finals 61-70

The Fed tries to keep the core inflation rate around:

2%

Expecting the inflation rate to be 3%, Tony decides to put his savings in a 12-month certificate of deposit yielding a fixed 6% interest rate. If the actual inflation rate is ________, it can be argued that ________ is (are) worse off.

below 3%; the bank issuing the certificate

During periods of deflation _____ will be hurt and _____ will be helped.

borrowers; lenders

The measure used by the Fed that excludes food and energy prices is the:

core inflation rate.

When Fed officials worried about the possibility of "Japanification" in the United States, it meant that they were worried that the U.S. economy would:

fall into a deflationary trap.

The liquidity trap is associated with all of the following EXCEPT:

fiscal policy becomes ineffective.

If the economy is in a liquidity trap:

fiscal policy is effective, but monetary policy is not.

When economists state that there is a zero bound on nominal interest rates, they mean that:

the nominal interest rate cannot go below zero.

A liquidity trap is a situation in which:

using expansionary monetary policy is not effective because the nominal interest rate is almost zero.

A liquidity trap results from the:

zero bound of the nominal interest rate.