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MacroEcon ECN 320 > ch 15 lc > Flashcards

ch 15 lc Flashcards

1
Q

Lagged inflation, which is endogenous last period but is known this period, is called a(n) _____ variable.

A

predetermined

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2
Q

In the dynamic AD-AS model, the curve that shifts in order to bring the economy back to its long-run equilibrium is the _____ curve.

A

dynamic aggregate supply

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3
Q

Because the Federal Reserve is supposed to stabilize both employment and prices, it is said to:

A

have a dual mandate.

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4
Q

In the dynamic AD-AS model, the central bank implements monetary policy by setting a target for the:

A

nominal interest rate.

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5
Q

In the dynamic model for aggregate demand and aggregate supply, which is NOT an endogenous variable?

A

wages

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6
Q

Stagflation is caused by:

A

a supply shock.

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7
Q

A central bank _____ implement policy that yields both low output variability and low inflation variability.

A

cannot

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8
Q

In the monetary-policy rule, a higher natural rate of interest will cause the nominal federal funds rate to:

A

increase.

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9
Q

The long-run equilibrium for the dynamic AD-AS model exhibits all of the following EXCEPT:The long-run equilibrium for the dynamic AD-AS model exhibits all of the following EXCEPT:

A

hysteresis.

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10
Q

In the dynamic AD-AS model, a decrease in the natural rate of output will shift the DAS curve to the _____, and the DAD curve to the _____.

A

left; left

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11
Q

The proposition that, for inflation to be stable, the central bank must respond to an increase in inflation with an even greater increase in the nominal interest rate is called:

A

the Taylor principle.

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12
Q

If Bob only uses last year’s inflation rate to formulate this year’s inflation rate, then his predictions are formed using _____ expectations.

A

adaptive

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13
Q

The aggregate supply curve and the dynamic aggregate supply curve are drawn using:

A

a different x-y axes diagram.

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14
Q

If Θπ is negative, then the aggregate demand curve has _____ slope.

A

a positive

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15
Q

In the monetary-policy rule: it = πt + ρ + Θπ(πt - πt*) + ΘY(Yt - Ȳt), the parameter that represents the responsiveness of the central bank to the deviation in inflation from its target value is:

A

Θπ.

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16
Q

The lag of a variable such as inflation, which is endogenous in the past, but is known in the current period, is called a(n):

A

predetermined variable.

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17
Q

Beginning from long-run equilibrium, following an adverse one-period shock to aggregate supply, the level of output:

A

remains below its natural level for some time as the economy gradually adjusts.

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18
Q

In theory, in conducting monetary policy, the Federal Reserve is primarily concerned about:

A

output, inflation, and interest rates.

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19
Q

The key relationship in the aggregate demand equation is the _____ correlation between _____.

A

negative; the real interest rate and total demand for goods and services

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20
Q

In the dynamic aggregate demand and supply model, the inflation rate and output are _____ variables.

A

endogenous

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21
Q

In the dynamic model of aggregate demand and aggregate supply, beginning from long-run equilibrium, if a demand shock occurs and lasts for n periods, then output is _____ the natural level in the first n period, and _____ the natural level on the n + 1 period.

A

above; below

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22
Q

A central bank that does not follow the Taylor principle may experience _____ that is unstoppable.

A

inflation

23
Q

According to some economists, if people have _____ expectations, then they optimally use all available information when forecasting the future.

A

rational

24
Q

The dynamic aggregate supply curve is drawn holding constant all of the following variables EXCEPT:

A

output.

25
Q

In the dynamic AD-AS model, beginning from long-run equilibrium, an adverse one-period shock to aggregate supply leads to an initial:

A

rise in inflation and a decline in output.

26
Q

In which time period in the United States do economists suspect that the Taylor principle was not followed in the conduct of monetary policy?

A

before Paul Volcker was appointed chair of the Federal Reserve

27
Q

In the aggregate demand equation, an increase in investment spending will _____ εt, and so _____ aggregate demand.

A

increase; increase

28
Q

The dynamic aggregate supply and the aggregate supply curve have _____ slopes.

A

incomparable

29
Q

In the dynamic AD-AS model, the curve that shifts in order to bring the economy back to its long-run equilibrium is the _____ curve.

A

dynamic aggregate supply

30
Q

In theory, in conducting monetary policy, the European Central bank is primarily concerned about:

A

inflation.

31
Q

Suppose that the Federal Reserve adopts the Taylor rule: Nominal Federal Funds Rate = Inflation + 2.0 + 0.5 (Inflation - 2.0) + 0.5 (GDP gap). If the U.S. economy goes into a recession, and the gross domestic product falls 2 percentage points from full employment output, then, according to the Taylor rule, the Federal Reserve should respond by:

A

decreasing the federal funds rate by 1 percentage point.

32
Q

In the dynamic model for aggregate demand and aggregate supply, _____ is an exogenous variable.

A

the money supply

33
Q

In the Taylor rule, Nominal Federal Funds Rate = Inflation + 2.0 + 0.5 (Inflation - 2.0) + 0.5 (GDP gap), the Federal Reserve’s responsiveness to deviations of the inflation from its target value is:

A

0.5.

34
Q

Suppose that the Federal Reserve adopts the Taylor rule: Nominal Federal Funds Rate = Inflation + 2.0 + 0.5 (Inflation - 2.0) + 0.5 (GDP gap). If the U.S. economy is fully employed and the inflation rate is 8 percent, then the nominal federal funds rate should be _____ percent.

A

13

35
Q

In the dynamic AD-AS model, an increase in the natural rate of output will shift:

A

the dynamic aggregate demand curve and the dynamic aggregate supply curve.

36
Q

The dynamic aggregate demand curve is drawn with _____ on the x-axis and inflation on the y-axis.

A

gross domestic product

37
Q

Which is not an exogenous variable in the dynamic aggregate demand curve?

A

the inflation rate, πt

38
Q

In the dynamic model for aggregate demand and aggregate supply, _____ is a predetermined variable.

A

last period’s inflation rate

39
Q

Suppose that the Federal Reserve adopts the Taylor rule: Nominal Federal Funds Rate = Inflation + 2.0 + 0.5 (Inflation - 2.0) + 0.5 (GDP gap). If the U.S. economy is fully employed and the inflation rate is 4 percent, then the nominal federal funds rate should be _____ percent.

A

7

40
Q

In the dynamic AD-AS model, beginning from long-run equilibrium, a positive demand shock in period t that lasts for four periods will cause output to:

A

first move above, and then move below, the natural level of output in period t + 4.

41
Q

In the dynamic AD-AS model, when the monetary-policy rule indicates that the central bank needs to raise the nominal interest rate, the central bank

A

sells government bonds to the public and so reduces the money supply.

42
Q

In the dynamic AD-AS model, when the short-run equilibrium puts the economy above the natural level of output, then the DAS curve shifts _____ in order to bring the economy back to its long-run equilibrium.

A

to the left

43
Q

In the dynamic aggregate supply model, supply shocks will produce _____ the dynamic aggregate supply curve.

A

a shift in t

44
Q

The dynamic aggregate supply curve is:

A

upward sloping.

45
Q

In the dynamic AD-AS model, a decrease in the target inflation rate will:

A

shift the DAD curve rightwards.

46
Q

In the dynamic AD-AS model, which MOST likely causes the aggregate supply curve to shift upward after an aggregate demand shock that shifts the dynamic aggregate demand curve rightward?

A

Agents in the economy expect higher inflation in the future.

47
Q

One way for the economy to experience growth with stable inflation is for _____ to continuously _____.

A

the natural level of output; increase

48
Q

In the dynamic AD-AS model, beginning from long-run equilibrium, a reduction in the target rate for inflation will eventually cause the inflation to _____, and the output to be _____ the natural level.

A

decrease; at

49
Q

According to the text, the _____ BEST explains the adjustment of the economy over time in response to economic shocks.

A

dynamic model of aggregate demand and aggregate supply

50
Q

In the dynamic AD-AS model, in the long run, output is _____ the natural level of output.

A

always at

51
Q

According to the text, the dynamic AD-AS model assumes that expectations are:

A

adaptive.

52
Q

In the dynamic AD-AS model, beginning from long-run equilibrium, an adverse supply shock in period t causes output to _____ in period t, and inflation to _____ in period t.

A

decrease; increase

53
Q

In the dynamic AD-AS model, which is MOST likely to cause the aggregate supply curve to shift down after the central bank implements a reduction in the target rate for inflation?

A

Agents in the economy expect lower inflation in the future

54
Q

Changes in the money supply _____ the dynamic aggregate demand curve.

A

may shift

MacroEcon ECN 320 (19 decks)

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