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EXAM 3 Tests (got 94% in the course)

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ECON 2035
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EXAM 3Heather1From the quantity equation of money we can derive inflation aschange in M change in V change in Y In the long run the two variables outside the influence of the Fed are inflation and output growth2Which of the following equation is Okuns law YYY2UU 3According to Taylor rule the Fed should INCREASES interest rates when inflation rises above its target rate and DECREASE interest rates when output falls below its potential4The principle that monetary policy can NOT permanently impact real variable is called LONGRUN MONEY NEUTRALITY5Suppose the economy is producing at the potential level of output Further assume that there is a substantial fall in stock prices Everything else held constant the fall is stock prices will cause real aggregate output to DECREASE in the shortrun and the inflation rate to DECREASE in the shortrun 6The Federal Reserve has an explicit inflation target range of 2025 FALSEe7In times of deflationand the ex ante real interest rate is GREATER THAN the ex post real interest rate 8Which of the following FOMC statements BEST describes the Federal Reserves current stance on monetary policy The Committee will maintain the target range for the federal funds rate at 0 topercent and continues to anticipate the economic conditions including low rates of resource utilization subdues inflation trends and stable inflation expectations are likely to warrant exceptionally low levels of the federal funds rate for an extended period 9If output is below potential output at a nominal interest rate of zero a central bank CANNOT EFFECTIVELY conduct MONETARY POLICY10The two pillars of the ECBs policy are inflation forecasts and money growth 11Suppose a legislative mandate requires that at least 10 of gasoline sold in the United States be mixed with ethanol made from corn went into effect Further assume that corn is a major ingredient in many types of food based intermediate goods used in production Everything else held constant this legislation would cause a ADVERSE supply shock and the inflation rate would INCREASE12Using the notation on the text the aftertax real interest rate is written as 1r13Monetary policy is considered timeinconsistent because policymakers are tempted to pursue discretionary policy that us more expansionary in the short run 14Under a gold standard the main determinant for money growth was MINING TECHNOLOGY15TRANSPARENCY is the provision that the Fed give clear and detailed information about monetary policy16If the economy is in recession then the output gap is NEGATIVE17Suppose that a countrys central bank targets the level of the money supply Further assume that the country enters a severe recession In the context of the liquidity preference model and everything else held constant this will cause money DEMAND to DECREASE and nominal interest rates will FALL 18The decision by inflation targeters to choose inflation targets ABOVE zero reflects the concern of monetary policymakers that particularly LOW inflation can have substantial negative effects on real economic activity 19Everything else held constant if bond traders that an economy is sliding into recession then bond prices will INCREASE in anticipation of a federal rate DECREASE20Suppose the US economy is producing at the potential level of output Further assume that the US Congress passes and the Presidential signs a bill that significantly increases government spending Everything else held constant if the Federal Reserve is following accommodative policy then the real interest rate will NOT BE CHANGED and the inflation rate will INCREASE 21Suppose the Federal Reserve decreases the federal funds rate Everything else held constant which of the following represents a channel of the monetary transmission mechanism
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