Opponents of inflation targets say that:
a. such targets encourage workers to expect a low and stable inflation rate and hold down demands for wage increases.
b. the Fed pays less attention to jobs and economic growth when it sets such targets.
c. such targets encourage firms to plan on a low and stable inflation rate and hold down price increases.
d. such targets encourage investors to plan on a low and stable inflation rate and hold down demands for interest rate increases.
e. the Fed pays more attention to jobs and economic growth when it sets such targets.
QUESTION 2The government of Montesia had announced that it would keep its money supply unchanged in 2010 . However, in 2011, the money supply increased, thereby ruining public expectations. This led to:
a. no problem; this is normal behavior.
b. policy credibility.
c. a time-inconsistency problem.
d. the development of rational expectations.
e. an anticipation about the monetary policy.
QUESTION 3An anti-inflation policy that involves announcing and executing tough measures to stop inflation is called _____.
a. cold turkey
b. red tape
c. a pork-barrel policy
d. chokehold
e. time-inconsistency
QUESTION 4Which of the following is true of the Fed?
a. The law lets the Fed decide how best to promote full employment and output in the U.S. economy.
b. It relies heavily on Congressional appropriations.
c. The president sits on the Board of Governors.
d. Congress must approve any new monetary policy.
e. The president must approve any new monetary policy.
QUESTION 5For an economy to eliminate inflation once people have begun to anticipate it, _____.
a. a passive policy approach must be followed
b. the monetary authorities must announce their decisions
c. actual inflation must be greater than anticipated inflation
d. cold turkey solutions that lead to further inflation must be avoided
e. a recession will have to be endured until expectations have been reduced
QUESTION 6Some economists believe that when workers and firms expect a recessionary monetary policy, _____.
a. they act so as to prevent the price level from increasing
b. their actions lead to a further increase in output
c. they are likely to negotiate for relatively lower wages.
d. the monetary authority is forced to cancel its planned recessionary policy
e. both output and employment increase even more than was originally planned
QUESTION 7Suppose the Fed announced a policy of rapid growth in the money supply in 2004, but then put the brakes on money expansion without any announcement. If in 2005, Fed officials announce again that an expansion is planned, it is most likely that:
a. people will believe in the announcement since the conditions that created a need for the expansion are probably still in effect.
b. people will believe in the announcement since they consider that having failed to implement the expansion previously, the Fed still plans to do so.
c. people will not believe in the announcement since they consider that the conditions that created a need for the expansion must have changed in the meantime.
d. people will not believe in the announcement since they consider that having failed to implement the expansion previously, the Fed will probably fail again
e. there will be further uncertainty about the Fed following through on the policies it announces.
QUESTION 8According to the rational expectations school, if the Fed announces a policy of rapid growth in the money supply, but then puts the brakes on money expansion without any announcement, which of the following is likely to be the short-run result?
a. An unexpected surge in aggregate demand
b. An unexpected drop in aggregate demand.
c. An anticipated surge in aggregate demand.
d. An anticipated drop in aggregate demand.
e. No change in aggregate demand.
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