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Chapter 12--MacroTB

# 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 3. A monetary policy rule may contain which of the following? 4. A monetary policy rule may contain which of the following? 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 8. The simple monetary policy rule R t – r ¯ = m ¯ ( p t p ¯ ) implies that 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
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Chapter 12--MacroTB - CHAPTER 12 Stabilization Policy and...

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