1) Monetary policy affects which of the following variables in the medium/long run? A) the level of output B) the rate of unemployment C) the rate of inflation D) the real interest rate E) all of the above
2) Which of the following is considered a benefit of inflation? A) the option of a negative real interest rate B) money illusion C) seignorage D) all of the above E) none of the above
3) Which of the following is an example of the "shoe-leather costs" of inflation? A) a rise in the cost of primary raw materials, like leather for shoes B) an artificial rise in the capital gains tax C) the need to take more trips to the bank D) miscalculations due to money illusion E) All of the above
4) Which of the following would serve to reduce the costs caused by the variability of inflation? A) seignorage B) bracket creep C) a higher capital gains tax D) indexed wages E) none of the above
5) The nominal interest rate (in a standard economic environment) A) is never negative. B) can be negative if inflation is unexpected. C) can be negative if the inflation rate is greater than the nominal interest rate. D) can be negative if deflation occurs. E) can be negative when the real interest rate is negative. 2
6) When the Central Bank wants to signal the public about the direction of monetary policy, it will likely use A) a change in the discount rate. B) open market operations. C) a change in the reserve requirement. D) a public announcement about a change in the targeted federal funds rate. E) all of the above
7) Monetary policy has short-run effects on which of the following? A) The level of output B) only the price level C) only the nominal interest rate, not the real interest rate D) All of the above E) none of the above
8) In the medium run, an increase in inflation causes A) an increase in the opportunity cost of holding money. B) a reduction in the opportunity cost of holding money. C) no change in the opportunity cost of holding money. D) individuals to switch from holding bonds to money and increase their real money balances.
9) The existence of inflation does which of the following? A) reduces tax distortions B) reduces shoe-leather costs C) allows for the possibility of negative real interest rates D) reduces the costs associated with money illusion
10) An economy is said to be in the liquidity trap when the short-term ________ is down to zero. A) real interest rate on government bonds B) nominal interest rate on government bonds C) nominal borrowing rate of banks D) nominal deposit rate of banks
11) In 2010, the average inflation rate in the OECD countries was A) 1.2%. B) 2.3%. C) 5.2%. D) 3.8%. E) 10.5%.
12) For this question, assume that the Fed sets monetary policy according to the Taylor rule. Suppose current U.S. macroeconomic conditions are represented by the following: πt > π* and ut < un. Given this information, we would expect that the Fed will A) implement a monetary contraction. B) implement a monetary expansion. C) maintain its current stance of monetary policy. D) more information is need to answer this question.