Question

QUESTION 23

An inflation rate above the target rate will result in:

		a- a movement down along the monetary policy reaction curve and a movement down the dynamic aggregate demand curve.
		b- a movement up along the monetary policy reaction curve and a movement up the dynamic aggregate demand curve.
		c- a movement up along the monetary policy reaction curve and a rightward shift of the dynamic aggregate demand curve.
		d- a movement up along the monetary policy reaction curve and a leftward shift of the dynamic aggregate demand curve.

QUESTION 24

If most people expect the inflation rate will increase, the:

		a- short-run aggregate supply curve would shift to the right.
		b- short-run aggregate supply curve would shift to the left.
		c- long-run aggregate supply curve would shift right.
		d- aggregate demand curve would shift right.

QUESTION 25

If output and inflation are unrelated in the long run, the long-run aggregate supply curve must be:

		a- horizontal.
		b- non-existent.
		c- upward sloping.
		d- vertical.

QUESTION 26

The effect on the monetary policy reaction curve resulting from policymakers decreasing their inflation target would be:

		a- the monetary policy reaction curve shifting to the right.
		b- a movement up the existing monetary policy reaction curve.
		c- a movement down the existing monetary policy reaction curve.
		d- the monetary policy reaction curve shifting to the left.

QUESTION 27

The FOMC targets the federal funds rate, but if they are going to alter the course of the economy they must influence the:

		a- long-term nominal interest rate as well.
		b- real interest rate as well.
		c- nominal exchange rate as well.
		d- real exchange rate as well.

QUESTION 28

A decrease in taxes would cause:

		a- the dynamic aggregate demand curve to shift to the left.
		b- the dynamic aggregate demand curve to shift to the right.
		c- a movement up and along the existing dynamic aggregate demand curve.
		d- a movement down and along the existing dynamic aggregate demand curve.

Answer 1

23.

B

It will create upward movement in dynamic aggregate demand curve as well as reaction curve of the monetary policy.

24.

B

It will cause the price to increase and make to people to realize the expectation of rise in inflation.

25.

D

Long run aggregate supply curve will be vertical and it is independent of the nominal variables such as price or subsequent inflation.

26.

D

The reduction in the target inflation rate, will cause the reaction curve of the monetary policy to move in leftward direction.

27.

B

A real interest rate should be affected so that inflationary impact is controlled.

28.

B

A decrease in the tax, will cause the disposable income to increase as well as consumption spending and it will lead to rightward shift in the dynamic AD curve.