Assignment 5 Flashcards
Suppose the central bank reduces the money supply. This monetary contraction will always cause a greater reduction in
output when it is accompanied by:
an increase in expected future taxes.
a reduction in expected future output.
an increase in expected future interest rates.
Suppose there is an increase in expected future output. The IS curve will ____in the current period
shift right
Suppose there is an increase in the expected future interest rate. The IS curve will ____in the current period
shift left
Suppose there is an increase in expected future taxes. The IS curve will ____in the current period
shift left
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
by less than the increase that will yield the desired response.
To solve the “time inconsistency” problem in macro policy, a nation may well have to
restrict itself in the present from taking certain policy moves in the future
Research indicates that the more independent the central bank,
the lower the rate of inflation
In which political systems would a political business cycle be more likely to occur?
a democracy with elections that occur on a regular basis
Arguments for placing restraints on policy makers fall into which of the following?
policy makers do what is best for them, not necessarily what is best for the country
Fine tuning represents which of the following?
policy makers’ attempts to minimize the deviations of actual output from the natural level of output
The government budget constraint tells us that the budget deficit is equal to
the primary deficit plus interest on the debt
The primary deficit is
government spending minus net tax revenues
The official measure of the deficit becomes more inaccurate as
the inflation rate rises
The is the ratio of the debt to
GDP
The correct measure of the deficit is also called
the inflation - adjusted deficit
Which of the following will cause a reduction in the ratio?
an increase in the growth rate of output
The deficit at natural level of output is called
structural deficit
full employment deficit
mid cycle deficit
cyclically adjusted deficit
Government default is also called
debt restructuring.
private sector involvement.
debt rescheduling.
Hyperinflation refers to inflation in excess of ________ per month
30%
In virtually all hyperinflations, rapid money growth begins to occur because of
large and/or growing budget deficits
Which of the following represents debt monetization?
an increase in the budget deficit that is financed by money creation
Seignorage is defined as?
revenue from money creation
During most episodes of hyperinflation
the inflation rate increases over time
The nominal interest will never be negative? True or false
True
A change in the reserve requirement changes
the money multiplier
Which of the following is considered a benefit of inflation?
money illusion.
seignorage.
the option of a negative real interest rate
LTV ratio appears to be positively related to
housing prices
An economy is said to be in the liquidity trap when the ________ is down to zero
nominal interest rate on government bonds
To deal with dangerous behavior in the financial system, macro prudential tools can be used to aim directly at
lenders.
borrowers
banks and other financial institutions.
Reducing the maximum LTV is likely to ______demand and thus ______the housing price increase
decrease, slow down
