Chapter 12--MacroTB - CHAPTER 12 Stabilization Policy and...

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MULTIPLE-CHOICE 1. A policy rule that dictates monetary policy is a. written down. b. at the discretion of the president. c. at the discretion of the chairman of the Federal Reserve. d. independent of the state of the economy. e. a function of the state of the economy. Answer: e. Section: 12.2 2. When we raise the federal funds rate by 2 percent for every 1 percent increase in the inflation rate, this is an example of a. a fiscal policy rule. b. a monetary policy rule. c. discretionary monetary policy. d. discretionary fiscal policy. e. None of the above. Answer: b. Section: 12.2 3. A monetary policy rule may contain which of the following? a. short-term output b. the inflation rate c. the unemployment rate d. All of the above. e. None of the above. Answer: b. Section: 12.2 4. A monetary policy rule may contain which of the following? a. price shocks b. short-term output c. the unemployment rate d. the inflation rate e. All of the above. Answer: d. Section: 12.2 5. The simple monetary policy rule discussed at length in the text is a. R t – r ¯ = m ¯ ( u t – u ¯). b. R t + r ¯ = m ¯ ( p t p ¯ ) . c. R t – r ¯ = m ¯ ( p t p ¯ ) . d. r ¯ R t = m ¯ ( p t p ¯ ) . e. r ¯ R t = m ¯Y ˜ t . Answer: c. Section: 12.2 6. In the simple monetary policy rule R t – r ¯ = m ¯ ( p t p ¯ ) , m ¯ measures a. the marginal product of capital. b. the deviation of the inflation rate from the target rate. c. how sensitive monetary policy is to changes in inflation. d. the target rate of inflation. e. None of the above. Answer: c. Section: 12.2 124 Stabilization Policy and the AS/AD Framework CHAPTER 12
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Stabilization Policy and the AS/AD Framework | 125 7. In the simple monetary policy rule R t – r ¯ = m ¯ ( p t p ¯ ) , p t p ¯ represents a. the marginal product of capital. b. how sensitive monetary policy is to changes in inflation. c. the deviation of the inflation rate from the target rate. d. the target rate of inflation. e. None of the above. Answer: c. Section: 12.2 8. The simple monetary policy rule R t – r ¯ = m ¯ ( p t p ¯ ) implies that a. if p t < p ¯ , the Federal Reserve should lower the interest rate. b. if p t > p ¯ , the Federal Reserve should raise the interest rate. c. if p t = p ¯ , the Federal Reserve should not change the interest rate. d. All of the above. e. None of the above. Answer: d. Section: 12.2 9. Consider the monetary rule R t – r ¯ = 0.25( p t p ¯ ). If the inflation rate is 4 percent, the marginal product of capital is 2 percent, and the target rate of inflation is 3 percent, then the real interest rate should be a. 3.50 percent. b. 3.25 percent. c. 2.25 percent. d. 1.75 percent. e. 2.50 percent. Answer: c. Section: 12.2 10. If m ¯ = 0.5 in the simple monetary rule and the inflation rate is 2 percent below the target inflation rate, the Federal Reserve will a. lower the target rate by 2 percent. b. raise the interest rate by 1 percent.
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This note was uploaded on 01/20/2011 for the course ACCT ACCT 3371 taught by Professor Smart during the Spring '10 term at Rensselaer Polytechnic Institute.

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Chapter 12--MacroTB - CHAPTER 12 Stabilization Policy and...

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