Central banks generally conduct their monetary policy with two goals in mind: to keep economic activity high and to keep inflation low; however, they have to recognize that
A. there is an inherent conflict between these goals
B. monetary policy can affect economic activity only in the short run
C. they can control inflation fairly effectively but may not be able to influence GDP growth
D. a lower interest rate now may mean higher a inflation rate in the future
E. all of the above
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If the inflation rate starts to increase, a central bank most likely will
A. try to stimulate aggregate supply through open market purchases
B. change short-term interest rates though open market sales
C. increase short-term interest rates by buying government bonds
D. send signals to financial markets about upcoming open market purchases
E. ask banks to ration credit
An appropriate policy response by a central bank to an increase in the inflation rate is to
A. increase bank reserves
B. lower the federal funds rate
C. buy government bonds from the public
D. sell government bonds to the public
E. none of the above
At age 18, you decided to bury $1,000 in your back yard and vowed not to use this money until your planned retirement at age 65. What will be the approximate real purchasing power of this money at that time, assuming that the average annual inflation rate over this time period is 4%?
A. 1902-09-26 00:00:00
B. 960
C. 660
D. 460
E. 160
An individual can, to some degree, reduce her vulnerability to high and unanticipated inflation by
A. insisting on long-term wage contracts
B. holding long-term bonds
C. holding cash
D. wage indexation
E. all of the above
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