Question : 81) The reason that some economists advise central banks to : 1384485

81) The reason that some economists advise central banks to never validate a negative supply shock is

A) because the economy’s adjustment process is ineffective.

B) the monetary validation causes downward pressure on wages.

C) the monetary validation results in a higher level of unemployment.

D) that there are no short-run effects on any real variables, and so it is not worthwhile.

E) to avoid the possibility of entrenching expectations and creating a wage-price spiral.

82) The acceleration hypothesis states that

A) when the central bank holds an inflationary gap constant, inflation will tend to accelerate.

B) if an economy is growing, inflation will grow at an ever-increasing rate.

C) capital investment is the primary cause of inflation.

D) monetary validation causes inflation.

E) if a recessionary gap is not closed, unemployment will tend to accelerate.

83) If the central bank uses monetary policy to attempt to hold real GDP (Y) permanently above potential GDP (Y*),

A) inflation can be kept at a low, constant rate.

B) inflation is not a problem, but unemployment is.

C) inflation will accelerate over time.

D) it will fail.

E) the AD curve will shift leftward to cure the inflation problem.

84) Suppose we know the following information about a hypothetical economy:

A) remain constant at 4%

B) fall below 4%

C) rise above 4%

D) cause stagflation

E) cause a recession

85) According to the “acceleration hypothesis,” the inflation rate will accelerate when actual output is held

A) at the NAIRU.

B) at the level where unemployment is at the natural rate.

C) below potential output.

D) at potential output.

E) above potential output.

86) The Bank of Canada has formally adopted an inflation target of 2%. One important reason for this is

A) the supply-shock inflation will never exceed this amount.

B) to avoid the temptation of validating positive economic shocks that could lead to accelerating inflation.

C) that output-gap inflation will never exceed this amount.

D) to allow for a permanent inflationary gap which is beneficial to the economy.

E) that economists have determined that only an inflation rate of 2% is consistent with NAIRU.

87) It is often said that inflation is a “monetary phenomenon.” The most accurate interpretation of this phrase is that

A) the price level cannot rise without an increase in the money supply.

B) a continuous rise in prices is possible only with continuing increases in the money supply.

C) only an increase in the money supply can start a period of inflation.

D) repeated supply shocks cannot drive up prices if there is no monetary validation.

E) increases in the price level are always associated with increases in the money supply.

88) The view that sustained inflation is possible only with continuous monetary validation is now widely accepted but was made famous by and is still closely associated with

A) John Maynard Keynes.

B) Adam Smith.

C) David Ricardo.

D) Milton Friedman.

E) James Tobin.

89) The statement that “inflation is everywhere and always a monetary phenomenon” is closely associated with

A) John Maynard Keynes.

B) Milton Friedman.

C) John Crow.

D) David Dodge.

E) Adam Smith.

90)  Consider the statement “Inflation is everywhere and always a monetary phenomenon.” This statement does not hold true

A) as long as demand and supply shocks are validated by expansionary monetary policy.

B) if the economy’s adjustment process is working effectively.

C) for temporary bursts of inflation that are not accompanied by a monetary expansion.

D) as long as the AD curve is shifting to the right at the same rate as the AS curve is shifting to the left.

E) in industrialized economies.