Question Details

What policy would be most appropriate here 


1. “But one bright spot was a sign that U.S. inflation is in check, and economists said that trend, combined with a soft job market, will give the Fed room to ……” This statement is best completed by 
a)	decrease taxes 
b)	decrease the money supply 
c)	decrease interest rates 
d)	balance the budget 

2. “Doubt we could have devastating bank runs? Doubters must explain why people in 2009 who could get 3% interest at their bank instead bought 90-day T-bills yesterday yielding 0.14%.” How can this be explained? 
a)	the T-bills were selling for an extraordinarily low price 
b)	the Fed was expected to cut interest rates 
c)	inflation was expected to increase 
d)	people were worried that their bank might go bankrupt 

3. “Just this July financial markets were anticipating a series of interest rate hikes by the Bank of Canada after an initial increase to 4.5%. But the credit market blow-up, on top of the U.S. housing slump, darkened the outlook.” Why would a credit market blow-up and a U.S. housing slump suggest that interest rates will not be hiked? 
a)	inflation has increased 
b)	the economy needs stimulus now 
c)	to lower government borrowing costs 
d)	unemployment has fallen 

4. “A combination of a significant upward revision to GDP growth, a downward revision of the output gap, and stronger-than-expected inflation data suggest that soon the central bank will ……” Which of the following is the best way to complete this statement? 
a) lower the reserve requirement 
b) raise interest rates 
c) increase money supply growth 
d) raise taxes 
“So it looks like the U.S. economy is in the not-too-hot, not-too-cold sweet spot: it expanded at an estimated 3.4 percent annualized rate, and the core inflation measure eased to 1.8 percent. But check the details: A reduction in inventories in the quarter sliced 2.3 percentage points off the GDP growth number.” The next two questions refer to this clip. Hint: This clip is misleading because inventory changes are already included in the GDP measure. 
5. What policy would be most appropriate here ? 
a)	lower interest rates and higher government spending 
b)	lower interest rates and lower government spending 
c)	higher interest rates and higher government spending 
d)	higher interest rates and lower government spending 



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