Question : 31) Using the Taylor rule, if the current inflation rate : 1244854

31) Using the Taylor rule, if the current inflation rate equals the target inflation rate and real GDP is greater than potential GDP, then the federal funds target rate ________ the sum of the current inflation rate plus the real equilibrium federal funds rate.

A) will be greater than

B) will be less than

C) will be the same as

D) may be greater than or less than

32) Suppose the equilibrium real federal funds rate is 5 percent, the target rate of inflation is 3 percent, the current inflation rate is 5 percent, and real GDP is 4 percent above potential real GDP. If the weights for the inflation gap and the output gap are both 1/2, then according to the Taylor rule the federal funds target rate equals

A) 1 percent.

B) 9 percent.

C) 13 percent.

D) 17 percent.

33) Inflation targeting is a framework for carrying out monetary policy whereby

A) the central bank adopts a rigid target for inflation and ignores declines in output.

B) the central bank commits to achieving a publicly announced level of inflation.

C) the central bank commits to achieving a target level of inflation which is never announced publicly.

D) the central bank commits to a monetary growth rule.

34) Which of the following is not an argument against inflation targeting?

A) Inflation targeting reduces the flexibility of the Fed to pursue other policy goals.

B) Inflation targeting assumes that the Fed can accurately forecast future inflation rates.

C) Inflation targeting makes monetary policy ineffective because the targets are publicly announced.

D) Inflation targeting holds the Fed accountable for an inflation goal, but may make it less likely the Fed will achieve other goals.

35) An advantage of the personal consumption expenditures price index (PCE) over the Consumer Price Index (CPI) as a measure of inflation is that the PCE

A) is a more narrow, focused measure of inflation.

B) is a chain-type price index that allows the mix of products to change each year.

C) includes the prices of industrial equipment.

D) includes the prices of goods, but not services.

36) An advantage of the personal consumption expenditures price index (PCE) over the Consumer Price Index (CPI) as a measure of inflation is that the PCE

A) includes the prices of more consumer goods and services.

B) includes the prices of consumer goods, but not consumer services.

C) includes the prices of consumer services, but not consumer goods.

D) is a fixed market-basket price index that does not allow the mix of products to change each year.

37) The core personal consumption expenditures price index excludes

A) food and energy prices.

B) food and housing prices.

C) energy and housing prices.

D) housing and health care prices.

38) The consumer price index (CPI), the personal consumption expenditures price index (PCE), and the core PCE have over the last 10 years

A) moved roughly together with the CPI being the most stable.

B) moved roughly together with the PCE being the most stable.

C) moved roughly together with the core PCE being the most stable.

D) not moved together, with the CPI being the most stable.

39) The relationship between GDP and the money supply has gotten stronger since the 1980s.

40)  The Fed has adopted an interest rate target for most of the time since World War II.