Question 1

Approaches to establishing central bank credibility include

Accepted Answer

A)  continued success at keeping inflation under control.
B)  inflation targeting.
C)  exchange rate targeting.
D)  all of the above.E) All of the above
F) None of the above

Question 2

________ imposes a conceptual structure and inherent discipline on policy makers,but without eliminating all flexibility.

Accepted Answer

A)  Constrained discretion
B)  A policy rule
C)  A discretionary policy
D)  The Taylor ruleE) A) and D)
F) A) and C)

Question 3

Potential weaknesses of nominal GDP targeting include

Accepted Answer

A)  it requires accurate estimates of potential GDP growth,which are not easy to achieve.
B)  it implies that the central bank will respond to slowdowns in the real economy even if inflation is not falling.
C)  real GDP growth that is below potential or inflation that is below the inflation objective will encourage more expansionary monetary policy.
D)  it focuses not only on controlling inflation but also explicitly on stabilizing real GDP.E) All of the above
F) B) and C)

Question 4

Suppose that there is a negative aggregate demand shock and the central bank commits to an inflation rate target.If the commitment is credible,then

Accepted Answer

A)  the public's expected inflation will remain unchanged.
B)  the short-run aggregate supply curve will rise.
C)  over time inflation will fall.
D)  all of the above.
E)  both A and C.F) B) and C)
G) None of the above

Question 5

Ending the "Great Inflation" era in the 1970s is an example of

Accepted Answer

A)  inflation targeting.
B)  exchange rate targeting.
C)  central bank independence.
D)  appointment of a more conservative central banker.
E)  all of the above.F) C) and D)
G) A) and C)

Question 6

The Lucas critique indicates that

Accepted Answer

A)  advocates of discretionary policies' criticisms of rational expectations models are well-founded.
B)  advocates of discretionary policies' criticisms of rational expectations models are not well-founded.
C)  expectations are important in determining the outcome of a discretionary policy.
D)  expectations are not important in determining the outcome of a discretionary policy.E) B) and C)
F) A) and C)

Question 7

Suppose that there is a positive aggregate demand shock and the central bank commits to an inflation rate target.But if the commitment is not credible,then

Accepted Answer

A)  the public's expected inflation will remain unchanged.
B)  the short-run aggregate supply curve will rise.
C)  over time inflation will fall back down to the inflation target.
D)  all of the above.
E)  both A and B.F) D) and E)
G) A) and E)

Question 8

The rational expectations hypothesis implies that when macroeconomic policy changes

Accepted Answer

A)  the economy will become highly unstable.
B)  the way expectations are formed will change.
C)  people will be slow to catch on to the change.
D)  people will make systematic mistakes.E) None of the above
F) All of the above

Question 9

Arguments for adopting a policy rule include

Accepted Answer

A)  discretion avoids the straightjacket that would lock in the wrong policy if the model that was used to derive the policy rule proved to be incorrect.
B)  discretion enables policy makers to change policy settings when an economy undergoes structural changes.
C)  discretionary policies pursue overly expansionary monetary policies to boost employment in the short run but generate higher inflation in the long run.
D)  all of the above.E) A) and B)
F) B) and C)

Question 10

Suppose that there is a negative aggregate demand shock and the central bank commits to an inflation rate target.But if the commitment is not credible,then

Accepted Answer

A)  the public's expected inflation will remain unchanged.
B)  the short-run aggregate supply curve will rise.
C)  economic contraction will be worse.
D)  all of the above.
E)  both B and C.F) C) and D)
G) D) and E)

Question 11

The argument that econometric policy evaluation is likely to be misleading if policymakers assume stable economic relationships is known as

Accepted Answer

A)  the monetarist revolution.
B)  the Lucas critique.
C)  public choice theory.
D)  new Keynesian theory.E) A) and D)
F) A) and C)

Exam 24: The Role of Expectations in Monetary Policy

The argument that econometric policy evaluation is likely to be misleading if policymakers assume stable economic relationships is known as

Correct Answer
verified

Arguments for adopting a policy rule include

Correct Answer
verified

Approaches to establishing central bank credibility include

Correct Answer
verified

The rational expectations hypothesis implies that when macroeconomic policy changes

Correct Answer
verified

Suppose that there is a negative aggregate demand shock and the central bank commits to an inflation rate target.But if the commitment is not credible,then

Correct Answer
verified

________ imposes a conceptual structure and inherent discipline on policy makers,but without eliminating all flexibility.

Correct Answer
verified

Suppose that there is a positive aggregate demand shock and the central bank commits to an inflation rate target.But if the commitment is not credible,then

Correct Answer
verified

Potential weaknesses of nominal GDP targeting include

Correct Answer
verified

The Lucas critique indicates that

Correct Answer
verified

Ending the "Great Inflation" era in the 1970s is an example of

Correct Answer
verified

Suppose that there is a negative aggregate demand shock and the central bank commits to an inflation rate target.If the commitment is credible,then

Correct Answer
verified

Exam 24: The Role of Expectations in Monetary Policy

The argument that econometric policy evaluation is likely to be misleading if policymakers assume stable economic relationships is known as

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Arguments for adopting a policy rule include

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Approaches to establishing central bank credibility include

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The rational expectations hypothesis implies that when macroeconomic policy changes

Correct AnswerverifiedShow Answer

Suppose that there is a negative aggregate demand shock and the central bank commits to an inflation rate target.But if the commitment is not credible,then

Correct AnswerverifiedShow Answer

________ imposes a conceptual structure and inherent discipline on policy makers,but without eliminating all flexibility.

Correct AnswerverifiedShow Answer

Suppose that there is a positive aggregate demand shock and the central bank commits to an inflation rate target.But if the commitment is not credible,then

Correct AnswerverifiedShow Answer

Potential weaknesses of nominal GDP targeting include

Correct AnswerverifiedShow Answer

The Lucas critique indicates that

Correct AnswerverifiedShow Answer

Ending the "Great Inflation" era in the 1970s is an example of

Correct AnswerverifiedShow Answer

Suppose that there is a negative aggregate demand shock and the central bank commits to an inflation rate target.If the commitment is credible,then

Correct AnswerverifiedShow Answer

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