M&B Midterm

Question 1

Forward rate

Answer 1

f(x,y) = yr_y - xr_x

Question 2

Expectations hypothesis

Answer 2

forward rate = markets expectation

Question 3

taylor rule

Answer 3

i* = r* + inflation + a(inflation = inflation*)+bygap

Question 4

benchmark taylor rule

Answer 4

i* = 1.0 + 1.5(inflation) + 0.5ygap

Question 5

outside lag

Answer 5

time between when monetary policy is changed and when policy chance actually has its full effect

Question 6

inside lag

Answer 6

full time between when a situation arises and when policy changes comes about

Question 7

recognition lag

Answer 7

time it takes to recognize a problem exists

Question 8

decision lag

Answer 8

time it takes to decide what to do when a problem is recognized

Question 9

implementation lag

Answer 9

time it takes to implement policy once it has been decided on

Question 10

milton friedman and anna shwartz

Answer 10

the long and variable lag leads to destabilize output and employment

Question 11

one reason the increase in monetary base in 2008 has not been inflationary is due to

Answer 11

payment of interest on excess returns since 2008

Question 12

unemployment gap

Answer 12

replaces output gap in the taylor rule

Question 13

okun’s law

Answer 13

empirical negative relationship between changes in real income and changes in unemployment rate

Question 14

what happened after the civil war

Answer 14

the prewar gold parity was restored after a long, gradual deflation

Question 15

what caused the U.S. deflation from 1929-1933

Answer 15

europe’s attempt to return to gold after WW1

Question 16

national industrial recovery act of 1933

Answer 16

enforced compulsory industrial cartels

Question 17

wagner act of 1935

Answer 17

compelled unionization on a majority vote of incumbent workers

Question 18

1930s

Answer 18

surpassed deflation and surpluses