Clemson Econ 3150 Final Exam with verified solutions

The relationship between actual output in an economy, the long-run component, and the short-run component is given as Long-run trend = Current output + Short-run output. a. True b. False b A policy rule dictates that monetary policy is set at the discretion of the president. a. True b. False b Brainpower Read More The main policy instrument used by the Federal Reserve is the target federal funds rate. a. True b. False a The foundation of the IS curve is the national income identity given by the equation Yt = Ct + It + Gt + IMt - EXt. a. True b. False b When the real interest rate rises, there is leftward movement along the IS curve. a. True b. False a The link between real and nominal interest rates is summarized in the Fisher equation. a. True b. False a On the aggregate demand curve, if the rate of inflation rises, short-term output will rise as the curve shifts right. a. True b. False b When economists say "sticky inflation," they mean that inflation does not react directly with the monetary policy. a. True b. False a In the long run, ā=0 and Rt= r̄. a. True b. False a In Figure 9.6, area b represents an economic boom and area a is a recession. a. True b. False b When the Federal Reserve increases the interest rate, the MP curve shifts up and short-term output falls. a. True b. False a An increase in military spending will cause the AD curve to shift to the right. a. True b. False a A sudden increase in the price of oil will cause the AS curve to shift up and to the left. a. True b. False a The Phillips curve shows the negative relationship between output fluctuations and the change in inflation. a. True b. False b In the Phillips curve, change in rate of inflation during year t = sensitivity of inflation to short-run current output+ ō represents a change in government spending. a. True b. False b If British incomes rose, this would be reflected in the short-run model as a shift in the U.S. AS to the right. a. True b. False b The Fed has perfect information about the state of the economy. a. True b. False b According to the Taylor rule, the federal funds rate should rise in positive proportion to the rise in inflation. a. True b. False a If, Ȳ0 the macroeconomy is producing at its potential level of output. a. True b. False b The U.S. Federal Reserve currently announces its inflation target. a. True b. False a John Maynard Keynes is famous for saying, "In the long run ________." a. there is no tomorrow b. we are all dead c. the only thing we have to fear is fear itself d. the study of economics will be redundant e. inflation is everywhere a monetary phenomenon b A mechanical policy rule that dictates what interest rates monetary policy should follow is a. written down. b. at the discretion of the president. c. at the discretion of the chairman of the Federal Reserve. d. independent of the state of the economy. e. solely a function of the state of the economy. e Which of the following is the mission of the Federal Reserve Bank? i. Preserve price stability ii. Foster stable fiscal policy iii. Ensure taxes are fair a. ii only b. i only c. iii only d. i and ii e. i and iii b The IS curve describes short-run movements in an economy via which of the following? a. ↑ Interest rate ⇒ ↑ Investment ⇒ ↓ Output b. ↑ Interest rate ⇒ ↓ Investment ⇒ ↓ Output c. ↑ Tax rate ⇒ ↓ Consumption ⇒ ↓ Output d. ↑ Interest rate ⇒ ↑ Investment ⇒ ↑ Output e. ↑ Tax rate ⇒ ↑ Government expenditure ⇒ ↑ Output b The IS curve describes the ________ relationship between ________. a. negative; tax rate and investment b. positive; interest rate and output c. positive; tax rate and government expenditure d. negative; interest rate and output e. negative; interest rate and money supply d Consider Figure 12.10, which shows the output gap from 1990 to 2000, by quarter. If this is all the information you have, during the period 1993.1-1993.4, and according to the Phillips curve, you would conclude that a. inflation is decelerating, Δπ 0. b. inflation is accelerating, Δπ 0. c. unemployment is falling. d. unemployment is rising. e. Not enough information is given. a Consider Figure 12.10, which shows the output gap from 1990 to 2000, by quarter. If this is all the information you have, during the period 1997.1-1999.4, and according to the Phillips curve, you would conclude that a. inflation is accelerating, Δπ 0. b. inflation is decelerating, Δπ 0. c. unemployment is falling. d. unemployment is rising. e. Not enough information is given. a According to the IS curve, when interest rates rise, ________ and ________. a. governments borrow less; firms produce less b. firms and households borrow more; firms produce less c. firms and households borrow less; firms produce less d. firms and households borrow more; firms produce more e. firms and households borrow more; governments produce more c What is the main policy tool available to the Federal Reserve? a. the discount rate b. the federal funds rate c. government expenditures d. printing money e. taxes b Which of the following is NOT an example of a short-term macroeconomic shock? a. political unrest b. infrastructure investment c. a drought d. increased military spending e. None of these answers is correct. e The foundation of the IS curve is the equation ________, which is the ________. a. Yt = Ct + It + Gt + EXt + IMt; national income identity b. Yt = Ct + It + Gt + IMt; national income identity c. Yt = Ct + It + Gt; national income identity d. Yt = Ct + It + Gt + EXt + IMt; current account e. Yt = Ct + It + Gt + IMt + EXt; current account a The MP curve stands for ________ and describes how ________. a. monopoly pricing; firms set prices b. monetary policy; the Federal Reserve sets the inflation rate c. monetary policy; the federal government sets short-run output fluctuations d. money prices; the Federal Reserve sets the inflation rate e. monetary policy; the Federal Reserve sets the nominal interest rate e The simple monetary policy rule that is discussed at length in the text is Rt + r̄ = m̄ (inflation rate during year t - long run inflation target in monetary policy rule) The federal funds rate is a. equal to the rate of inflation. b. the interest rate at which banks borrow from the Federal Reserve. c. the interest rate at which banks borrow from and loan to each other overnight. d. an interest rate that is some fixed amount above the prime lending rate. e. the return to stock markets over the long term. c In the simple monetary policy rule, Rt + r̄ = m̄ (inflation rate during year t - long run inflation target in monetary policy rule) m̄ measures: a. the marginal product of capital. b. the deviation of the inflation rate from the target rate. c. how sensitive monetary policy is to changes in inflation. d. the target rate of inflation. e. the debt-to-GDP ratio. c Which of the following scenarios best describes the short-run model? a. b. c. d. e. None of these answers is correct. e Which of the following describes the consumption function in the IS curve that is used in the textbook? Ct = ācȲ The simple monetary policy rule implies that if a. the Federal Reserve should lower the interest rate. b. the Federal Reserve should lower the interest rate. c. the Federal Reserve should raise the interest rate. d. the interest rate is zero. e. All of these answers are correct.