Question

1. Which of the following would shift the short-run aggregate supply curve to the right?

• A change in the law requiring overtime pay for anyone working more than 30 hours a week

• A reduction in the minimum wage

• An increase in oil prices

• An increase in payroll taxes

2. The fact that investors can always hold cash creates:

• an upward bound on nominal interest rates.

• negative nominal interest rates.

• a problem for monetary policymakers when the short-term interest rates approach zero.

• an opportunity for the U.S. treasury to issue bonds that actually have negative nominal interest rates.

3. Monetary policymakers can respond to the impact that positive inflation shocks have on output by shifting the:

• monetary policy reaction curve right.

• monetary policy reaction curve left.

• short-run aggregate supply curve to the left.

• short-run aggregate supply curve to the right.

4. Policymakers could neutralize all of the following except:

• a decrease in business confidence.

• an increase in the price of oil.

• a trade deficit.

• an increase in federal government spending on defense.

5. The movement away from bank lending towards asset-backed securities:

• has eliminated the bank-lending channel as a mechanism for monetary policy.

• will require the FOMC to rethink the quantitative impact of changing the target federal funds rate.

• has increased the importance of the bank-lending channel of monetary policy.

• has not affected the importance of the bank-lending channel.

Answer 1

1. Option 2. With the decrease in pay, the cost of production decreases which shifts the supply curve to right

2. Option 4. It would help to attract investors to invest money on bonds so that they would realize more returns

3. Option 3. It would shift the AS curve to left which leads to increased prices

4. Option 2. As it is dependent on market demand and supply

5. Option 1. As banks move away from lending it has eliminated the banks as mechanism for monetary policy