Question Details

Explain how this flaw ruined economic policy


"What is important for inflationary expectations is how the bank has responded to such shocks in the past. A central bank which has shown it will not accommodate inflationary shocks will find it much easier to maintain a stable inflation rate - whatever its level - than one with a reputation for accommodation." 
1. 'Accommodate inflationary shocks' means that the central bank will 
a) keep the money supply growth constant 
b) increase the money supply to finance government spending 
c) increase the money supply to match any decreases in money demand 
d) increase the money supply to prevent inflationary shocks from decreasing unemployment 
2. A central bank with a reputation for not accommodating inflationary shocks will find it easier to maintain a stable inflation rate because 
a) inflation expectations will remain constant 
b) its policies for preventing unemployment will be more credible 
c) it will be able to buy and sell bonds without affecting their price 
d) its open market operations to fix the interest rate will be more effective 
3. "A second flaw in economic policy lay in the contradiction between price stability and the pledge to maintain full employment. Why? Because firms and workers took the full-employment pledge seriously." Explain how this flaw ruined economic policy. 
a) fiscal policy could not be financed b) firms and workers became unproductive 
c) monetary policy was automatically restrictive 
d) wages and prices could be increased without fear of losing jobs or sales 
4. "According to one theory, the U.S. recession-inflation debate boils down to whether the natural unemployment rate is higher or lower than the current 5.7 percent level." If the NRU is higher than the current 5.7 percent, then monetary policy should 
a) tighten b) lower interest rates c) fix interest rates d) expand the money supply



Economics Assignment Help, Economics Homework help, Economics Study Help, Economics Course Help