Macro ch 16 LP

Which of the following does NOT explain why the 1997-2006 housing boom increased aggregate demand? a. Homeowners felt wealthier as they saw their homes rising in value every year. b. Homeowners tended to spend more money and even borrow money, hoping that rising wealth from the home values would let them repay the money in the future. c. During the boom, some builders were working 60 or 80 hours a week instead of 40. d. The construction sector created new employment and higher wages.

c. During the boom, some builders were working 60 or 80 hours a week instead of 40.

If the economy is hit by a negative real shock that reduces real GDP growth below the Solow growth rate, which of the following is the appropriate monetary policy to move real GDP growth back to the Solow growth rate without raising inflation? a. Increase the growth rate of the money supply. b. Decrease the growth rate of the money supply. c. No monetary policy can achieve that goal. d. Keep the growth rate of the money supply constant while lowering interest rates.

c. No monetary policy can achieve that goal.

If the Federal Reserve wished to avoid short-run increases in the unemployment rate, the correct response to a negative AD shock would be a. an increase in the money supply growth. b. an increase in government spending growth. c. a tax cut. d. a lower goal for inflation.

a. an increase in the money supply growth.

U.S. housing prices peaked in a. 2008. b. 2006. c. 1997. d. 2001.

b. 2006.

If the Fed reduces Marrow (the money supply) to fight inflation after a negative real shock, which of the following should occur? a. higher inflation b. high real growth c. low real growth d. no change

c. low real growth

Nobel Prize-winner Milton Friedman advocated which of the following as an adequate monetary policy? a. a strict rule in which the money supply should grow at the rate of the long-run economic growth rate b. a discretionary rule in which the money supply should be adjusted to counteract aggregate demand shocks c. a strict rule in which the money supply should grow 2 percent higher than the long-run economic growth rate d. a discretionary rule in which the money supply should be adjusted to control the level of inflation rate

a. a strict rule in which the money supply should grow at the rate of the long-run economic growth rate

Many economists worry about the Federal Reserve overstimulating the economy because such overstimulation will lead to rising a. inflation. b. Solow growth. c. output growth. d. unemployment

a. inflation

Disinflation in the 1980s was a result of a. leftward shifts in the aggregate demand curve due to money supply reductions. b. leftward shifts in the aggregate supply curve due to sticky wages and prices. c. the gradual return of the economy toward the Solow growth curve. d. leftward shifts in the Solow growth curve due to negative real shocks.

a. leftward shifts in the aggregate demand curve due to money supply reductions.

When facing a real shock, a central bank will encounter a dilemma that forces it to choose between a. too low a rate of growth or too high a rate of inflation. b. too high a rate of growth or too low a rate of inflation. c. too high a rate of growth or too high a rate of inflation. d. too low a rate of growth or too low a rate of inflation.

a. too low a rate of growth or too high a rate of inflation.

In the case of a negative shock to aggregate demand, the central bank should a. decrease the rate of growth in the price level to keep real growth high. b. increase the rate of growth in the money supply to restore spending growth. c. decrease the rate of growth in the money supply to control inflation. d. do nothing.

b. increase the rate of growth in the money supply to restore spending growth.

Low interest rates in 2003-2004 a. made it more difficult to borrow. b. increased demand for homes. c. decreased demand for homes. d. lowered real growth.

b. increased demand for homes.

Increased uncertainty will cause the economy's AD to a. become steeper b. shift inward. c. become flatter. d. shift outward.

b. shift inward.

When a bubble arises, asset prices are driven by a. changes in aggregate demand and aggregate supply. b. shifts in market psychology and successive wages of irrational exuberance. c. policymakers. d. shifts in money growth rate.

b. shifts in market psychology and successive wages of irrational exuberance.

In the face of a shock to consumer confidence, politicians are on the fence about whether to implement policies based on the advice of economists or to make decisions on the basis of Tarot card readings. What would happen during the period in which they are making up their minds about which strategy to pursue? a. P(arrow) would rise. b. v(arrow) would rise. c. v(arrow) would fall. d. Y(arrow)R would rise.

c. v(arrow) (velocity of money) would fall.

In the late 1990s, America's economy a. experienced stagflation: high inflation and low real growth. b. grew at its historical pace. c. was booming and unemployment was very low. d. suffered from several severe nominal shocks, producing low inflation and growth.

c. was booming and unemployment was very low.

Which of the following is a reason it might be hard for the Fed to restore aggregate demand in the face of a nominal shock? a. The Fed might run out of money. b. Banks usually don't do what the Fed demands of them. c. The economy responds to Fed's actions with no lag. d. The Fed must operate in real time, when a lot of the data about the state of the economy are unknown.

d. The Fed must operate in real time, when a lot of the data about the state of the economy are unknown.

Shortly after September 11, 2011, the Federal Reserve a. decreased its lending to individuals. b. decreased its lending to banks. c. increases its lending to individuals d. increased its lending to banks.

d. increased its lending to banks.

Uncertainty drives people away from a. investment spending and towards less liquid assets. b. more liquid assets and towards more investment spending. c. less liquid assets and towards more investment spending. d. investment spending and toward more liquid assets.

d. investment spending and toward more liquid assets.