1) Assume that the neutrality of money is true for the short-run as well as the
ID: 1094908 • Letter: 1
Question
1) Assume that the neutrality of money is true for the short-run as well as the long-run. If the economy is initially in general equilibrium and the central bank now enacts a contractionary monetary policy, economic output would _____ and inflation would _____.
Increase; increase
Increase; decrease
Decrease; increase
Decrease; decrease
Increase; not change
Not change; increase
Decrease; not change
Not change; decrease
Not change; not change
2) The Dodd-Frank Wall Street Reform and Consumer Protection Act imposed significant additional regulations on financial institutions. Suppose this makes financial institutions less willing to increase lending for any given decline in the real interest rate. As a result, the IS curve would be _____ and the AD curve would be _____.
Fatter; flatter
Flatter; steeper
Steeper; flatter
Steeper; steeper
3) Suppose the central bank changes its policy regime to be less concerned about changes in inflation. Then, compared to the previous policy regime,
Inflation will tend to be lower than before.
Shifts in the aggregate demand curve will be smaller than before.
Fluctuations in economic output would be larger after temporary supply shocks.
Fluctuations in economic output would be smaller after temporary supply shocks.
4) Suppose that Country A and Country B are engaged in international trade with one another and their currencies are traded at a fixed exchange rate. Both countries are initially in general equilibrium. If the central bank in Country B now conducts a contractionary monetary policy, then in the short run, Country A will experience:
Lower unemployment and lower inflation.
Lower unemployment and higher inflation.
Higher unemployment and lower inflation.
Higher unemployment and higher inflation.
)Suppose that the central bank conducts a massive open market sale of government securities but the money supply does not change. This could be due to:
A decrease in the velocity of money.
An increase in the required reserve ratio.
Commercial banks holding more excess reserves.
Households and businesses holding more currency.
None of the above, the money supply would definitely change.
Explanation / Answer
1)
Increase; decrease
2)
Flatter; steeper
3)
Shifts in the aggregate demand curve will be smaller than before.
4)
1
Higher unemployment and lower inflation.
2.
An increase in the required reserve ratio.
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