Question

1. "Leaning against the wind" is exemplified by a(n)
Select one:
a. increase in the money supply when there is a recession.

b. All of the above are correct.

c. tax increase when there is a recession.

2. For the Fed to fully eliminate the costs of inflation, how low does the inflation rate need to be?
Select one:

a . 3 percent

b. 5 percent

c. 6 percent

d. 0 percent

3. Paul Volcker, former chair of the Fed, implemented
Select one:
a. expansionary policy which increased the popularity of the U.S. president who had appointed him.

b. contractionary policy which decreased the popularity of the U.S. president who had appointed him.

c. contractionary policy which increased the popularity of the U.S. president who had appointed him.

d. expansionary policy which decreased the popularity of the U.S. president who had appointed him.

Answer 1

1> a. increase in the money supply when there is a recession.

If there is a recession, if the money supply is increases, it wants to expand the economy and thus wants to stabilize the economy. So, it is the case of leaning against the wind.

2> d. 0 percent

If the inflation rate is at 0%, then the purchasing power of the dollar remains the same, thus there will be no cost of inflation.

3> b. contractionary policy which decreased the popularity of the U.S. president who had appointed him.

Paul Volcher introduced the contractionary monetary policy which stabilized the US economy but it was not a popular choice to have a contractionary policy.