Question Details

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) create high interest rates but low unemployment 
d) create high interest rates and high unemployment 
2. "What it does mean is that over-all financial policy must be, and must be seen by a skeptical public to be, consistent with a continuing movement towards cost and price stability." It is important that the public sees this consistency to 
a) reduce expectations of inflation b) shift the short-run Phillips curve downward 
c) permit movement down the long-run Phillips curve d) all of the above 
"But he defended the slow, steady decline in interest rates beginning in the spring of 1989 as the best that could have been done, given the fear of future inflation - a fear that has until recently kept long-term interest rates high despite repeated cuts in short-term rates by the Fed." 
3. A faster fall in interest rates was not advisable because 
a) it would have created unemployment 
b) it would have lowered inflation too quickly 
c) it would have worsened fears of future inflation 
d) it was not possible because long-term rates were not falling 
4. Long-term interest rates were higher than short-term rates because 
a) the Fed was buying more short-term than long-term bonds on the open market 
b) the Fed was selling more short-term than long-term bonds on the open market 
c) long-term inflation expectations were higher than short-term inflation expectations 
d) long-term inflation expectations were lower than short-term inflation expectations 
5. "As actual inflation increased, workers and businesses began to incorporate expectations of higher and higher inflation into their behavior. The Phillips curve consequently ........." Complete this clipping. 
a) shifted up b) shifted down c) became flatter d) became steeper


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