Assignment 5

Question 1

Suppose the central bank reduces the money supply. This monetary contraction will always cause a greater reduction in
output when it is accompanied by:

Answer 1

an increase in expected future taxes.
a reduction in expected future output.
an increase in expected future interest rates.

Question 2

Suppose there is an increase in expected future output. The IS curve will ____in the current period

Answer 2

shift right

Question 3

Suppose there is an increase in the expected future interest rate. The IS curve will ____in the current period

Answer 3

shift left

Question 4

Suppose there is an increase in expected future taxes. The IS curve will ____in the current period

Answer 4

shift left

Question 5

For this question, assume that the there exists uncertainty about the impact of monetary policy on the macroeconomy.
Given this information, it would be most appropriate for the central bank to increase money growth

Answer 5

by less than the increase that will yield the desired response.

Question 6

To solve the “time inconsistency” problem in macro policy, a nation may well have to

Answer 6

restrict itself in the present from taking certain policy moves in the future

Question 7

Research indicates that the more independent the central bank,

Answer 7

the lower the rate of inflation

Question 8

In which political systems would a political business cycle be more likely to occur?

Answer 8

a democracy with elections that occur on a regular basis

Question 9

Arguments for placing restraints on policy makers fall into which of the following?

Answer 9

policy makers do what is best for them, not necessarily what is best for the country

Question 10

Fine tuning represents which of the following?

Answer 10

policy makers’ attempts to minimize the deviations of actual output from the natural level of output

Question 11

The government budget constraint tells us that the budget deficit is equal to

Answer 11

the primary deficit plus interest on the debt

Question 12

The primary deficit is

Answer 12

government spending minus net tax revenues

Question 13

The official measure of the deficit becomes more inaccurate as

Answer 13

the inflation rate rises

Question 14

The is the ratio of the debt to

Answer 14

GDP

Question 15

The correct measure of the deficit is also called

Answer 15

the inflation - adjusted deficit

Question 16

Which of the following will cause a reduction in the ratio?

Answer 16

an increase in the growth rate of output

Question 17

The deficit at natural level of output is called

Answer 17

structural deficit
full employment deficit
mid cycle deficit
cyclically adjusted deficit

Question 18

Government default is also called

Answer 18

debt restructuring.
private sector involvement.
debt rescheduling.

Question 19

Hyperinflation refers to inflation in excess of ________ per month

Answer 19

30%

Question 20

In virtually all hyperinflations, rapid money growth begins to occur because of

Answer 20

large and/or growing budget deficits

Question 21

Which of the following represents debt monetization?

Answer 21

an increase in the budget deficit that is financed by money creation

Question 22

Seignorage is defined as?

Answer 22

revenue from money creation

Question 23

During most episodes of hyperinflation

Answer 23

the inflation rate increases over time

Question 24

The nominal interest will never be negative? True or false

Answer 24

True

Question 25

A change in the reserve requirement changes

Answer 25

the money multiplier

Question 26

Which of the following is considered a benefit of inflation?

Answer 26

money illusion.
seignorage.
the option of a negative real interest rate

Question 27

LTV ratio appears to be positively related to

Answer 27

housing prices

Question 28

An economy is said to be in the liquidity trap when the ________ is down to zero

Answer 28

nominal interest rate on government bonds

Question 29

To deal with dangerous behavior in the financial system, macro prudential tools can be used to aim directly at

Answer 29

lenders.
borrowers
banks and other financial institutions.

Question 30

Reducing the maximum LTV is likely to ______demand and thus ______the housing price increase

Answer 30

decrease, slow down