1.
One of the contributions of E. Prescott & F. Kydland, Nobel
prize winners in Economics in 2004, was to argue that if a central
bank could convince people to expect zero inflation, then the
central bank would be tempted to raise output by increasing
inflation. This possibility is known as
A. Inflation targeting
B. The monetary policy reaction lag
C. The time inconsistency of policy
D. The sacrifice ratio dilemma
2. If a government managed to reduce the time inconsistency
problem by mandating that the central bank target inflation at a
low rate, then the short-run
A. and the long-run Phillips curve would shift right
B. and the long-run aphillips curve would shift left
C. Phillips curve would shift up
D. Phillips curve would shift down
3. A law that requires the MS grow by a fixed percentage each
year would eliminate
A. The time inconsistency problem, but not political business
cycles
B. The political business cycle, but not the time
inconsistency problem
C. Both the time inconsistency problem and political business
cycles
D. Neither the time inconsistency problem nor political
business cycles
4. Assume the FED follows a rule that requires it to take
steps to keep P constant. If the price level rose because of an
increase in AD and a decrease in AS that kept output unchanged,
then
A. The central bank would have to decrease the money supply
which would decrease output
B. The central bank would have to decrease the money supply
which would increase output
C. The central bank would have to increase the money supply
which would decrease output
D. The central bank would have to increase the money supply
which would increase output