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Macreconomics: Policy and Practice(Mishkin)
Chapter 10 Monetary Policy and Aggregate Demand
10.1 The Federal Reserve and Monetary Policy
1) There are no questions for this section.Answer:
10.2 The Monetary Policy urve
1) The MP curve indicates the relationshi! "etween ######## and the ########.
A) ta$es% !rice level
&) the real interest rate% inflation rate) 'onetary !olicy% ( curve
*) all of the a"ove
+) none of the a"ove
Answer: &To!ic: 10.1 The MP urve
AA&: Reflective Thin,in-
2) The e$o-enous varia"le in the 'onetary !olicy curve is ########.
A) the !olicy !ara'eter /&) the real interest rate
) the autono'ous co'!onent
*) the federal funds rate
+) the inflation rateAnswer: +
To!ic: 10.1 The MP urveAA&: Analytical ,ills
) The endo-enous varia"le in the 'onetary !olicy curve is ########.
A) the !olicy !ara'eter /
&) the real interest rate
) the autono'ous co'!onent
*) the federal funds rate
+) the inflation rateAnswer: &
To!ic: 10.1 The MP urve
AA&: Analytical ,ills
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) 3hen the Federal Reserve ########.
A) drains liquidity the federal funds rate falls
&) drains liquidity real interest rates fall) !rovides 'ore liquidity the federal funds rate falls
*) all of the a"ove
+) none of the a"oveAnswer:
To!ic: 10.1 The MP urve
AA&: Reflective Thin,in-
4) The Federal Reserve ########.
A) sets the federal funds rate once a year&) controls the interest rate in the short run
) controls the interest rate in the lon- run
*) all of the a"ove+) none of the a"ove
Answer: &
To!ic: 10.1 The MP urveAA&: Reflective Thin,in-
5) The federal funds rate is ########.
A) a real interest rate&) set !eriodically "y on-ress
) a no'inal interest rate
*) all of the a"ove+) none of the a"ove
Answer:
To!ic: 10.1 The MP urve
6) A central "an, can control the real interest rate !recisely so lon- as ######## re'ains
constant.A) the no'inal interest rate
&) 'onetary !olicy
) e$!ected inflation
*) all of the a"ove+) none of the a"ove
Answer:
To!ic: 10.1 The MP urveAA&: Analytical ,ills
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7) (n the very short run ########.
A) the real interest rate will "e affected "y chan-es in the no'inal rate
&) 'onetary !olicy has an i''ediate effect on inflation) the inflation rate is deter'ined "y the federal funds rate
*) all of the a"ove
+) none of the a"oveAnswer: A
To!ic: 10.1 The MP urve
AA&: Reflective Thin,in-
8) 3hich of the followin- is true a"out the Taylor !rinci!le9
A) it e$!lains the lin, "etween hi-her inflation and hi-her real interest rates
&) it is the foundation for an u!ward slo!in- MP curve) it reflects the !ractice of 'onetary !olicy
*) all of the a"ove
+) none of the a"ove
Answer: *To!ic: 10.1 The MP urve
AA&: Reflective Thin,in-
10) (f the central "an, did notfollow the Taylor !rinci!le an increase in inflation would lead to
a decrease in ########.A) the no'inal interest
&) the real interest rate
) a--re-ate out!ut*) all of the a"ove
+) none of the a"ove
Answer: &To!ic: 10.1 The MP urve
AA&: Reflective Thin,in-
11) (f the central "an, did notfollow the Taylor !rinci!le an increase in inflation would lead to
########.
A) a decrease in the no'inal interest rate
&) an increase in inflation) a decrease in a--re-ate e$!enditure
*) all of the a"ove
+) none of the a"oveAnswer: &
To!ic: 10.1 The MP urve
AA&: Reflective Thin,in-
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12) (f e$!ected inflation rises 'onetary !olicy ########.
A) is rendered ineffective
&) 'ust "e ti-htened to !revent further increases in inflation and e$!ected inflation) will !revent any increase in the real interest rate
*) is desi-ned to increase the no'inal interest rate "y 'ore than the increase in e$!ected
inflation+) none of the a"ove
Answer: *
To!ic: 10.1 The MP urveAA&: Reflective Thin,in-
1) Autono'ous ti-htenin- of 'onetary !olicy involves ########.
A) raisin- interest rates and shiftin- the MP curve to the ri-ht&) lowerin- interest rates and shiftin- the MP curve to the left
) raisin- interest rates and shiftin- the MP curve to the left
*) lowerin- interest rates and shiftin- the MP curve to the ri-ht
+) none of the a"oveAnswer:
To!ic: 10.1 The MP urveAA&: Reflective Thin,in-
1) Autono'ous easin- of 'onetary !olicy involves ########.A) raisin- interest rates and shiftin- the MP curve to the ri-ht
&) lowerin- interest rates and shiftin- the MP curve to the left
) raisin- interest rates and shiftin- the MP curve to the left
*) lowerin- interest rates and shiftin- the MP curve to the ri-ht+) none of the a"ove
Answer: *
To!ic: 10.1 The MP urveAA&: Reflective Thin,in-
14) A 'ove'ent alon- the MP curve ########.
A) i'!lies an auto'atic adust'ent of the interest rate
&) i'!lies an autono'ous adust'ent to the interest rate
) i'!lies an autono'ous adust'ent of a--re-ate de'and*) all of the a"ove
+) none of the a"ove
Answer: ATo!ic: 10.1 The MP urve
AA&: Reflective Thin,in-
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15) A shift of the MP curve ########.
A) i'!lies an auto'atic adust'ent of the interest rate
&) i'!lies a direct !olicy action of the Federal Reserve) does not alter the relationshi! "etween inflation and the interest rate
*) all of the a"ove
+) none of the a"oveAnswer: &
To!ic: 10.1 The MP urve
AA&: Reflective Thin,in-
16) The MP curve 'ay "e used to re!resent ########.
A) 'ove'ents of the real interest rate as a direct !olicy action of the Federal Reserve
&) 'ove'ents of the real interest rate that are inde!endent of direct Federal Reserve action) how the real interest rate is related to the inflation rate
*) all of the a"ove
+) none of the a"ove
Answer: *To!ic: 10.1 The MP urve
AA&: Reflective Thin,in-
17) The MP curve 'ay "e used to re!resent how ########.
A) 'ove'ents of the inflation rate are deter'ined "y the real interest rate&) 'onetary !olicy res!onds to chan-es in the real interest rate
) 'ove'ents of the real interest rate are related to the inflation rate
*) all of the a"ove
+) none of the a"oveAnswer:
To!ic: 10.1 The MP urve
AA&: Reflective Thin,in-
18) A decision to increase the !ara'eter / in the MP curve is an e$a'!le of ########.
A) autono'ous easin-&) leftward 'ove'ent alon- the curve
) ri-htward 'ove'ent alon- the curve
*) endo-enous res!onse
+) autono'ous ti-htenin-Answer: +
To!ic: 10.1 The MP urve
AA&: Analytical ,ills
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20) &efore the financial crisis of 2006 inflation was on the rise. Accordin- to the MP curve this
would lead to ########.
A) an increase in the real interest rate&) an u!ward shift of the MP curve if !olicy'a,ers o!ted for autono'ous ti-htenin-
) a decrease in a--re-ate out!ut
*) all of the a"ove+) none of the a"ove
Answer: *
To!ic: 10.1 The MP urveAA&: Reflective Thin,in-
21) As the financial crisis "eca'e 'ore severe in 2007 the Federal Reserve undertoo, a;n)
######## of 'onetary !olicy an effect of which is to ######## inflation.A) contraction% raise
&) easin-% raise
) contraction% lower
*) easin-% lower+) none of the a"ove
Answer: &To!ic: 10.1 The MP urve
AA&: Reflective Thin,in-
22) Throu-hout 2007 inflation and the real interest rate declined to-ether. The cause is a
co'"ination of ########.
A) 'onetary !olicy easin- and declinin- autono'ous s!endin-
&) declinin- autono'ous s!endin- and 'ove'ent alon- a fi$ed MP curve) 'onetary !olicy ti-htenin- and inversion of the MP curve
*) increased -overn'ent s!endin- and 'ove'ent alon- a fi$ed MP curve
+) none of the a"oveAnswer: A
To!ic: 10.1 The MP urve
AA&: Analytical ,ills
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MP Curve
2) Referrin- to the -ra!h a"ove a 'ove'ent fro' !oint < to !oint ( 'i-ht re!resent ########.A) the increase in the inflation rate that occurs when the real interest rate rises
&) the auto'atic res!onse of 'onetary !olicy to an increase in the inflation rate
) an autono'ous ti-htenin- of 'onetary !olicy
*) any of the a"ove+) none of the a"ove
Answer: &
To!ic: 10.1 The MP urveAA&: Analytical ,ills
2) =n the -ra!h a"ove which !air of !oints "est re!resents the i'!acts in the >. . of the
financial crisis and !olicy res!onse fro' 2006 throu-h 20079A) < to (
&) ? to @) ( to
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