1. The opportunity cost of holding money is the:___. a. nominal interest rate. b
ID: 1173711 • Letter: 1
Question
1. The opportunity cost of holding money is the:___.
a. nominal interest rate.
b. unemployment rate.
c. federal funds rate.
d. prevailing mortgage rate.
2. If government debt is not changing, then:___.
a. the economy is at long-run equilibrium.
b. the government’s budget must be balanced.
c. GDP must equal the natural rate of output.
d. capital per worker is constant.
3.The Taylor rule for monetary policy relates the output gap and inflation to the:___.
a. velocity of money.
b. reserve requirement on deposits.
c. federal funds rate.
d. meeting schedule of the FOMC
4. The inside lag is the:___.
A) time between a shock to the economy and the policy action responding to that shock.
B) time between a policy action and its influence on the economy.
C) time between a shock to the economy and the influence on the economy of a policy action.
D) difference between the time it takes to implement monetary policy and the time it takes to implement fiscal policy.
Short answer?
What causes shifts in the IS or LM curves?
Explanation / Answer
1) Solution: nominal interest rate
Explanation: The opportunity cost of holding money is the return that could have been earned from wealth’s holding in other assets
2) Solution: the government's budget must be balanced
Explanation: When the government’s budget is balanced the government debt is constant
3) Solution: federal funds rate
Explanation: The Taylor rule provides a description on the federal funds rate as a function of how far inflation and output are from their desired values
4)) Solution: time between a shock to the economy and the policy action responding to that shock
Explanation: The inside lag refers to the amount of time it takes for a central bank or a a government to respond to a shock in the economy
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