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Multiple Choice Quiz
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1
Which of the following is NOT a severe handicap for the Fed in its conduct of monetary policy?
A)multiplier uncertainty
B)the length of the outside lag
C)the length of the inside lag
D)incomplete information about the way the economy works
2
The inside lag is defined as the length of time it takes
A)for a policy to affect the economy after its implementation
B)to decide on the most appropriate policy response to a disturbance
C)to recognize that a disturbance has occurred
D)to recognize that a disturbance has occurred and formulate and implement the right policy response to it
3
The Fed's response to the events of September 11, 2001 consisted of
A)several days of inaction to adequately assess the severity of the situation on financial markets
B)large open market sales combined with a change in reserve requirements
C)increasing bank reserves to ensure liquidity for the banking system
D)asking banks not to extend new loans to brokerages houses for a few days to avoid undue speculation
4
Automatic stabilizers
A)shorten the decision lag but increase the recognition lag
B)will always stabilize the economy even if a disturbance is very large
C)ensure that disposable income fluctuates less than income after a disturbance
D)increase the size of the expenditure multiplier
5
If it is not known for certain whether a disturbance is temporary or permanent, then
A)any policy changes should be modest to avoid creating unnecessary fluctuations in the economy
B)only monetary policy changes should be undertaken since monetary policy has a short outside lag
C)only fiscal policy changes should be undertaken since fiscal policy is easier to reverse
D)multiplier uncertainty exists
6
Multiplier uncertainty is defined as uncertainty about
A)the accuracy of published economic indicators
B)the precise values of the parameters within a given economic model
C)the length of the inside lag
D)none of the above
7
A constant monetary growth rate rule is most likely based on which of the following equations?
A)π = m + y - v
B)π = m - y + v
C)m = π + y + v
D)m = π - y - v
8
An activist monetary policy rule
A)only works if the Phillips curve is vertical even in the short run
B)is only possible under real GDP targeting
C)helps to minimize the problem of dynamic inconsistency
D)produces political cycles
9
If a central bank is convinced that it knows the level of the natural unemployment rate and believes that there is a large tradeoff between unemployment and inflation, then it will most likely
A)target real GDP
B)target nominal GDP
C)target inflation
D)rely solely on automatic stabilizers
10
Dynamic inconsistency
A)implies that the central bank does not trust its indicators to accurately predict whether ultimate targets can be achieved
B)can be minimized by very active monetary policy
C)occurs when policies are implemented that appear to be right from the short-run perspective but are wrong from the long-run perspective
D)is a result of multiplier uncertainty





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