, then more liquidity will occur in the banking system.

C. An​ upward-sloping MP curve keeps inflation from spinning out of control.

What would be the effect on the aggregate demand​ curve? A. The slope of the AD curve will increase. B. The AD curve will not change. C. The AD curve will shift to the right. D. The AD curve will shift to the left.

C. The AD curve will shift to the right.

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​ left, the MP curve shifts​ down, and the AD curve shifts right. C. The IS curve shifts​ right, 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.

C. The IS curve shifts​ right, the MP curve shifts​ down, and the AD curve shifts right.

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 is reflected as a movement along the monetary curve rather than an upward or downward shift of the curve. B. 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. C. With a tightening or easing of monetary​ policy, some projected changes in monetary policy independent of the current inflation rate may occur. D. Autonomous tightening or easing of monetary policy is based on a change in the nominal interest​ rate, not the real interest rate.

C. With a tightening or easing of monetary​ policy, some projected changes in monetary policy independent of the current inflation rate may occur.

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

C. holds when λ > 0.

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

C. inflation is increasing.

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. the monetary policy curve shifted upward. C. the monetary policy curve shifted downward. D. there was a downward movement along the monetary policy curve.

C. the monetary policy curve shifted downward.

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

C. ​IS; AD; same

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; decrease D. ​left; increase

C. ​left; decrease

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

C. ​left; decrease

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

D. an autonomous easing of monetary policy

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

D. real interest rate and the inflation rate.

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

D. ​IS; AD

Describe how​ (if at​ all) the IS​ curve, MP​ curve, and AD curve are affected in the following ​situation: The new Federal Reserve chair begins to care more about fighting inflation. A. None of the curves are affected. B. The IS and AD curves shift to the left, and the MP curve does not shift. C. The economy moves along the IS curve, the MP curve shifts down, and the net effect on the AD curve cannot be definitely determined. D. The AD curve shifts to the left, the MP curve becomes flatter, and the slope of the IS curve becomes steeper. E. The IS curve is not affected, the MP curve becomes steeper, and the slope of the AD curve becomes flatter.

E. The IS curve is not affected, the MP curve becomes steeper, and the slope of the AD curve becomes flatter.

The MP curve is ______ sloping due to the Taylor principle.

upward