If a country has a fixed exchange rate :

If a country has a fixed exchange rate
 
  A) central banks must buy and sell their holdings of currencies to maintain a given exchange rate.
  B) central banks have more control over real GDP in the economy.
  C) the exchange rate is allowed to fluctuate in response to changes in the supply and demand for currency.
  D) the equilibrium exchange rate in that market does not respond to changes in supply and demand for currency.

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Ques. 2

If the consumption function is defined as C = 5,500 + 0.9Y, what is the autonomous level of consumption expenditure?
 
  A) 4,950 B) 5,500 C) 6,050 D) 6,111

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Ques. 3

If real equilibrium GDP is above potential GDP, expansionary fiscal policy should be pursued.
 
  Indicate whether the statement is true or false

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Ques. 4

An appropriate fiscal policy response when aggregate demand is growing at a slower rate than aggregate supply is to cut taxes.
 
  Indicate whether the statement is true or false

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Ques. 5

Consider the Taylor rule for the target of the federal funds rate.
 
  Suppose the equilibrium real federal funds rate is 2 percent, the target rate of inflation is 3 percent, the current inflation rate is 3 percent, real GDP equals potential real GDP, and the weights are 1/2 for the inflation gap and the output gap. Using the Taylor rule, what does the target for the federal funds rate equal? Next, if the Federal Reserve lowered the target for the inflation rate to 1 percent, how much would the target for the federal funds rate change?

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Ques. 6

Which of the following models has as its central idea that workers and firms have rational expectations?
 
  A) the new classical model B) the monetarist model
  C) the real business cycle model D) the new Keynesian model

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Ques. 7

The new Keynesians emphasize the importance of
 
  A) rational expectations. B) sticky wages and prices.
  C) real causes of the business cycle. D) the monetary growth rule.

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Ques. 8

Contractionary monetary policy will result in
 
  A) higher interest rates. B) increased rates of inflation.
  C) a leftward shift in the long-run Phillips curve. D) an upward shift in the short-run Phillips curve.