1- Monetary rules work best when: Select one: a. the Fed loses control of the mo
ID: 2441501 • Letter: 1
Question
1-
Monetary rules work best when:
Select one:
a. the Fed loses control of the money supply.
b. interest rates are high.
c. money velocity is stable.
d. inflation expectations are high.
2-
In the AD–AS model, an increase in money growth will cause the growth rate of real GDP to increase in:
Select one:
a. the short run only.
b. the long run only.
c. both the short run and the long run.
d. neither the short run nor the long run.
3-
According to Milton Friedman, if the economy's long-run growth rate is 3%, then the Fed should set the annual money growth rate at:
Select one:
a. 3%.
b. less than 3%.
c. more than 3%.
d. 3% plus or minus an amount to compensate for any shocks.
4-
The economy is growing at its long-run potential growth rate of 3% with an inflation rate of 4%. If a positive aggregate demand shock occurs and the Fed responds by decreasing money growth, but fails to offset the aggregate demand shock, then in the short run:
Select one:
a. the real growth rate will be 3%, and the inflation rate will be 4%.
b. the real growth rate will be lower than 3%, and the inflation rate will be lower than 4%.
c. the real growth rate will be higher than 3% and the inflation rate will be lower than 4%.
d. the real growth rate will be higher than 3% and the inflation rate will be higher than 4%.
5-
What do many economists think contributed to the greater than 13% inflation rates experienced by the United States in the 1980s?
Select one:
a. The Fed was inflexible in its rule of 3% growth.
b. The Fed did not do enough to increase money supply.
c. The Fed overstimulated the economy with too much money in the 1970s.
d. The Fed did not react to the oil shocks of the 1970s.
Explanation / Answer
1) by controlling money supply- interest rate are high
2) affects real gdp growth in the short run
3) 3% is the correct answer
4) part d , real growth rate will be higher than 3% and inflation rate will be higher than 4%
5)Fed did not do enough to increase money supply
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