Question : 21) The Fed uses a “core” price index, one that : 1244853

21) The Fed uses a “core” price index, one that excludes food and energy prices to measure inflation. It does so because

A) food and energy are inelastic goods and consumers will buy them regardless of their price.

B) it wants to avoid the blame for high gasoline prices causing inflation.

C) food and energy prices have wide swings that are not related to the causes of general inflation.

D) food and energy prices do not change all that much during the short run, so are irrelevant to the calculation of inflation.

22) A monetary growth rule means that

A) the Fed will lower interest rates if it thinks a recession is on the horizon.

B) the Fed will raise interest rates if it thinks the economy is growing faster than potential.

C) the money supply should grow at a constant rate.

D) the money supply should grow in response to economic conditions.

23) In recent years, a monetary growth rule has fallen out of favor because

A) it is believed that active monetary policy destabilizes the economy and makes the business cycle worse.

B) the growth rate of GDP has been highly unstable.

C) the close relationship between movements in M1 and movements in real GDP has become weaker.

D) the growth rate of M1 has become more stable.

24) The argument advanced by Milton Friedman for adopting a monetary growth rule is that

A) active monetary policy potentially destabilizes the economy.

B) the Fed can control the money supply, but not the level of interest rates.

C) a constant rate of growth in the money supply would eliminate the booms and recessions that make up the business cycle.

D) the growth rate of M1 has been unstable.

25) The leader of the monetarist school and major proponent of a monetary growth rule was

A) Ben Bernanke.

B) Milton Friedman.

C) Alan Greenspan.

D) Paul Volcker.

26) Why doesn’t the Fed have both a money supply target and an interest rate target?

A) Short-term interest rates do not respond to changes in the money supply, which the Fed can control.

B) The Fed does not control money demand.

C) The Fed cannot offset the impact of changes in cash management by the public or changes in lending policies of commercial banks on the money supply.

D) Only the level of interest rates matters when we consider rates of growth in real GDP, employment, and rates of price inflation.

27) The Taylor rule helps explain the relationship between the Fed’s ________ and ________.

A) money supply target; economic conditions

B) money supply target; the federal funds target

C) federal funds target; the monetary growth rule

D) federal funds target; economic conditions

28) The Taylor rule accurately predicted the changes in the federal funds target during the period

A) when Alan Greenspan was the chairman of the Federal Reserve Board.

B) when Paul Volcker was the chairman of the Federal Reserve Board.

C) when Arthur Burns was the chairman of the Federal Reserve Board.

D) when William McChesney Martin was the chairman of the Federal Reserve Board.

29) The Taylor rule predicted a federal funds rate which was ________ that set when Paul Volcker was chairman of the Fed, and a rate which was ________ that set when Arthur Burns chaired the Fed.

A) greater than; equal to

B) greater than; less than

C) less than; equal to

D) less than; greater than

30) According to the Taylor rule, the Fed should set the target for the federal funds rate equal to the sum of the equilibrium real federal funds rate, the current inflation rate, one-half times the ________, and one-half times the ________.

A) interest rate gap; inflation gap

B) interest rate gap; output gap

C) inflation gap; output gap

D) unemployment gap; government-spending gap