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Assuming people have rational expectations:
 
A) Monetary policy changes will cause the money supply to change, thereby causing changes in inflation and unemployment along a vertical Phillips Curve

B) When the Fed uses monetary policy, people quickly realize the impact that will be created by the policy, adjust wages and prices, and inflation will adjust to the new expectations which means the policy will not affect the real GDP

C) When the government uses fiscal policy, then changes in the money supply will create quick adjustments in wages and prices which will not cause changes in real GDP

D) When the Fed uses monetary policy, people do not quickly adjust wages and prices, therefore, inflation will deviate from expectations and create fluctuations in real GDP

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Joshua Stredder
Joshua StredderLv10
15 Oct 2020

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Related questions

Monetary Neutrality is a theory in macroeconomics that states when the central bank conducts monetary policy, the central bank does not affect the real economy (e.g., the number jobs, the size and growth of output, the amount of investment). Instead, any change in the money supply would be offset by a proportional change in prices and wages. Monetary neutrality underlies the quantity theory of money. Suppose that throughout the fourth quarter of 2015, the Federal Reserve enacted a bond buying program. If monetary neutrality holds, then which of the answer choices is correct?

A. During the fourth quarter of 2015, the Fed conducted a contractionary monetary policy. From the third quarter to the fourth quarter, U.S. money supply decreased, and U.S. nominal GDP decreased.

B. During the fourth quarter of 2015, the Fed conducted a contractionary monetary policy. From the third quarter to the fourth quarter, U.S. money supply decreased, and U.S. nominal GDP was unchanged since it is not affected by changes in monetary policy.

C. During the fourth quarter of 2015, the Fed conducted an expansionary monetary policy. From the third quarter to the fourth quarter, U.S. money supply increased, and U.S. nominal GDP increased.

D. During the fourth quarter of 2015, the Fed conducted an expansionary monetary policy. From the third quarter to the fourth quarter, U.S. money supply increased, and U.S. nominal GDP was unchanged since it is not affected by changes in monetary policy.

1. Which of the following is likely to happen if the Fed buys Treasury securities from banks?

  interest rate rises; investment falls
  interest rate rises; investment rises
  interest rate falls; investment rises
  interest rate falls; investment falls

2. The main goal of monetary policy is to shift

  AD.
  SRAS.
  LRAS.
  both AD and SRAS.
  both AD and LRAS.

3. Which of the following is true regarding the effects of an expansionary monetary policy?

  Printing more money will affect real GDP only in the short run because all prices do not adjust fully in the short run.
  Printing more money will affect real GDP both in the short and long run because inflation is a natural occurrence of expansionary monetary policy.
  Printing more money will not lower the value of money in the short run because prices are fully flexible in the short run.
  Printing more money will ultimately raise the value of money in the long run because prices are fully flexible in the long run.

4. In which of the following cases are you likely to be adversely affected by unexpected inflation?

  You, the owner of a local restaurant, charge the price of lamb lasagna as per the daily market rate of lamb.
  You purchase Mountain Dew every day from the dormitory vending machine, which keeps its prices fixed for the entire school year.
  You, the owner of an airline company, sign a two-year contract for airline fuel.
  You deposit $10,000 in a bank account for 5 years for a fixed interest rate of 1%.

5. The Phillips curve depicts the relation between

  real GDP and price level.
  price level and inflation rate.
  unemployment rate and inflation rate.
  unemployment rate and real GDP.

6. Which of the following statements is true regarding the shapes of short-run and long-run Phillips curves?

  The short-run Phillips curve is vertical and the long-run Phillips curve is downward sloping.
  The short-run Phillips curve is downward sloping and the long-run Phillips curve is vertical.
  Both the short-run and long-run Phillips curves are downward sloping.
  Both the short-run and long-run Phillips curves are vertical.

7. Suppose the table below lists the actual annual inflation rates for 2010 to 2015. What would be the most likely predictions people make about the inflation rate for 2016 based on adaptive and rational expectations theories, respectively?

Year Actual Inflation rate
2010 0%
2011 0%
2012 3%
2013 3%
2014 6%
2015 6%
   
  6% and 3%
  6% and 9%
  6% and 12%
  9% and 6%
  3% and 6%

8. Which of the following can change relatively quickly in the short-run?

  the price of a latte in a coffee shop
  the salary of a finance professor
  the rent paid for a store

Question 2

  1. For any given expected inflation rate, short-run aggregate supply curves show the relationship between

    the money supply and growth rate of output.

    inflation and growth rate of output.

    production factors and wages.

    inflation and wages.

1 points

Question 3

  1. Why is the SRAS curve steeper above its intersection with the Solow growth curve?

    Wages are stickier in the upward direction.

    Wages are less sticky in the upward direction.

    Lower inflation will lead to faster growth.

    Employees become less motivated to work during times of unexpected inflation.

1 points

Question 4

  1. What factors triggered the Great Depression?

    decreased consumer spending and tight monetary policy

    decreased investment and increased inflation

    decreased employment and increased money supply

    decreased inflation and increased income taxes

1 points

Question 5

  1. How might changes in the money supply be non-neutral in the short run?

    As the amount of money circulating in the economy changes before prices respond, consumers' purchases change accordingly, which leads producers to change production levels.

    When money supply changes in the short run, it will affect nominal, but not real, variables in the short run.

    As money growth increases at a faster rate, it will cause real GDP to grow at an equally faster rate.

    If producers expect inflation to increase, they will increase supply in order to sell before the arrival of inflation.

1 points

Question 6

  1. For a given nominal interest rate, an increase in deflation will cause the real rate of interest to

    remain relatively constant.

    increase.

    decrease.

    become unpredictable.

    Question 8

    Which of the three price indexes measures the average price level of the largest total number of goods?

    the consumer price index

    the GDP deflator

    the producer price index

    Each price index accomplishes the same task.

    The textbook uses the

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