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Money & Banking Exam 3
Terms in this set (30)
Central bankers define _____ as low and stable inflation.
Monetary policymakers face a time-inconsistency problem because they are always tempted to pursue a discretionary monetary policy that is _____ expansionary than firms or people expect because such a policy would _____ economic output and lower unemployment.
The goal of high employment is not an unemployment level of zero, but a level above zero that is called _____.
the natural rate of unemployment
An increase in interest rates produces large _____ on long-term bonds and mortgages, which can cause the failures of the financial institutions holding them.
A rise in the value of the dollar makes American industries _____ competitive with those abroad. Stability in foreign exchange markets is even _____ important in countries that are more dependent on foreign trade.
The Fed's mission to achieve price stability and maximum employment is known as the _____ mandate.
The Federal Reserve adopted an explicit inflation target in _____.
If the Fed chooses to target a reserve aggregate, like total reserves, it _____ of short term interest rates, like the federal funds rate. If the Fed chooses to target an interest rate target, like the federal funds rate, it _____ of reserve aggregates, like total reserves.
loses control; loses control
The Taylor rule indicates that the _____ should be set equal to the inflation rate plus an equilibrium real federal funds rate plus a weighted average of the inflation gap and output gap.
federal funds rate
_____ is defined as the rate of unemployment at which there is no tendency for inflation to change.
If the Fed engages in expansionary monetary policy to lower real interest rates at any given inflation rate, the cost of financing investment projects will _____. As a result, investment spending (and, hence, aggregate demand) will _____.
All else equal, a(n) _____ at any given inflation rate will tend to reduce aggregate demand.
decline in government purchases
All else equal, a(n) _____ at any given inflation rate will tend to increase aggregate demand.
reduction in taxes
The level of aggregate output produced at the _____ is called the natural rate of output but is more often referred to as _____ output.
natural rate of unemployment; potential
When workers expect inflation, they will adjust the nominal wages they are willing to accept _____ with the expected inflation rate so that their real wage does not decrease.
The _____ is defined as the percentage difference between aggregate output and potential output.
If wages and prices are _____, inflation adjust slowly over time. The more _____ wages and prices are, the more rapidly they, and inflation, respond to deviation of output from potential output.
An increase in expected inflation causes the _____ to shift _____.
short-run aggregate supply; up
Regardless of where output is initially, the aggregate demand-aggregate supply model maintains that it eventually returns to potential output. We call this feature the _____ mechanism.
According to ____ business cycle theory, business cycle fluctuation results from permanent shocks to supply alone and shifts in aggregate demander not viewed as being particularly important to aggregate fluctuations in the level of potential output.
The difference between the prevailing rate of inflation and the Fed's stated 2-percent goal is known as the _____.
If the central bank does not respond to a reduction in aggregate demand by changing the autonomous component of monetary policy, the _____ curve ultimately adjusts as inflation expectations _____.
short-run aggregate supply; decline
If the central bank responds to a reduction in aggregate demand by increasing the autonomous component of monetary policy, the _____ curve will shift to the right, resulting in _____ inflation and real output.
aggregate demand; higher
When a supply shock is temporary, the _____ does not hold. Policymakers face a short-run trade-off between stabilizing inflation and stabilizing economic activity.
The time it takes for policymakers to obtain the data that describe what is happening in the economy is known as the _____ lag.
The time it takes for policymakers to feel confident about the signals the data are sending about the future course of the economy is known as the _____ lag.
The time it takes for policymakers to change policy instruments once they have decided on a new policy is known as the _____ lag.
_____ inflation results from a temporary negative supply shock or workers demanding wage hikes beyond those justified by productivity gains. _____ results when policymakers pursue policies that increase aggregate demand.
Cost push; Demand pull
A _____ federal funds rate would imply that you are willing to earn a lower return by lending in the federal funds market than you could earn by holding cash.
According to Mishkin, nonconventional monetary policy takes three forms. Which of the following are not included in his list?
zero interest rate policy (ZIRP)
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