Recent Question

Long-term interest rates were higher than short-term rates because 1. "Since the central bank has not achieved zero inflation in the postwar era, why should individuals believe in such a policy now? If a zero-inflation goal lacks credibility, then an attempt by the central bank to achieve it will ......." Complete this clipping a) create low interest rates and low unemployment b) create low interest rates but high unemployment c) crea ...

Other / Other 10 May 2016

An incomes policy is designed to 1. Suppose person A forms his inflation expectations as the average of this period's inflation and last period's inflation, whereas person B forms her expectations rationally (i.e., by using all information plus knowledge of how the macroeconomy operates). Suppose the economy is in equilibrium at its NRU and the Fed surreptitiously increases the money growth rate from 6 percent to 9 percent increasing infl ...

Other / Other 10 May 2016

What does releasing the interest rate imply about the central bank's monetary policy "The central bank was presumably trying to maintain very high interest rates and, I assume in the face of political reality and pressure from the economy, released the interest rate a few weeks ago. The monetarists will allow you to go ahead and ruin people and countries but when eventually in good and common sense you say 'enough is enough' the monetaris ...

Other / Other 10 May 2016

This happened because inflation turned out to be 1. "A chorus of inflation-related worries pushed down stocks, bonds and the dollar. The bellwether 30-year Treasury bond, for example, ____ $12.50 per $1,000 bond. Traders blamed the broad-based change on worries that the Federal Reserve might be preparing to _________. The blanks are best filled with a) rose; tighten monetary policy b) rose; loosen monetary policy c) fell; tighten mone ...

Other / Other 10 May 2016

The Fed can cut interest rates because 1. "One view in the market has been that because the economy seemed weaker than it should be, the Federal Reserve Board would cut its discount rate from 7.5 percent. This, of course, would be positive for bonds. On the other hand, there have been those thinking that rising money-supply growth would rule out such a discount rate reduction." Why would rising money-supply growth rule out a discount rate r ...

Other / Other 10 May 2016

The employment numbers were a bit of a shocker 1. If we are at the natural rate of unemployment, an increase in aggregate demand will lower unemployment in the short run a) if workers perfectly anticipate inflation b) regardless of workers' inflation estimates c) if workers overestimate the consequent inflation d) if workers underestimate the consequent inflation 2. If rapid inflation occurs in a relatively full employment economy, ...

Other / Other 10 May 2016

Why would the reduction be only temporary 1. "'The Federal Reserve must be conscious of the limits of its capabilities. We can try to provide a backdrop for stable, sustainable growth, but we cannot iron out every 96 fluctuation, and attempts to do so could be counterproductive,' Alan Greenspan, the Fed chairman, said." The Fed would provide a backdrop for stable, sustainable growth by a) preventing inflation b) fine-tuning monetary ...

Other / Other 10 May 2016

Which of the following should both lead one to expect an increase the price of Treasurys “By raising and lowering short-term interest rates to keep inflation moving at a steady pace, many central bankers and academics thought they had finally found a monetary policy solution to conquer the booms and busts of the business cycle.” The next two questions are based on this clip. 1. This monetary policy is described as a) fixin ...

Other / Other 10 May 2016

How would you calculate what must be the Canadian interest rate 1. How could a reduction in inventories slice the GDP growth number. 83 a) The GDP growth number referred to here must be growth in aggregate demand b) Actual GDP growth must have been 5.7 percent c) Actual GDP growth must have been 1.1 percent d) The GDP growth number must include the 1.8 percent price increases 2. “A major revision to last year’s in ...

Other / Other 10 May 2016

Why have higher interest rates not led to a fall in borrowing 1. "The Franklin Savings bonds will carry a 3 percentage point premium over inflation. This deal takes the uncertainty out of the inflation component." An investor will be better off buying this bond (rather than a regular bond) if the current market expectation of inflation is a) accurate b) an overestimate c) an underestimate d) it doesn't matter - an investor is guarantee ...

Other / Other 10 May 2016