Question

In March 2013 the Fed announced that it might decrease its open market purchases of securities...

In March 2013 the Fed announced that it might decrease its open market purchases of securities by the end of the year. This announcement suggests that the Fed is concerned that

a. the unemployment rate will increase.
b. the inflation rate will rise.
c. the federal funds interest rate will fall too low for the Fed to control it.
d. the federal funds interest rate will rise too high for the Fed to control it.

In the aggregate supply-aggregate demand model, raising the federal funds rate initially

a. increases aggregate demand.
b. decreases aggregate demand.
c. increases long-run aggregate supply.
d.

decreases long-run aggregate supply.

When the Fed lowers the federal funds rate,

a. consumption expenditures decrease.
b. the dollar increases in value on foreign exchange markets.
c. net exports decrease.
d.

investment expenditures increase.

A rise in the price level because of an increase in the money wage rate

A. definitely triggers a cost-push inflation.
B. definitely triggers a demand-pull inflation.
C. might trigger a cost-push inflation.

D. might trigger a demand-pull inflation

The short-run Phillips curve shows the relationship between

A. the price level and real GDP in the short run.
B. the price level and unemployment in the short run.
C. inflation and unemployment when expected inflation equals the actual inflation.
D. inflation and unemployment when expected inflation does not change.

When the Fed lowers the federal funds rate, the U.S. dollar ________ on the foreign exchange market and ________.

A. depreciates; aggregate demand decreases
B. appreciates; aggregate demand decreases
C. depreciates; the increase in imports is greater than the increase in exports
D.

depreciates; aggregate demand increases

The long-run Phillips curve shows the relationship between the inflation rate and the unemployment rate when the

A. real interest rate equals the nominal interest rate.
B. real interest rate is zero.
C. actual inflation rate equals the expected inflation rate.

D. inflation rate is zero.

An economy's natural unemployment rate is 4 percent. The table above gives some points on the economy's short-run Phillips curve. If the expected inflation rate becomes 8 percent per year, then the ________.

A. short-run Phillips curve shifts upward
B. long-run Phillips curve shifts rightward
C. long-run Phillips curve shifts leftward
D.

short-run Phillips curve shifts downward
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Homework Answers

Answer #1
  • In March 2013 FED decreases open market purchase that is it took contractionary monetary policy. The contractionary monetary policy is taken when the economy faces a high rate of inflation. Therefore option b is correct.
  • Raising federal fund means FED takes contractionary monetary policy so the interest rate is increased. High-interest rate lowers the aggregate demand. Therefore option b is correct.
  • FED lowers the fund rate to boost the aggregate demand. As at lower interest rate the cost of investment is lower. So when consumption expenditure decrease FED lower the fund rate to boost the aggregate demand.
  • A rise in the price level because of the increase in the money wage. People increase their demand as money wage is increased. As aggregate demand increases so the price level is increased. So this is a demand-pull inflation. Option B is correct.
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