Assume the Fed wants to stimulate economic activity through expansionary monetary policy. Which of the following is FALSE?
A. investment spending will increase
B. spending on durable goods will increase
C. aggregate demand will be stimulated
D. the expansionary effect will only be temporary
E. real money balances will increase as we move along the AD-curve from left to right
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The Taylor rule
A. advocates lowering interest rates in response to a higher output level
B. advocates a strict monetary growth rate
C. advocates stable interest rates
D. helps a central bank in setting its target interest rates based on current economic conditions
E. is of little help in the short-term stabilization of the economy
The Taylor rule implies that a central bank should adjust interest rates frequently
A. with particular emphasis on capital movements across borders
B. but only in response to changes in the inflation rate
C. but only in response to changes in the output gap
D. whenever output or inflation deviates from the desired levels
E. none of the above
Generally, the holder of a government bond that is indexed to the price level knows
A. either the interest rate, the principal, or both are adjusted for inflation
B. the real interest rate will fluctuate with inflation
C. there will be no losses as long as inflation is anticipated, but losses can occur if there is an unanticipated increase in the inflation rate
D. all of the above
E. none of the above
Which of the following is FALSE?
A. automatic cost-of-living adjustments in formal labor contracts are common in many countries
B. wage indexation is more prevalent in countries where uncertainty about inflation is high
C. wage indexation is very widespread in the U.S.
D. an unanticipated increase in the inflation rate will increase the government’s real tax revenue
E. a government bond that is indexed to the price level will have either the interest, the principal, or both adjusted for inflation
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