Question :
11) Under a k-percent rule, if the economy goes into : 1228026
11) Under a k-percent rule, if the economy goes into expansion, the Fed would
A) raise the federal funds rate.
B) lower tax rates to keep revenue constant.
C) lower the federal funds rate.
D) increase the quantity of money.
E) None of the above answers are correct.
12) As firms expect future profits to increase, they increase their investment. As a result, real GDP rises above potential GDP. If the Fed followed Friedman’s k-percent rule, the Fed would
A) increase the quantity of money more than usual.
B) decrease the quantity of money.
C) continue allowing the quantity of money to grow at “k” percent.
D) raise the federal funds rate.
E) lower the federal funds rate.
13) Consumer confidence in the economy falls, and as a result, aggregate demand decreases. As real GDP falls below potential GDP, if the Fed followed Friedman’s k-percent rule, the Fed would
A) increase the quantity of money more than usual.
B) increase government expenditures.
C) continue allowing the quantity of money to grow at “k” percent.
D) lower the federal funds rate.
E) raise the federal funds rate.
14) Which of the following are TRUE regarding Milton Friedman’s k-percent money targeting rule?
i.Currently this policy is used by many policy makers.
ii.This rule sets the growth rate of the quantity of money independently of the economy’s behavior.
iii.For this policy to work well, the velocity of circulation must be stable.
A) i only
B) ii only
C) ii and iii
D) i and ii
E) iii only
15) The k-percent rule, an example of a money targeting rule, relies on a relatively stable
A) demand for money.
B) nominal GDP.
C) supply of money.
D) federal funds rate.
E) real interest rate.
16) Discretionary monetary policy has the drawback that it
A) must lead to very high inflation.
B) is currently illegal in the United States.
C) cannot be implemented using changes in the federal funds rate.
D) makes inflation expectations harder to manage.
E) None of the above answers are correct.
17) Which monetary policy rule needs a stable demand for money to work well?
A) discretionary monetary policy
B) monetary base instrument rule
C) k-percent rule
D) nominal GDP targeting rule
E) inflation targeting rule
18) Under a nominal GDP targeting rule, the Federal Reserve
A) cannot use the federal funds rate to conduct monetary policy.
B) lowers its interest rate when nominal GDP falls below target.
C) changes the interest rate only when real GDP, and hence nominal GDP, is off target.
D) loses its ability to influence the inflation rate.
E) must publish its expected inflation rate.
19) Inflation targeting requires that the central bank
A) use a short-term interest rate as its policy instrument.
B) adopt a k-percent rule for the inflation rate.
C) avoid changing the amount of the monetary base.
D) publicize its targeted inflation rate.
E) set a fixed price real assets.
