ECON 214 quiz 11 solutions complete answers

ECON 214 quiz 11 solutions complete answers 

 

 From 1982 to 2008, the economy experienced only two recessions, and they were neither lengthy nor severe. This time period is known as:

           

The Federal Reserve generally uses ___________________ to implement monetary policy.

           

 Central banks can use monetary policy to:

           

 In the short run, some prices are inflexible. Most often, the prices that are inflexible are:

           

__________________ is when a central bank acts to increase the money supply in an effort to stimulate the economy.

           

The two types of monetary policy are:

           

Expansionary monetary policy occurs when:

           

If the interest rate on a loan is higher than the expected return from an investment:

           

 Expansionary monetary policy makes the aggregate demand curve:

           

Expansionary monetary policy:

           

 Holding all else constant, in the short run, an increase in the money supply can cause:

           

 When the Fed buys bonds from financial institutions, new money moves directly:

           

 Expansionary monetary policy ____________ interest rates, which can be shown in the ______________________.

           

Which of the following best describes how expansionary monetary policy affects the aggregate demand curve in the aggregate demand–aggregate supply model?

           

In the short run, expansionary monetary policy ___________ real gross domestic product (GDP), ___________ unemployment, and ___________ the price level.

           

Which of the following aggregate demand–aggregate supply models illustrates the short-run effects of expansionary monetary policy?

           

According to the figure, expansionary monetary policy will cause an economy that is initially at full-employment output to go from equilibrium ______ to equilibrium ______ in the short run.

           

According to the figure, if the economy started at full-employment output, expansionary monetary policy would cause real gross domestic product (GDP) to ______________ in the short run.

           

Which of the following figures illustrates the effects of expansionary monetary policy on the loanable funds market?

           

The Federal Reserve actively worked to keep the federal funds rate at nearly _________ for several years following the Great Recession.

           

The Federal Reserve’s response to the Great Recession was an attempt to:

           

What did the Federal Reserve do in response to the Great Recession?

           

Injecting new money into the economy eventually causes:

           

As the prices of goods and services increase, the value of money:

           

As the prices of goods and services decrease, the value of money:

           

Changes in the quantity of money lead to real changes in the economy. If this is the case, why would the central bank ever stop increasing the money supply?

           

Expansionary monetary policy can have immediate real short-run effects; initially, no prices have adjusted. But as prices adjust in the long run:

           

_______________________ would be helped by unexpected inflation.

           

_______________________ would be hurt by unexpected inflation.

           

According to the Fisher equation, if a bank extends a loan for 3% and the inflation rate ends up being 5%:

           

According to the Fisher equation, if a bank extends a loan for 3% and the inflation rate ends up being 2%:

           

_______________________ is when a central bank acts to decrease the money supply in an effort to control an economy that is expanding too quickly.

           

 Contractionary monetary policy occurs when:

           

If the interest rate on a loan is lower than the expected return from an investment:

           

 Contractionary monetary policy makes the aggregate demand curve:

           

 Contractionary monetary policy:

           

 Holding all else constant, in the short run, a decrease in the money supply can cause:

           

When the Fed sells bonds to financial institutions, new money moves directly:

           

Contractionary monetary policy _________ interest rates, which can be shown in the _____________________.

           

 Which of the following best describes how contractionary monetary policy affects the aggregate demand curve in the aggregate demand–aggregate supply model?

           

In the short run, contractionary monetary policy _________ real gross domestic product (GDP), _________ unemployment, and _________ the price level.

           

Which of the following aggregate demand–aggregate supply models illustrates the short-run effects of contractionary monetary policy?

           

According to the figure, contractionary monetary policy will cause an economy that is initially at full-employment output to go from equilibrium __________ to equilibrium __________ in the short run.

           

According to the figure, if the economy started at full-employment output, contractionary monetary policy would cause real gross domestic product (GDP) to __________ in the short run.

           

Which of the following figures illustrates the effects of contractionary monetary policy on the loanable funds market?

           

Which of the following explains why the money supply is not completely controlled by the Federal Reserve?

           

During a financial crisis hit hard by bank failures, the money supply:

           

 What will economists today likely state should have been done to limit the severity of the Great Depression?

           

Which of the following best explains how the money supply changed during the early part of the Great Depression?

           

 By shifting aggregate demand, monetary policy can affect __________ and __________.

           

Expectations:

           

Which of the following statements regarding the relationship between input prices and output prices is true?

           

Monetary neutrality is:

           

Printing more paper money doesn’t affect the economy’s long-run productivity or its ability to produce; these outcomes are determined by:

           

The idea that the money supply does not affect real economic variables is called:

           

According to the theory of monetary neutrality, in the long run:

 

Which of the following explains why resource prices are often the slowest prices to adjust?

           

An active monetary policy that attempts to smooth out the business cycle would involve conducting __________ monetary policy during recessions and __________ monetary policy during expansions.

           

Economists who discount the short-run expansionary effects of monetary policy focus on the problems of:

           

According to the figure, expansionary monetary policy starting at full-employment equilibrium will go from point _________ to point _________ in the short run and then to point _________ in the long run.

           

According to the figure, contractionary monetary policy starting at full-employment equilibrium will go from point _________ to point _________ in the short run and then to point _________ in the long run.

           

 Which of the following explains expansionary monetary policy in the long run?

           

Which of the following explains contractionary monetary policy in the long run?

           

A cost-of-living adjustment clause:

           

 When an employer is forced to increase wages at the same rate of inflation:

           

To avoid the negative effects of unexpected inflation, workers have an incentive to:

           

Unexpected inflation harms workers and other resource suppliers who have _________ prices in the _________ run.

           

Monetary policy has real effects only when:

           

If inflation is expected:

           

When inflation is expected, the real effect on the economy is:

           

According to the figure, if the policy is fully expected, expansionary monetary policy will cause an economy initially in full-employment equilibrium to move from:

           

According to the figure, if the policy is fully expected, expansionary monetary policy will cause an economy initially in full-employment equilibrium to see real gross domestic product (GDP):

           

 According to the figure, if the policy is fully expected, expansionary monetary policy will cause an economy initially in full-employment equilibrium to see its price level:

           

When supply shifts cause a downturn in the economy:

           

 When both long-run and short-run aggregate supply shift leftward:

           

Which of the following statements best describes monetary policy during the Great Recession?

           

 One explanation as to why monetary policy did not have the intended effects on the economy during the Great Recession is that:

           

 The widespread problems in financial markets during the Great Recession negatively affected key institutions in the macroeconomy. In addition, the financial regulations that were put in place restricted banks’ ability to lend at levels equal to those in effect prior to 2008. This resulted in:

           

_________ indicates a short-run inverse relationship between inflation and unemployment rates.

           

The Phillips curve:

           

The traditional short-run Phillips curve has _________ on the x axis and _________ on the y axis.

           

The traditional short-run Phillips curve is:

           

Which of the following diagrams represents the traditional short-run Phillips curve?

           

The theory behind the short-run Phillips curve relationship is that:

           

The traditional short-run Phillips curve implies that:

           

Only the short-run Phillips curve is downward sloping because:

           

Which of the following statements would be true if the short-run Phillips curve relationship held in the long run?

           

A __________ the aggregate demand curve is shown as a __________ the short-run Phillips curve.

 

The long-run Phillips curve is:

           

 The long-run Phillips curve has __________ on the x axis and __________ on the y axis.

           

 Which of the following diagrams represents the traditional long-run Phillips curve?

           

Under normal economic conditions, including the situation in which there is no surprise inflation, we expect the unemployment rate to:

           

Which of the following statements is true about monetary policy and the unemployment rate?

           

The long-run Phillips curve is ____________ and equal to ____________.

           

The theory behind the long-run Phillips curve relationship is that:

           

A ___________ the short-run aggregate supply curve is shown as a ___________ the long-run Phillips curve.

           

Two alternative theories that hypothesize how people form expectations are:

           

Studying alternative theories of how people form expectations is particularly relevant to monetary policy because:

           

The combination of high unemployment rates and high inflation is called:

           

Stagflation is:

           

Adaptive expectations theory:

           

__________ holds that people’s expectations of future inflation are based on their most recent experience.

           

Adaptive expectations theory came about in the:

           

Which two famous economists hypothesized that people would adapt their expectations about inflation to something consistent with their prior experience?

           

According to adaptive expectations theory, when inflation accelerates:

           

According to adaptive expectations theory, when inflation decelerates:

           

According to adaptive expectations theory, if the last three years of inflation were 3%, 3%, and 2%, respectively, one would expect inflation the following year to be:

           

Rational expectations theory:

           

____________ holds that people form expectations on the basis of all available information.

           

The short-run Phillips curve is built on the assumption that:

           

If expectations are formed rationally:

           

Which of the following statements about expectations theory is true?

           

 According to rational expectations theory, if the last three years of inflation were 0%, 2%, and 4%, respectively, one would expect inflation the following year to be:

           

When inflation is not a surprise:

 

As expected inflation increases, the short-run Phillips curve:

           

As expected inflation decreases, the short-run Phillips curve:

           

The strategic use of monetary policy to counteract macroeconomic expansions and contractions is known as:

           

When central banks purposefully choose to only stabilize money and price levels through monetary policy, it is known as:

           

Before the development of expectations theory:

           

Active monetary policy:

           

Passive monetary policy:

           

Since the early 1980s, the Federal Reserve has moved toward which type of monetary policy?

           

 If people anticipate the strategies of the central bank: