Question Details

How can the economy show just as much inflation with money growing only half as fast 



1. "Far better for central bankers to get out of the fine tuning business. Instead they should try to keep ....." Complete this clipping. 
a) taxes low b) budgets balanced. 
c) money growth low d) government spending in check 
2. "The Fed based its monetary policy in the 1980s on the assumption that velocity would continue its upward trend. Had they assumed a constant velocity, money growth would have been ______ and inflation would have been ________ than what we actually experienced." Fill in the blanks. 
a) higher; higher b) higher; lower c) lower; higher d) lower; lower 
3. "Several bond issues will raise $400 million, with the central bank picking up at least $200 million. The central bank can also be counted on to take down more of the bonds than the planned $200 million it has announced if they seem to be selling badly." 
The $200 million purchase will cause the money supply to 
a) increase by $200 million b) decrease by $200 million 
c) increase by $200 million times the money multiplier 
d) decrease by $200 million times the money multiplier 
4. "The central bank claims that 'there are no aggregate measures or indicators of the rate of monetary expansion that are sufficiently reliable at present to be used as targets for policy, or that are uniquely helpful in the task of explaining the impact of monetary policy'. Accordingly, judgment about financial and economic conditions - rather than following a monetary rule - will continue to be the guiding force behind monetary policy." What argument is being used to defend the decision not to adopt a monetary rule? 
a) velocity is constant b) velocity is unpredictable 
c) velocity is rising steadily d) velocity is falling steadily 
5. "How can this be? How can the economy show just as much inflation with money growing only half as fast ? After all, the growth of M1 has been cut to about six percent, which is close to the four percent that we were told five years ago would produce a stable price level." A stable price level would be produced by a money supply growth rate equal to the economy's 
a) tax rate b) long-run inflation rate 
c) long-run real growth rate d) long-run nominal growth rate



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