please answer all questions! thanks Question 1 Why did the stagflation of the 19
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Question
please answer all questions! thanks
Question 1
Why did the stagflation of the 1970s challenge the Fed's conventional approach to policy making?
a.The large increase in the unemployment rate made it impossible for the Fed to lower interest rates enough to prevent economic stagnation.
b.The large simultaneous increase in the inflation rate and the rate of economic growth made it impossible for the Fed to slow economic growth without creating an unsustainable increase in the inflation rate.
c.The large increase in military spending and government budget deficits made it impossible for the Fed to take effective policy action.
d.The large simultaneous increase in the inflation rate and unemployment rate made it impossible for the Fed to solve one policy problem without worsening the other.
e.The large increase in the inflation rate made it impossible for the Fed to raise interest rates high enough to stop inflation from accelerating.
Question 3
Use the following diagram to answer the question below.
Using the information in the diagram evaluate the following statements:
I. The IS curve in the diagram above shifted out and to the right most likely because the inflation rate increased.
II. The shift out and to the right of the IS curve creates a positive output gap at a real interest rate of 3%.
III. The output gap produced by the shift in the IS curve most likely will make the inflation rate fall below target and the unemployment rate rise above target.
IV. The Fed's policy makers can move closer to fulfilling their dual mandate by adopting a high interest rate policy and raising the real interest rate to 5% from 3%.
V. The shift out and to the right of the IS curve lowered the natural interest rate from 7% to 5%.
Which of the following answers is correct?
Only statements I, II, and III are true.
Only statements II, IV, and V are true.
Only statements II, III, and IV are true.
Only statements II and IV are true.
e. Only statements II and III are true.
Question 4
To stop the economy from overheating as the Vietnam War escalated after 1965, the Fed could have opted for:
a.A high interest rate policy to contract the demand for output, raising the unemployment rate and lowering the inflation rate.
b. A low interest rate policy to expand the demand for output, lowering the unemployment rate and lowering the inflation rate.
c. A low interest rate policy to contract the supply of output and prevent the unemployment rate from falling.
A high interest rate policy to expand the demand for output, raising the unemployment rate and lowering the inflation rate.
A low interest rate policy to expand the supply of output and prevent the inflation rate from rising.
Question 5
Using the information in the diagram answer the following question.
Which of the following statements concerning the diagram is TRUE?
If the IS curve rotates from its normal shape (the Normal IS Curve) to being steep (the Steep IS Curve), then monetary policy will become less effective because spending is now more sensitive to changes in the interest rate.
B. If the IS curve rotates from its normal shape (the Normal IS Curve) to being steep (the Steep IS Curve), then monetary policy will become less effective because a large decline in spending has occurred.
C. If the IS curve rotates from its normal shape (the Normal IS Curve) to being steep (the Steep IS Curve), then monetary policy will become more effective because spending is now less sensitive to changes in the interest rate.
D. If the IS curve rotates from its normal shape (the Normal IS Curve) to being steep (the Steep IS Curve), then monetary policy will become less effective because spending is now less sensitive to changes in the interest rate.
E. If the IS curve rotates from its normal shape (the Normal IS Curve) to being steep (the Steep IS Curve), then monetary policy will become more effective because spending is now more sensitive to changes in the interest rate.
Question 8
Which of the following statements best describes the Federal Reserve's conventional monetary policy?
If the economy grows too fast, resulting in a positive output gap, the Fed increases interest rates; and if the economy grows too slow, creating a negative output gap, the Fed decreases interest rates.
If the economy grows too fast, resulting in a negative output gap, the Fed increases interest rates; and if the economy grows too slow, creating a positive output gap, the Fed increases interest rates.
If the economy grows too fast, resulting in a negative output gap, the Fed increases the money supply; and if the economy grows too slow, resulting in a positive output gap, the Fed decreases the money supply.
If the economy grows too slow, creating a negative output gap, the Fed increases the money supply; and if the economy grows too fast, creating a positive output gap, the Fed decreases the money supply.
E. If the economy grows too fast, resulting in a positive output gap, the Fed increases the money supply; and if the economy grows too slow, creating a negative output gap, the Fed decreases the money supply.
Question 10
The Taylor Rule predicts that:
a.The Fed will lower the unemployment rate if the Fed's policy rate is above target.
The Fed will raise its policy rate if the inflation rate is below the Fed's target.
The Fed will raise the unemployment rate if the inflation rate is below the Fed's target.
d.The Fed will lower its policy rate if the inflation rate is below the Fed's target.
The Fed will lower the unemployment rate if the inflation rate is below the Fed's target.
a.The large increase in the unemployment rate made it impossible for the Fed to lower interest rates enough to prevent economic stagnation.
b.The large simultaneous increase in the inflation rate and the rate of economic growth made it impossible for the Fed to slow economic growth without creating an unsustainable increase in the inflation rate.
c.The large increase in military spending and government budget deficits made it impossible for the Fed to take effective policy action.
d.The large simultaneous increase in the inflation rate and unemployment rate made it impossible for the Fed to solve one policy problem without worsening the other.
e.The large increase in the inflation rate made it impossible for the Fed to raise interest rates high enough to stop inflation from accelerating.
Question 3
Use the following diagram to answer the question below.
Using the information in the diagram evaluate the following statements:
I. The IS curve in the diagram above shifted out and to the right most likely because the inflation rate increased.
II. The shift out and to the right of the IS curve creates a positive output gap at a real interest rate of 3%.
III. The output gap produced by the shift in the IS curve most likely will make the inflation rate fall below target and the unemployment rate rise above target.
IV. The Fed's policy makers can move closer to fulfilling their dual mandate by adopting a high interest rate policy and raising the real interest rate to 5% from 3%.
V. The shift out and to the right of the IS curve lowered the natural interest rate from 7% to 5%.
Which of the following answers is correct?
a.Only statements I, II, and III are true.
b.Only statements II, IV, and V are true.
c.Only statements II, III, and IV are true.
d.Only statements II and IV are true.
e. Only statements II and III are true.
Question 4
To stop the economy from overheating as the Vietnam War escalated after 1965, the Fed could have opted for:
a.A high interest rate policy to contract the demand for output, raising the unemployment rate and lowering the inflation rate.
b. A low interest rate policy to expand the demand for output, lowering the unemployment rate and lowering the inflation rate.
c. A low interest rate policy to contract the supply of output and prevent the unemployment rate from falling.
d.A high interest rate policy to expand the demand for output, raising the unemployment rate and lowering the inflation rate.
e.A low interest rate policy to expand the supply of output and prevent the inflation rate from rising.
Question 5
Using the information in the diagram answer the following question.
Which of the following statements concerning the diagram is TRUE?
A.If the IS curve rotates from its normal shape (the Normal IS Curve) to being steep (the Steep IS Curve), then monetary policy will become less effective because spending is now more sensitive to changes in the interest rate.
B. If the IS curve rotates from its normal shape (the Normal IS Curve) to being steep (the Steep IS Curve), then monetary policy will become less effective because a large decline in spending has occurred.
C. If the IS curve rotates from its normal shape (the Normal IS Curve) to being steep (the Steep IS Curve), then monetary policy will become more effective because spending is now less sensitive to changes in the interest rate.
D. If the IS curve rotates from its normal shape (the Normal IS Curve) to being steep (the Steep IS Curve), then monetary policy will become less effective because spending is now less sensitive to changes in the interest rate.
E. If the IS curve rotates from its normal shape (the Normal IS Curve) to being steep (the Steep IS Curve), then monetary policy will become more effective because spending is now more sensitive to changes in the interest rate.
Question 8
Which of the following statements best describes the Federal Reserve's conventional monetary policy?
AIf the economy grows too fast, resulting in a positive output gap, the Fed increases interest rates; and if the economy grows too slow, creating a negative output gap, the Fed decreases interest rates.
BIf the economy grows too fast, resulting in a negative output gap, the Fed increases interest rates; and if the economy grows too slow, creating a positive output gap, the Fed increases interest rates.
CIf the economy grows too fast, resulting in a negative output gap, the Fed increases the money supply; and if the economy grows too slow, resulting in a positive output gap, the Fed decreases the money supply.
DIf the economy grows too slow, creating a negative output gap, the Fed increases the money supply; and if the economy grows too fast, creating a positive output gap, the Fed decreases the money supply.
E. If the economy grows too fast, resulting in a positive output gap, the Fed increases the money supply; and if the economy grows too slow, creating a negative output gap, the Fed decreases the money supply.
Question 10
The Taylor Rule predicts that:
a.The Fed will lower the unemployment rate if the Fed's policy rate is above target.
b.The Fed will raise its policy rate if the inflation rate is below the Fed's target.
c.The Fed will raise the unemployment rate if the inflation rate is below the Fed's target.
d.The Fed will lower its policy rate if the inflation rate is below the Fed's target.
e.The Fed will lower the unemployment rate if the inflation rate is below the Fed's target.
Explanation / Answer
1.d.The large simultaneous increase in the inflation rate and unemployment rate made it impossible for the Fed to solve one policy problem without worsening the other.
Explanation: In the 1970s, the US economy faced low economic growth, high inflation, and high unemployment. Generally, when the inflation rate is high, the unemployment rate is low and vice versa. However, the simultaneous increase in inflation rate and unemployment rate made it quite challenging for the Fed to devise appropriate policies following a conventional approach.
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