1. In 1992 the Central Bank of Japan resisted implementing an expansionary monetary policy because

• it believed that output had been beyond its full-employment level in Japan during the late 1980s and early 1990s.
• it followed the real business cycle approach.
• it believed that the only way to cure Japan's economic problems was by reducing the large balance of trade deficit the country was suffering from.
• it believed that the only way to cure Japan's economic problems was by reducing the large government budget deficit the country was suffering from.

2. According to the new classical view, aggregate output will differ from full-employment output

• only if the federal government's expenditures are greater than its tax receipts.
• whenever imports exceed exports.
• whenever saving does not equal investment.
• only if the actual price level does not equal the expected price level.

3. Economists who back the use of rules by the Fed believe that they would result in

• a lower government budget deficit.
• lower growth rates of aggregate supply.
• increased credibility for Fed actions.
• the eventual adoption of price controls.

4. Which of the following is true of the new classical view of stabilization policy?

• It is necessary during recessions but not during booms.
• It has been very successful in the period since the Great Depression.
• It is unnecessary because households and firms make use of all available information in forming expectations of the price level.
• It is necessary, but it should not be overused.

5. Which of the following is a key assumption of Irving Fisher's quantity theory of money demand?

• The price level is always constant.
• The money supply is always constant.
• Increases in the price level reduce the level of real money balances.
• Velocity is always constant.

6. Which events made the inflation that began in the late 1960s worse?

• The large increases in the exchange value of the dollar in the early 1970s
• The oil supply shocks of the mid-1970s
• The large tax cuts of the early 1970s
• The large reductions in the government spending in the late 1970s

7.When inflation fluctuates significantly,

• the signals provided by relative prices improve.
• the cost of inflation is minimized.
• the signals provided by relative prices are distorted.
• nominal interest rates will be low.