chp23

Question 1

why does federal reserve enact monetary policies

Answer 1

to stabilise the economy

Question 2

divine coincidence

Answer 2

the occurrence where policy does not face a trade-off to focus on price stability or economic activity as a result of an aggregate demand shock or
permanent supply shock

Question 3

2 schools of thought in monetary policy

Answer 3

the economy will overcome shocks through its self-correcting mechanism

monetary policy should be enacted because prices and wages adjust too slowly

Question 4

consequences of lags in policies

Answer 4

failure to a policy to achieve desired goal

Question 5

list the 5 lags (hint: relid)

Answer 5

recognition lag
effectiveness lag
legislative lag
implementation lag
data lag

Question 6

why is it thought that a policy isn’t even necessary at all?

Answer 6

economy may have already recovered by the time it takes to enact a policy and for said policy to have an effect

Question 7

2 forms of inflation

Answer 7

cost-push
demand-pull

Question 8

cost-push inflation

Answer 8

inflation from pressure from workers to increase wages (which will lead to higher production costs and higher prices) or from a temporary
negative supply shock

Question 9

demand-pull inflation

Answer 9

inflation from enacted monetary policy that is aimed to increase aggregate demand