Question

1a. Which of the following statements is not true? An increase in the price level while...

1a.

Which of the following statements is not true?

An increase in the price level while real domestic income and the nominal money supply are constant

An increase in real domestic income while the price level and the real money supply are constant.

An increase in the price4 level while real domestic income and the nominal money supply are rising

A decrease in the real money supply while the price3 level and real domestic income are constant

b.

Which of the following is not an example of time inconsistency?

Drinking so much at a party that you have a hangover in the morning

Drinking too much at a party and then driving home in your car

Pursuing a college education with high student loans, in the expectation of increased future prospects

Starting a course of medicine and then stopping before the end of the treatment because you feel better

c.

Fine-tuning the economy is not easy due to which of the following problems?

All of the statements are true.

Forecasting errors

Time-inconsistency

Lags

d.

What are the twin goals of macroeconomic policy?

Stability and prosperity

Stability and consistency

Prosperity and a balanced budget

Inflation and inflation targeting

e.

According to the practice of the Federal Reserve, which of the following interest rates is normally the highest one?

The Federal funds rate target

The discount rate

Rates A and B are always equal, and C is always lower

The rate paid on commercial banks’ deposits of reserves

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Homework Answers

Answer #1

1a

Correct Answer:

D

Real money supply cannot be decreased, when real income and price level is constant.

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1b

Correct Answer:

D

Opting for the course of medicine at one time and refusing the treatment at another time, is considered as time consistency.

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1c.

Correct Answer:

A

Fine tuning of the economy becomes difficult, because there are inside and outside lags, problems associated with forecasting and people and institutions making different choices at different times.  

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1d.

Correct Answer:

A

Price stability as well as growth in the economy to bring prosperity are the two most important goals.

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1e.

Correct Answer:

B

It is the discount rate that is highest in the market.

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