ECON 101 FINAL EXAM CHAPTER NOTES CHAPTER 10, 11, 12, 15, 16

If you invest $200 in a stock, borrowing 90 percent of the $200 at 10 percent interest, and the stock price rises by 20 percent, what is the return on your investment?

110 Percent

Governments usually accept goods inflation as long as it stays low, which for the United States currently means around:

3.5 to 4% 7.5 to 8% 1 to 2.5% 5.5 to 6%

Deposit insurance is:

A Federal Reserve Bank regulation that covered deposits by individuals against losses. Private insurance by depositors to guarantee against a bank run that would affect deposits. Government insurance that promised to reimburse individuals for loss in value of deposits. A regulation that limits how much an individual can deposit at a single bank to avoid bank runs.

When the Fed prints and issues bills, it creates:

A financial asset for itself. A financial liability for the holder of the IOU. A real asset. Money.

According to the quantity theory of money, persistent inflation can only be caused by:

A high rate of unemployment. money supply growth that exceeds the real GDP growth. A continually growing government deficit. A low rate of unemployment.

Suppose the people in my town hear a rumor that their local bank is in trouble and all rush to withdraw money from the bank. This is referred to as:

A moral hazard problem. Leverage. A bad precedent problem. A bank run.

Why is the Fed's role as lender of last resort an important function of the Fed?

As a lender of last resort, the Fed lends to the Federal government whenever it has a budget deficit. Thus, the Fed acts as the central bank, lending to the government when there is no other option. When there is a shortage of short-term credit, the Fed steps in as a lender of last resort—lending to banks and other financial institutions. The Fed lends to other nations that face a financial crisis. Thus, the Fed acts as a lender of last resort—lending to banks and financial institutions of other nations when no one else will. When households cannot obtain credit from banks, they can get credit directly from the Fed. Thus, the Fed's role as a lender of last resort helps households when no one else will.

If the Fed wants to increase the money supply, it can:

Buy bonds. sell bonds. pass a law that interest rates rise. pass a law that interest rates fall

Policy makers have changed their focus from keeping inflation from getting too high to keeping inflation from getting too low because

Check all that apply the central bank's ability to stimulate the economy by raising interest rates is compromised. technology has changed the structural economy so much that asset inflation is no longer a concern. deflation undermines the financial health of firms, it can quickly turn into a financial crisis that brings the economy to a standstill. the central bank's ability to stimulate the economy by lowering interest rates is compromised.

A commercial bank is a financial institution that:

Determines the value of currency. How old is the savings of individuals for a fee until they need them. Borrows from and lends to individuals and businesses. Print and distribute currency.

Which of the following would not fall under the description of unconventional monetary policy by the Federal Reserve?

Directly purchasing short term bonds from money market mutual funds. Opening lending facilities to non commercial banks. Accepting lower quality assets as collateral for loans. Lowering the reserve requirements for banks.

A general principle of regulation is:

Do not offset the moral hazard problem. Let banks fail regardless of the effect of the economy. Set as few bad precedents as possible. The need to reduce regulations over time.

The amount of reserves in the economy is often determined by the amount of money in the economy that will achieve a particular interest rate. This reflects the fact that the money supply is:

Extrapolative endogenous Fiat Implicit

True or False The Fed is the only formal and legal organization that can create money.

False

True or false? Policy makers in practice use the money multiplier to determine the amount of reserves needed to achieve the desired money supply. Explain.

False. The federal funds rate fluctuates too much, making the multiplier change. True. The Fed has tried other methods, but none of the methods work better than the money multiplier. True. Setting reserves has proven to be an effective way to target the money supply. False. The cash-to-deposit rate fluctuates too much, making the multiplier change.

One of the three functions of money is to serve as:

Financial liability real liability financial asset real asset

The purpose of the Dodd-Frank Wall Street Reform Act was to:

Forced banks to limit their risk- taking. Encourage banks to engage in more risk taking. Limit what stocks and mutual funds that investors could choose. Give banks the choice to report their holdings.

Liquidity is:

Having liabilities that can be readily converted into cash. Having assets that can be readily converted into cash. Sufficient assets to cover long run liabilities. Sufficient liabilities to cover long run assets.

Which of the following gives the correct relationship between nominal and real interest rates?

Nominal interest rate = interest rate + expected inflation rate nominal interest rate+ real interest rate = expected inflation rate nominal interest rate = real interest rate- expected inflation real interest rate = nominal interest rate + expected inflation rate

Assuming velocity is constant, the rate of inflation equals the difference between the rate of:

growth in real wages and the rate of growth in the real GDP. Growth in the money supply and the rate of growth in the real GDP. unemployment and the rate of economic growth period next slide growth in the money supply and the rate of growth in nominal GDP.

The efficient market hypothesis states that all financial decisions are

made by the people, which may not be based on all relevant information that accurately reflects the value of assets today and in the future. Made by rational people and are based on all relevant information that accurately reflects the value of assets today and in the future. not made by rational people and are not based on all relevant information that accurately reflects the value of assets today and in the future. made by government and are based on all relevant information that accurately reflects the value of assets today.

What is the role of extrapolative expectations in increasing the price level and creating an asset price bubble? Extrapolative expectations lead people to buy

more and more assets, leading to ever-higher asset prices that reflect their real value. fewer and fewer assets, leading to ever-lower asset prices that do not reflect their real value. More and more assets, leading to ever-higher asset prices that do not reflect their real value. fewer and fewer assets, leading to ever-lower asset prices that reflect their real value.

If the Federal Reserve announces a change in the direction of monetary policy, is it describing an offensive or defensive action? Explain your answer.

offensive action, because it is offsetting changes in the demand for money defensive action, because it desires to affect the direction of the economy defensive action, because it is offsetting changes in the demand for money Offensive action, because it desires to affect the direction of the economy

An inverted yield curve occurs when long-term bonds:

pay a lower interest rate than short-term bonds. are unrelated to short-term bonds. Pay a higher interest rate than short-term bonds. pay the same interest rate as short-term bonds

Inflationary expectations are important, because widespread changes in inflationary expectations affect:

Okun's rule of thumb. The distribution of income. Relative prices. Actual inflation.

The Federal funds rate is the interest rate:

On U.S. Treasury bonds. banks charge one another for Fed funds or reserves. The Fed charges banks for loans from the discount window. the Fed pays on reserves.

Moral hazard arises when?

People's actions do not reflect the full cost of their actions people follow the human tendency to go along with the crowd. people use innovation, technology, or political pressure to circumvent government regulation. financial institutions use innovation, technology, or political pressure to circumvent government regulation.

Selling short-term treasury bills and buying longer-term treasury bonds without creating more new money is called:

Pre commitment policy. Standard monetary policy. Quantitative easing. Operation twist.

As the economy moves to the right of the long-run Phillips curve, inflationary:

Pressures build. Expectations rise. Pressures subside. Pressures remain constant.

The liquidity trap is often compared to:

Pushing banks into a hole filled with liquid. Pulling on a string. Pulling banks into a hole filled with liquid. Pushing on a string.

What are 2 roles of the financial sector?

The financial sector facilitates trade, acting as a lubricant to the economy. Its second role is to transfer saving, outflows from the spending stream, back into spending.

If financial institutions don't produce any tangible real assets, why are they considered a vital part of the U.S. economy?

The financial sector is the largest consumer of tangible real assets. The financial sector transfers saving into investment and makes the real economy more efficient. The financial sector certifies all transactions, which is essential for a monetary system. The financial sector is the largest sector in the economy.

The primary tool of monetary policy is:

The prime rate the discount rate the reserve requirement open market operations

If productivity growth is 3 percent and wage increases are 5 percent, what would you predict the rate of inflation or deflation to be?

The rate of inflation would be 2 percent.

If productivity growth is 6 percent and wage increases are 11 percent, what would you predict the rate of inflation or deflation to be?

The rate of inflation would be 5 percent.

The main difference between quantitative easing and credit easing is that:

There is no difference since both add credit to the economy. credit easing changes the quality of the Fed's holdings, quantitative easing does not. credit easing shift long-term interest rates down while quantitative easing shifts them up. quantitative easing changes the mix of the fed's holdings, credit easing does not.

A situation in which the price level increases at an extremely high rate is called:

stagflation. disinflation. Hyperinflation. inflation.

True or False It's difficult to measure asset inflation because asset prices can increase when assets become more productive.

true

What is the function of risk premium?

To raise the return to holding government bonds. To make sure that the value of the bond rises with inflation. To distinguish short form long term bonds. To compensate bondholders for the chance the borrower will not repay the loan.

According to the efficient market hypothesis, rational people

will recognize when asset prices are rising too quickly so that asset markets, such as commodities, must be left on automatic pilot without government intervention. will not recognize when asset prices are rising too quickly, so that asset markets, such as commodities, can be not be left on automatic pilot without government intervention. will not recognize when asset prices are rising too quickly, so asset markets, such as housing, must be left on automatic pilot without government intervention. Will recognize when asset prices are rising too quickly, so that asset markets, such as housing, can be left on automatic pilot without government intervention.

How are transparency and credibility related?

§ By telling people what the Fed is doing, transparency enhances the credibility of the Fed because the people see that in fact, the Fed does what it says it will do. § The Fed is legally unable to be transparent about its actions and therefore is unable to develop credibility. § The Fed tries to surprise people with its actions, offsetting the effects of expectations. This is how it develops credibility. § Because Congress is legally required to release FOMC minutes, people learn about Fed actions and because they are told what the Fed is doing, the Fed gains credibility.

The U.S. central bank is a financial institution that:Has the sole right to issue currency

§ Determines what assets will back a currency § has the sole right to issue currency § sets barring and landing in a country § has the sole right to accept deposits and make loans

True or False Economists who accept the quantity theory of money favor a monetary rule because they believe the short-run effects of monetary policy are unpredictable and the long-run effects are on the price level, not real output.

True

True or False The bursting of the stock market bubble was one of the contributing factors to the 2008 crisis.

True

True or False When a bank creates loans, it also creates money.

True

What function is money serving when people compare the price of chicken to the price of beef?

Unit of account

While Jon is walking to school one morning, a helicopter flying overhead drops a $20 bill. Not knowing how to return it, Jon keeps the money and deposits it in his bank. (No one in this economy holds currency.) If the bank keeps 25 percent of its money in reserves:

a. How much money can the bank initially lend out?Instructions: Round your response to two decimal places.$ 15.00 b. After these two initial transactions, by how much is the money in the economy changed?Instructions: Round your response to two decimal places. $ 35.00 c. What's the money multiplier?Instructions: Round your response to one decimal place. 4.0 d. How much money will eventually be created by the banking system from Jon's $20?Instructions: Round your response to two decimal places. $ 80.00

State whether the following is an example of the transactions, precautionary, or speculative motive for holding money:

a. I like to have the flexibility of buying a few things for myself, such as a latte or a snack, every day, so I generally carry $10 in my pocket. Transactions motive Speculative motive Precautionary motive b. I never know when my car will break down, so I always keep $50 in my pocket. Transactions motive Precautionary motive Speculative motive c. When the stock market is falling, money managers generally hold more in cash than when the stock market is rising. Speculative motive Precautionary motive Transactions motive d. Any household has bills that are due every month. Speculative motive Precautionary motive Transactions motive

Use the Taylor rule to predict the Fed funds rate in each of the following situations.

a. Inflation is 2 percent, the inflation target is 5 percent, and output is 2 percent below potential. 1.5 percent. b. Inflation is 5 percent, the inflation target is 2 percent, and output is 2 percent above potential. 9.5 percent. c. Inflation is 5 percent, the inflation target is 2 percent, and output is 2 percent below potential. 7.5 percent.

Categorize the following as components of M1, M2, both, or neither.

a. State and local government bonds. Neither b. Checking accounts. Both c. Money market deposit accounts. M2 d. Currency. Both e. Stocks. Neither f. corporate bonds. Neither

In the standard AS/AD model, financial bubbles play

an important role in determining whether an economy has exceeded potential output, since this model only considers inflation in the general price level. an important role in determining whether an economy has exceeded potential output, since this model only considers inflation in the world price level. no role in determining whether an economy has exceeded potential output, since this model only considers inflation in the world price level. No role in determining whether an economy has exceeded potential output, since this model only considers inflation in the general price level.

Over the last 20 years, the United States experienced periods of considerable:

asset price deflation, followed by sudden spurts of good price inflation. asset price deflation, followed by sudden spurts of asset price inflation. good price inflation, followed by sudden spurts of good price deflation. asset price inflation, followed by sudden spurts of asset price deflation.

Why do lenders tend to lose out in an unexpected inflation?

because the nominal interest rate that lenders earn falls. lenders don't lose out. Because the money that is repaid to lenders is worth less. because inflation means goods cost more.

Small-denomination time deposits are included in:

checking accounts M1 M2 Currency

A zero-interest rate lower bound is associated with

conventional and unconventional monetary policy, in which deliberate inflation can drive real interest rates to be negative. unconventional monetary policy, in which policymakers cannot make the interest rate go below zero. Conventional monetary policy, in which policymakers cannot make the interest rate go below zero. conventional monetary policy, in which deliberate inflation can drive real interest rates to be negative.

Central banks are responsible for:

Neither monetary policy nor physical policy monetary policy but not physical policy both monetary policy and policy physical policy but not monetary policy

If the Fed increases the required reserves, financial institutions would be expected to lend out:

Less than before, increasing the money supply. Less than before, decreasing the money supply. More than before, increasing the money supply. More than before, decreasing the money supply.

In the short run, if the Fed undertakes expansionary monetary policy, the effect will be to shift the:

AD curve out to the right. AD curve into the left. SAS curve up. SAS curve down.

If you base your expectations of inflation on what has happened in the past, what kind of expectations are you demonstrating?Instructions: In order to receive full credit, you must make a selection for each option. For correct answer(s), click the box once to place a check mark. For incorrect answer(s), click the option twice to empty the box.

All apply Adaptive expectations Reasonable expectations Extrapolative expectations Rational expectation

What three assumptions turn the equation of exchange into the quantity theory of money?Instructions: In order to receive full credit, you must make a selection for each option. For correct answer(s), click the box once to place a check mark. For incorrect answer(s), click the option twice to empty the box.

All apply. Velocity is constant. The price level is constant or changing at a predictable rate. The money supply is constant or changing at a predictable rate. Real income is independent of the money supply. Real income is dependent on the money supply. The direction of causation is from money to prices. The direction of causation is from prices to money.

Which of the following monetary policies reduces aggregate demand and output?

An increase in the discount rate A cut in the required reserve ratio An open market purchase of government securities A cut in the federal funds rate

Demonstrate the effect of expansionary monetary policy in the AS/AD model when the economy is: b. Significantly above potential output. Refer to point A in the graph below:

In this case, the expansionary policy will shift aggregate demand to AD1 and aggregate supply will shift to SAS1 with a new equilibrium at Point B

If the Federal Reserve reduced its reserve requirement from 6.5 percent to 5 percent, and banks held no excess reserves, this policy would:

Increase the money multiplier but decrease the money supply. Decrease the money multiplier but increase the money supply. Increase both the money multiplier and the money supply. Decrease both the money multiplier and the money supply.

Refer to the graph shown. Monetary policy that shifts the AD curve from AD0 to AD1 and moves the economy from A to B:

Increases nominal output but not real output in the short run. Increases both real and nominal output in the short run. Doesn't increase real or nominal output in the short run. Increases real output but not nominal output in the short run.

When the Fed sells bonds, the Fed:

Increases the reserves and the federal funds rate decreases. Increases the reserves and the federal funds rate increases. Reduces the reserves and the federal funds rate increases. Reduces the reserves and the federal funds rate decreases.

How does inflation affect money's function as a store of wealth?

Inflation requires people to carry more money; it reduces money's value. Inflation reduces how much can be purchased with a given amount of money; it lowers money's value. Inflation increases the value of wealth because the value of money rises with inflation. Inflation reduces the willingness of banks to hold people's money, lowering the interest paid on cash.

What does the quantity theory predict will happen to inflation if the money supply falls 6 percent?

Inflation will fall by 6 percent.

Why could leverage lead to an asset price bubble?

It allows investors to take advantage of disinflation. It takes advantage of extrapolation votive expectations. It takes advantage of insiders who help outsiders. It increases the ability to purchase financial instruments.

Is the Fed a private or a public agency?

It is neither completely private nor completely public.

Why are large financial institutions considered to be too-big-to-fail? What problem does it create?

Large financial institutions have a moral hazard problem because they engage in fraudulent activities that are detrimental to the workings of an economy. This requires government to step in to prevent the fraud. Since large financial institutions are essential to the workings of an economy, it may require government to step in to prevent their failure. Thus, they are considered too-big-to-fail. This creates a moral hazard problem. Since large financial institutions are nonessential to the workings of an economy, government rarely steps in to prevent their failure. These are considered too-big-to-fail. This creates an adverse selection problem. Large financial institutions are essential to the workings of an economy, but government is not required to bail them out when they engage in questionable behavior. This nullifies the too-big-to-fail problem.

What distinguishes operation twist from credit easing?

Like credit easing, operation twist changes the composition of the Fed's portfolio; unlike credit easing it does not entail buying private securities. Its purpose is not to reduce private bank risk, but to lower long-term interest rates. That is, its purpose is to "twist" the yield curve. Like credit easing, operation twist changes the composition of the Fed's portfolio; unlike credit easing it does not entail buying private securities. Its purpose is not to increase private bank risk, but to lower short-term interest rates. That is, its purpose is to "twist" the money demand curve. Like credit easing, operation twist does not entail buying private securities; unlike credit easing, operation twist changes the composition of the Fed's portfolio. It does not entail buying private securities. Its purpose is not to increase private bank risk, but to lower long-term interest rates. That is, its purpose is not to "twist" the yield curve. Like credit easing, operation twist does not change the composition of the Fed's portfolio; unlike credit easing it entails buying private securities. Its purpose is to reduce private bank risk and to lower long-term interest rates. That is, its purpose is to "twist" the money supply curve.

The standard discussion of monetary policy is based on the assumption that:

Long - term rates will fall when the Fed pushes up short term interest rates. Long - term rates will rise when the Fed pushes up short -term interest rates. Short-term rates will fall when the Fed pushes up long term interest rates. Short-term rates will rise when the Fed pushes up long term interest rates.

An increase in the federal funds rate could be caused by:

Lower than expected loan demand. Higher than expected bank reserves. Higher than expected withdrawals. Higher than expected banks deposits.

Some economists believe that the financial sector does not channel all saving back into the spending stream. Which of the following financial assets, when held by individuals, does not reenter the spending stream?

Money Loans Bonds Stocks

All of the following are reasons why people hold cash money except:

Money can be used to buy goods cash earns interest to avoid losses from changes in bond prices emergencies

When there are unsustainable rapidly rising prices of some type of financial asset, such as stocks, we refer to this as a(n):

Moral hazard problem. Bad precedent problem. Asset price bubble Liquidity trap.

When the interest rate rises, people are:

More likely to borrow, that is, purchase a financial asset. More likely to borrow, that is, sell a financial asset. Less likely to borrow, that is, purchase a financial asset. Less likely to borrow, that is, sell a financial asset.

Explain the different effects that quantitative easing and operation twist were expected to have on the yield curve.

Quantitative easing pushes the upper end of the yield curve down directly, thereby holding down the interest rate for investors and stimulating asset markets and the economy. Operation twist places downward pressure on the long-term rate and upward pressure on the short-term rate. Quantitative easing pushes the lower end of the yield curve down directly, thereby holding up the interest rate for investors and stimulating asset markets and the economy. Operation twist places upward pressure on the long-term rate and downward pressure on the short-term rate. Quantitative easing shifts up the upper end of the yield curve directly, thereby holding up the interest rate for investors and depressing asset markets and the economy. Operation twist places upward pressure on long-term and short-term rates. Quantitative easing pushes the upper end of the yield curve up directly, thereby not changing the interest rate for investors and not stimulating asset markets and the economy. Operation twist places no pressure on the long-term rate and upward pressure on the short-term rate

The discount rate refers to the:

Rate of interest the Fed charges for loans to government. Rate of interest the Fed charges for loans to individuals. Rate of interest the Fed charges for loans to banks. Lower price large institutions pay for government bonds.

According to the quantity theory of money, inflation is attributable to increases in:

Real GDP. Velocity in excess of increases in real GDP. The money supply in excess of increases in real GDP. Velocity.

In the AS/AD model, a contractionary monetary policy:

Reduces investment but increases aggregate demand. Increases investment by reduces aggregate demand. Reduces both investment and aggregate demand. Increases both investment and aggregate demand.

Money facilitates trade because it:

Requires a double coincidence of wants among individuals. Requires carrying other goods around for barter. Does not require a medium of exchange. Does not require a double coincidence of wants among individuals.

Which of the following are examples of financial assets that pay a long-term interest rate?

Savings deposits and checking accounts mortgages and government bonds money and CD's cash and currency

If housing prices are rising by 20 percent per year, you can borrow money at 5 percent per year, and you are sure housing prices will continue to rise in the future, you would be wise to:

Sell your house to get out of debt. Buy as many houses as you can. Not buy a house because it will leave you in debt. Buy a house if you need a house.

To offset the moral hazard problem created by the FDIC, the government:

Separated banks from other financial institutions. Created the Federal Reserve Bank. Created securities to spread the risks. Required individuals to pay a portion of the insurance costs.

If dollar bills (Federal Reserve notes) are backed by nothing but promises and are in real terms worthless, why do people accept them?

Social convention: everyone believes that other people will accept dollar bills in exchange for goods.

When you deposit $200 in your savings account with the objective of withdrawing it later to buy a video game that is about to be offered in the market in the near future, then the $200 is serving which function?

Store of wealth store of real assets medium of exchange unit of account

Demonstrate the effect of expansionary monetary policy in the AS/AD model when the economy is: a. Below potential output. Refer to point A in the graph below:

Sufficient expansionary policy will move aggregate demand to AD2 and aggregate supply will remain at SAS0 with a new equilibrium at point B

Before the financial crisis of 2008:

The 2.5% inflation target was seen as a lower bound. The 2.5% inflation target was seen as a precise target. The 2.5% inflation target was seen as an upper bound. Inflation was not seen as a target.

How does the Fed use open market operations to increase the money supply?

The Fed buys bonds to increase the amount of reserves that banks have on hand. When the Fed buys bonds, banks have more reserves and are able to lend more. As banks lend more, the money supply increases.

Institutionally focused economists argue:

The equation of exchange should be read from right to left. the equation of exchange is incorrect. both the quantity theory and the equation of exchange are incorrect. the equation of exchange should be read from left to right.

If a firm or an industry is considered too big to fail, it is

Wise to regulate it because of the moral hazard problem. Wise to regulate it because the regulation will make it smaller. Unwise to regulate it because the regulation will slow growth. Unwise to regulate it because it is too big.

How does deposit insurance lead to it?

With deposit insurance, people could put their money into banks that made excessively risky loans without fear of losing their money should the bank fail. With deposit insurance, banks can avoid reserve requirements by insuring customer deposits with the FDIC. With deposit insurance, homeowners facing foreclosure can qualify for government subsidized loans or a reduction in principal balance. With deposit insurance, banks can invest in the securities market without fear of losing their money should the housing market crash.

State the immediate effect of each of the following actions on M1 and M2:

a. Barry writes his plumber a check for $200. The plumber takes the check to the bank, keeps $50 in cash, and deposits the remainder in his savings account. M1 declines by $ 150 M2 does not change by $ 0 b. Maureen deposits the $1,000 from her CD in a money market mutual fund. M1 does not change by $ 0 M2 does not change by $ 0 c. Sylvia withdraws $50 in cash from her savings account. M1 rises by $ 50 M2 does not change by $ 0

The Fed wants to increase the money supply (which is currently $5,000) by $350. The money multiplier is 4. For each 1 percentage point the discount rate falls, banks borrow an additional $10. Explain how the Fed can achieve its goals using the following tools:

a. Change the reserve requirement. The Fed should lower the reserve requirement to 23 b. Change the discount rate. The Fed should lower the rate by 8.75 percentage points. c. Use open market operations. The Fed should buy $87.50 worth of bonds.

European Community Bank (ECB) governing council member Erkki Liikanen was quoted as saying, "The stronger we get the productivity growth . . . the more room we will get in monetary policy (to keep interest rates low)."

a. Demonstrate his argument using the AS/AD model. Increases in productivity shift the long-run aggregate supply curve to the right. This allows policymakers to increase aggregate demand, perhaps through expansionary policy, which would keep interest rates low, as desired, without increasing the price level. b. Demonstrate his argument using the Phillips curve model. Increases in productivity shift the long-run Philips curve to the left because it allows a lower unemployment rate at every rate of inflation. Policy makers, therefore, are able to increase aggregate demand, shifting the short-run Phillips curve to the left, resulting in lower unemployment and the same inflation rate.

The Fed followed far more expansionary policy in the early 2000s than the Taylor rule suggested because the economy:

did not experience any inflation and there was no signal that output exceeded potential output. experienced inflation but there was no signal that output exceeded potential output. did not experience any inflation but there was a signal that output exceeded potential output. experienced inflation and there a signal that output exceeded potential output.

In the 1970s and 1980s, savings banks invented NOW accounts to get around financial regulations. This is an example of:

the law of diminishing control. A moral hazard problem. Quantitative easing. deleveraging.

Which of the following correctly states what would happen to the Phillips curve if people's expectations of inflation didn't change:

the short-run Phillips curve would shift down. The economy will stay on the same short-run Phillips curve. the economy would move from a short-run to a long-run Phillips curve. the short-run Phillips curve would shift up.