ECO 4223 Exam 2 solutions 2024
In the model of fiat money developed in Lecture 7, the demand for money is the
demand to hold ________. - ANS Irredeemable Paper Bank Notes.
In the model of fiat money developed in Lecture 7, the supply of money is just the total
stock issued by the central bank because fiat monies _________. - ANS have no non-
monetary uses.
Unlike the gold standard, there is _______ mechanism to govern the supply of money
in a fiat money regime. - ANS no automatic
How a central bank conducts monetary policy will depend _____. - ANS on both the
information available to policymakers and the incentives policymakers face.
In the 1960s and early 1970s, most economists believed there was a stable, exploitable
tradeoff between _____ and ______. - ANS inflation, unemployment
In the 1970s, the United States experienced _________. - ANS stagflation
The (naiive) Phillips Curve was thought to represent a menu of policy options, whereby
policymakers could achieve a lower unemployment rate so long as they were willing to
put up with _________, and vice versa. - ANS higher inflation
Notable absent from the (naiive) Phillips Curve was a reasonable assumption about
_________. - ANS Inflation Expectations
When inflation expectations decrease, the expectations augmented Phillips Curve
shifts ________. - ANS down
The long run Phillips Curve is conventionally drawn as a ______ line that intersects the
axis at __________. - ANS horizontal; the natural rate of unemployment, U".
According to Abrams (2006), political monetary (or business) cycle political monetary
cycle exists in the United States, but only when the President and the _________ share
party allegiance. - ANS Federal Reserve Chair
A country experiences hyperinflation when the price level grows more than
__________. - ANS 50 percent per month
Use the rule of 70 to calculate approximately how long it will take prices to double in a
country with an inflation rate of 3 percent per month. - ANS 23.3 months
(70/3) months
, Use the rule of 70 to calculate the approximate inflation rate in a country that has seen
its price level double in 12.1 years. - ANS 5.8 percent per year
(70/12/1) per year
Use the rule of 70 to calculate the approximate inflation rate in a country that has seen
its price level quadruple in 15.9 years. - ANS 8.8 percent per year.
15.9/2=7.95
70/7/95=8.8
When inflation is higher than expected, borrowers and employers typically _______. -
ANS gain at the expense of lenders and employees
The federal reserve consists of the Board of Governors and the _________ regional
Reserve Banks. Typically, _______ regional Reserve Bank presidents serve as voting
members on the Federal Open Market Committee. - ANS 12; 4
Businesses tend to overproduce when the purchasing power of money is _______
expected. - ANS less than
Before expectations adjust, a reduction in nominal spending ________ real output.
After expectations adjust, real output __________. - ANS reduces; returns to where it
was prior to the shock
An inflation target anchors expectations about the future purchasing power of the dollar
better than a price level target. - ANS False
Following a negative shock to nominal spending, a central bank committed to achieving
its price level target will promote a fast recovery more effectively than a central bank
committed to achieving its inflation target. - ANS True
A price level target makes up for past mistakes, whereas an inflation target lets
bygones be bygones. - ANS True
A nominal shock refers to an unanticipated change in _________. - ANS the product of
money supply and the velocity of money.
A real shock refers to an unanticipated change in ________. - ANS potential output
Suppose a central bank is committed to hitting a price level target. An unanticipated
increase in nominal spending will cause the price level to______ (relative to its previous
trajectory). The central bank will respond by ______(relative to its previous trajectory) in
order to hit its price level target. - ANS rise; decreasing the money supply.
In the model of fiat money developed in Lecture 7, the demand for money is the
demand to hold ________. - ANS Irredeemable Paper Bank Notes.
In the model of fiat money developed in Lecture 7, the supply of money is just the total
stock issued by the central bank because fiat monies _________. - ANS have no non-
monetary uses.
Unlike the gold standard, there is _______ mechanism to govern the supply of money
in a fiat money regime. - ANS no automatic
How a central bank conducts monetary policy will depend _____. - ANS on both the
information available to policymakers and the incentives policymakers face.
In the 1960s and early 1970s, most economists believed there was a stable, exploitable
tradeoff between _____ and ______. - ANS inflation, unemployment
In the 1970s, the United States experienced _________. - ANS stagflation
The (naiive) Phillips Curve was thought to represent a menu of policy options, whereby
policymakers could achieve a lower unemployment rate so long as they were willing to
put up with _________, and vice versa. - ANS higher inflation
Notable absent from the (naiive) Phillips Curve was a reasonable assumption about
_________. - ANS Inflation Expectations
When inflation expectations decrease, the expectations augmented Phillips Curve
shifts ________. - ANS down
The long run Phillips Curve is conventionally drawn as a ______ line that intersects the
axis at __________. - ANS horizontal; the natural rate of unemployment, U".
According to Abrams (2006), political monetary (or business) cycle political monetary
cycle exists in the United States, but only when the President and the _________ share
party allegiance. - ANS Federal Reserve Chair
A country experiences hyperinflation when the price level grows more than
__________. - ANS 50 percent per month
Use the rule of 70 to calculate approximately how long it will take prices to double in a
country with an inflation rate of 3 percent per month. - ANS 23.3 months
(70/3) months
, Use the rule of 70 to calculate the approximate inflation rate in a country that has seen
its price level double in 12.1 years. - ANS 5.8 percent per year
(70/12/1) per year
Use the rule of 70 to calculate the approximate inflation rate in a country that has seen
its price level quadruple in 15.9 years. - ANS 8.8 percent per year.
15.9/2=7.95
70/7/95=8.8
When inflation is higher than expected, borrowers and employers typically _______. -
ANS gain at the expense of lenders and employees
The federal reserve consists of the Board of Governors and the _________ regional
Reserve Banks. Typically, _______ regional Reserve Bank presidents serve as voting
members on the Federal Open Market Committee. - ANS 12; 4
Businesses tend to overproduce when the purchasing power of money is _______
expected. - ANS less than
Before expectations adjust, a reduction in nominal spending ________ real output.
After expectations adjust, real output __________. - ANS reduces; returns to where it
was prior to the shock
An inflation target anchors expectations about the future purchasing power of the dollar
better than a price level target. - ANS False
Following a negative shock to nominal spending, a central bank committed to achieving
its price level target will promote a fast recovery more effectively than a central bank
committed to achieving its inflation target. - ANS True
A price level target makes up for past mistakes, whereas an inflation target lets
bygones be bygones. - ANS True
A nominal shock refers to an unanticipated change in _________. - ANS the product of
money supply and the velocity of money.
A real shock refers to an unanticipated change in ________. - ANS potential output
Suppose a central bank is committed to hitting a price level target. An unanticipated
increase in nominal spending will cause the price level to______ (relative to its previous
trajectory). The central bank will respond by ______(relative to its previous trajectory) in
order to hit its price level target. - ANS rise; decreasing the money supply.
