Question Details

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 monetarists say 'well, you spoiled the experiment.'" 86 
1. People and countries are being ruined because of high 
a) taxes b) inflation c) uncertainty d) unemployment 
2. The experiment was to see if 
a) unemployment could be lowered quickly 
b) high interest rates could be maintained indefinitely 
c) inflation could be held steady at a high rate indefinitely 
d) holding money growth at a low rate would lower inflation 
3. What does releasing the interest rate imply about the central bank's monetary policy ? 
a) it has become easier b) it has become tighter 
c) it is fighting inflation d) it is following a money growth rule 
4. "This suggests that wages play a game of catch-up, then fall behind for a while. But on the average, they advance about three percent a year, in real terms. We are still not far off this pace. The only trouble is that the economy is no longer productive enough to yield three percent average wage gains in real terms. If the cycle now goes into the catch-up phase, the demands for real gains to make up for the real losses of the past three years will collide with an economy going into at least a temporary stall." This stall happens because 
a) real wages rise too much, creating inflation 
b) real wages rise too much, creating unemployment 
c) real wages fall too much, increasing the demand for labor and causing inflation 
d) real wages fall too much, lowering demand for goods and services and creating unemployment



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