Question : 17.8   Inflation Bias and Other Problems of Policy Formulation 1) What : 1303636

 

17.8   Inflation Bias and Other Problems of Policy Formulation

 

1) What is inflation bias? What measures have governments taken to avoid it?

 

 

2) Explain and give some examples of governmental policy problems.

 

 

17.9   Permanent Shifts in Monetary and Fiscal Policy

 

1) If the economy starts in long-run equilibrium, a permanent fiscal expansion will cause

A) an increase in exchange rate, E.

B) a decrease in exchange rate, E.

C) an increase in output, Y.

D) a decrease in output, Y.

E) shifting of the AA curve up and to the right.

 

 

2) In long-run equilibrium after a permanent money-supply increase there follows:

A) an increase in exchange rate, E.

B) a decrease in exchange rate, E.

C) an increase in output, Y.

D) a decrease in output, Y.

E) an unchanged exchange rate, E.

 

3) Which one of the following statements is the MOST accurate?

A) Over time, the inflationary pressure that follows a temporary money supply expansion pushes the price level to its long-run value and returns the economy to full employment.

B) Over time, the inflationary pressure that follows a permanent money supply expansion pushes the price level to its long-run value and returns the economy to full employment.

C) Over time, the inflationary pressure that follows a temporary money supply expansion pushes the price level to its long-run value, but leaves the economy in a state of artificially low employment.

D) Over time, the inflationary pressure that follows a permanent money supply expansion pushes the price level to its long-run value, but leaves the economy in a state of artificially low employment.

E) Over time, the inflationary pressure that follows a permanent money supply expansion pushes the price level beyond its long-run value and lower the level of employment.

 

 

4) Using the DD-AA framework, which one of the following statements is the MOST accurate?

A) Only monetary policy can bring the economy to full employment.

B) Only fiscal policy can bring the economy to full employment.

C) Only both monetary and fiscal policies can bring the economy to full employment.

D) Both policies are capable of bringing the economy to full employment and low inflation.

E) Monetary policy by itself or fiscal policy by itself can bring the economy to full employment.

 

 

5) Which one of the following statements is the MOST accurate?

A) A permanent increase in the money supply cannot have any short-run effects.

B) A permanent increase in taxes cannot have any short-run effects.

C) A permanent decrease in the money supply cannot have short-run effects.

D) A permanent decrease in taxes cannot have short-run effects.

E) A permanent increase in money demand can be offset with a permanent increase in the money supply of equal magnitude.

 

6) A permanent increase in the domestic money supply

A) must ultimately lead to a proportional decrease in E, and, therefore, the expected future exchange rate must rise proportionally.

B) must ultimately lead to a proportional decrease in E, and, therefore, the expected future exchange rate must decrease proportionally.

C) must ultimately lead to a proportional rise in E, and, therefore, the expected future exchange rate must rise proportionally.

D) must ultimately lead to a proportional rise in E, and, therefore, the expected future exchange rate must rise more than proportionally.

E) must ultimately lead to a proportional rise in E, and, therefore, the expected future exchange rate must rise less than proportionally.

 

 

7) In the short run, a permanent increase in the domestic money supply causes

A) a greater upward shift in the DD curve than that caused by an equal, but transitory, increase.

B) a greater downward shift in the AA curve than that caused by an equal, but transitory, increase.

C) an smaller upward shift in the AA curve than that caused by an equal, but transitory, increase.

D) a smaller downward shift in the AA curve than that caused by an equal, but transitory, increase.

E) a greater upward shift in the AA curve than that caused by an equal, but transitory, increase.

 

 

8) In the short run, a permanent increase in the domestic money supply

A) has stronger effects on the exchange rate and output than an equal temporary increase.

B) has stronger effects only on the exchange rate but not on output than an equal temporary increase.

C) has weaker effects on the exchange rate and output than an equal temporary increase.

D) has stronger effects on output, but lower effect the exchange rate than an equal temporary increase.

E) has weaker effects only on the exchange rate than an equal temporary increase.

 

 

9) A permanent fiscal expansion

A) shifts the DD and the AA schedules to the right, increasing output.

B) shifts the DD and the AA schedules to the right, decreasing output.

C) shifts the DD to the right and the AA schedule to the left, leaving output the same.

D) shifts the DD to the left and the AA schedule to the left, decreasing output.

E) shifts the DD and the AA schedules to the left, leaving output the same.