If resource owners anticipated a monetary growth rate of 6 percent, but the money supply actually grew at only 2 percent, then:
a. real wages would fall.
b. output would decrease.
c. output would increase.
d. output would increase, but only if nominal wages were increased more rapidly than prices.
e. the expected inflation rate was less than the actual rate.
QUESTION 2Brandon, an economist, is a believer of the rational expectations school. According to him, which of the following is likely to affect the levels of output and employment in an economy?
a. An expansionary monetary policy, if it is fully anticipated
b. A recessionary monetary policy, if it is fully anticipated
c. A monetary policy that is unanticipated
d. A fiscal policy that is anticipated
e. The Fed's announcement of no change in monetary policy
QUESTION 3Economists of the rational expectations school believe that expansionary monetary policy is fully effective only if:
a. the policy is anticipated by workers and firms.
b. it causes the aggregate supply curve to shift to the left.
c. the economy is operating at or above its potential output level.
d. policy makers follow through on their previously announced plans.
e. the policy is totally unexpected.
QUESTION 4Given the expected price level, policies for reaching potential GDP will work best if the money supply is:
a. large, so that prices at potential GDP are below expectations and people can afford to buy enough goods to support the natural level of employment.
b. large enough, so that prices at potential GDP are above expectations and firms can afford to hire workers.
c. small, so that prices at potential GDP are below expectations and people can afford to buy enough goods to support the natural level of employment.
d. small, so that prices at potential GDP are above expectations and firms can afford to hire the workers.
e. exactly the size that makes prices equal to the prices people expected to prevail.
QUESTION 5The time-inconsistency problem is likely to arise in Cadmia if _____.
a. attempts are made to coordinate monetary policy with fiscal policy
b. there is a lag between the announcement of a monetary policy and its implementation
c. policy makers initially aim to keep the price level stable but do not follow through as promised
d. policy makers do not allow enough time for a new policy to take effect
e. there is a deep conflict among monetary policy makers
QUESTION 6_____, the time-inconsistency problem gets eliminated.
a. When an inflation or a recession is correctly anticipated
b. When lags associated with monetary and fiscal policy are extremely short
c. When discretionary macro policy is replaced with fixed policy rules which are well publicized
d. When expectations about the economy adjust very slowly
e. When the price level in an economy adjusts over time with changes in aggregate demand
QUESTION 7If an economy is at potential GDP and an expansionary policy is correctly anticipated, the result will be:
a. a short-run fall in output and employment.
b. little or no increase in GDP.
c. an increase in wages along with a dramatic fall in the price level.
d. a rapidly expanding economy.
e. a severe recession.
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