ECON 304 WITH 121 EXAM QUESTIONS & CORRECT
ANSWERS
In lecture we showed that real wages were rising in the US during the beginning of
the internet, in the mid 1990s, since the growth rate in nominal wages was greater
than the growth rate in the general price level. - ANSWER-true
If you buy a US Treasury bond, you hope interest rates on that bond fall so that
you can realize a capital gain by selling the bond for a higher price than you
bought it for. This would be a good strategy if you knew that the Fed was going to
conduct quantitative easing before they announced it. - ANSWER-true
When the Fed conducts quantitative easing they buy US Government Securities
which increases the demand of US Government Securities and thus, lowers interest
rates on these US Government Securities. - ANSWER-true
Suppose the interest rate on a one year government security in January of 2019 is
2.58%. Also, suppose the CPI price index is 252.55 in January of 2019 and 258.82
in January of 2020. Calculate the ex-post real rate of interest. True or false: The ex-
post real rate of interest is negative (less than zero). - ANSWER-false
The reason the bond demand curve slopes downward is due to the fact that as
prices fall, interest rates rise and thus, all else constant, bonds become more
attractive relative to substitutes and thus, people buy more of them. - ANSWER-
true
One reason the Fed wants inflation to rise is due to the fact that higher inflation
results in higher real interest rates (the Fisher effect) and thus, higher inflation will
give more bullets to the Fed to fight a recession. - ANSWER-false
,Shortly before the breakdown of the Bretton Woods system, the US $ become
undervalued and thus, member countries were desperate to convert their gold into
US $. As a response, President Nixon abandoned the Bretton Woods system in
1971. Since then, the US $ remains the world's reserve currency. - ANSWER-false
Currently, the inflation rate is slightly higher than the Fed would like it to be. Part
of the reason is due to the recent rounds of quantitative easing. - ANSWER-false
According to the Fed's new policy regime, they really don't care what the
unemployment rate is since the Phillips curve is currently flat indicating there is no
relationship between inflation and unemployment. - ANSWER-false
In a deflationary environment, real interest rates are positive even if nominal
interest rates are zero (0%). - ANSWER-true
During the beginning of the Great Recession, right after the Fed hit the zero bound,
the Fed could have done better with their forward guidance - that is, the Fed should
have put a date on their forward guidance rather than using vague terms like "for
sometime" and "for an extended period" - ANSWER-true
We argued that the Fed has less power now, relative to the onset of the Great
Recession since longer term interest rates are lower now that they were in the
beginning of the Great Recession - ANSWER-true
The income effect for labor supply implies that the labor supply curve is positively
sloped - the higher the wage, the higher the labor supply. - ANSWER-false
If MPN rises above the real wage then the firm should hire more workers. -
ANSWER-true
, A positive shock to the production function, such as in the New Economy, resulted
in the production function shifting up and the long run aggregate supply curve
shifting to the right. - ANSWER-true
The Fed better be careful with the amount of quantitative easing they are currently
conducting since last time they conducted quantitative easing (during the Great
Recession), the excessive money growth resulted in high inflation - ANSWER-
false
the relationship between money growth and inflation has disappeared, we are not
worried about inflation right now
Given the Fed's new regime, they basically admitted that for the time being at least,
NAIRU does not exist. - ANSWER-true
NAIRU is defined as the highest the unemployment rate can go without inflation
accelerating. - ANSWER-false
NAIRU is the lowest unemployment can go without inflation accelerating
Given the pandemic shock, the unemployment rate in the US rose to its highest
level in over 70 years! - ANSWER-true
Currently, the inflation rate is slightly higher than the Fed would like it to be. Part
of the reason is due to the recent rounds of quantitative easing - ANSWER-false
the inflation rate is extremely low at the moment
The Phillips curve has flattened over recent decades. This flattening of the Phillips
explains, in part, the Fed's notion that NAIRU is currently non-existent since a flat
Phillips curve implies no relationship between unemployment and inflation. -
ANSWER-true
ANSWERS
In lecture we showed that real wages were rising in the US during the beginning of
the internet, in the mid 1990s, since the growth rate in nominal wages was greater
than the growth rate in the general price level. - ANSWER-true
If you buy a US Treasury bond, you hope interest rates on that bond fall so that
you can realize a capital gain by selling the bond for a higher price than you
bought it for. This would be a good strategy if you knew that the Fed was going to
conduct quantitative easing before they announced it. - ANSWER-true
When the Fed conducts quantitative easing they buy US Government Securities
which increases the demand of US Government Securities and thus, lowers interest
rates on these US Government Securities. - ANSWER-true
Suppose the interest rate on a one year government security in January of 2019 is
2.58%. Also, suppose the CPI price index is 252.55 in January of 2019 and 258.82
in January of 2020. Calculate the ex-post real rate of interest. True or false: The ex-
post real rate of interest is negative (less than zero). - ANSWER-false
The reason the bond demand curve slopes downward is due to the fact that as
prices fall, interest rates rise and thus, all else constant, bonds become more
attractive relative to substitutes and thus, people buy more of them. - ANSWER-
true
One reason the Fed wants inflation to rise is due to the fact that higher inflation
results in higher real interest rates (the Fisher effect) and thus, higher inflation will
give more bullets to the Fed to fight a recession. - ANSWER-false
,Shortly before the breakdown of the Bretton Woods system, the US $ become
undervalued and thus, member countries were desperate to convert their gold into
US $. As a response, President Nixon abandoned the Bretton Woods system in
1971. Since then, the US $ remains the world's reserve currency. - ANSWER-false
Currently, the inflation rate is slightly higher than the Fed would like it to be. Part
of the reason is due to the recent rounds of quantitative easing. - ANSWER-false
According to the Fed's new policy regime, they really don't care what the
unemployment rate is since the Phillips curve is currently flat indicating there is no
relationship between inflation and unemployment. - ANSWER-false
In a deflationary environment, real interest rates are positive even if nominal
interest rates are zero (0%). - ANSWER-true
During the beginning of the Great Recession, right after the Fed hit the zero bound,
the Fed could have done better with their forward guidance - that is, the Fed should
have put a date on their forward guidance rather than using vague terms like "for
sometime" and "for an extended period" - ANSWER-true
We argued that the Fed has less power now, relative to the onset of the Great
Recession since longer term interest rates are lower now that they were in the
beginning of the Great Recession - ANSWER-true
The income effect for labor supply implies that the labor supply curve is positively
sloped - the higher the wage, the higher the labor supply. - ANSWER-false
If MPN rises above the real wage then the firm should hire more workers. -
ANSWER-true
, A positive shock to the production function, such as in the New Economy, resulted
in the production function shifting up and the long run aggregate supply curve
shifting to the right. - ANSWER-true
The Fed better be careful with the amount of quantitative easing they are currently
conducting since last time they conducted quantitative easing (during the Great
Recession), the excessive money growth resulted in high inflation - ANSWER-
false
the relationship between money growth and inflation has disappeared, we are not
worried about inflation right now
Given the Fed's new regime, they basically admitted that for the time being at least,
NAIRU does not exist. - ANSWER-true
NAIRU is defined as the highest the unemployment rate can go without inflation
accelerating. - ANSWER-false
NAIRU is the lowest unemployment can go without inflation accelerating
Given the pandemic shock, the unemployment rate in the US rose to its highest
level in over 70 years! - ANSWER-true
Currently, the inflation rate is slightly higher than the Fed would like it to be. Part
of the reason is due to the recent rounds of quantitative easing - ANSWER-false
the inflation rate is extremely low at the moment
The Phillips curve has flattened over recent decades. This flattening of the Phillips
explains, in part, the Fed's notion that NAIRU is currently non-existent since a flat
Phillips curve implies no relationship between unemployment and inflation. -
ANSWER-true
