SOLVED

27.2Â Â Anticipated Versus Unanticipated Monetary Policy 1) If wages and prices are flexible and expectations are formed rationally, an increase in the money supply will cause A) real wages to rise. B) real wages to fall. C) nominal wages to rise. D) nominal wages to fall. 2) Real wages will decline if A) money supply growth exceeds expectations. B) real interest rates rise. C) aggregate demand exceeds aggregate supply. D) money supply growth exceeds the inflation rate. 3) Real wages will rise if A) money supply growth is less than expectations. B) real interest rates fall. C) aggregate demand is less than aggregate supply. D) money supply growth exceeds the inflation rate. 4) If wages and prices are flexible, an anticipated change in the money supply has no effect on A) money demand. B) nominal interest rates. C) real GDP. D) the inflation rate. 5) An anticipated change in the money supply will result in a(n) __________ level of economic activity and a __________ price level. A) increased; higher B) decreased; higher C) unchanged; lower D) unchanged; higher 6) If wages and prices are flexible, then an anticipated change in the money supply will cause wages and prices to __________ the actual inflation rate. A) increase at the same rate as B) increase at a higher rate than C) increase at a slower rate than D) cannot be exactly predicted 7) As long as wages and prices are flexible, an anticipated change in the money supply will lead to an increase in A) the unemployment rate. B) industrial production. C) nominal income. D) real wages. 8) An unannounced increase in the money supply will increase both prices and real GDP under A) neither rational nor adaptive expectations. B) rational but not adaptive expectations. C) adaptive but not rational expectations. D) both adaptive and rational expectations. 9) Suppose that for several periods the aggregate demand and supply curves have been intersecting at the same point, and at full employment. Then the central bank increases money growth as a result of an announced policy change. Under the assumption of adaptive expectations the likely short-run result is __________ output and __________ price level. A) rising; a rising B) rising; an unchanged C) unchanged; a rising D) unchanged; an unchanged 10) Suppose that for several periods the aggregate demand and supply curves have been intersecting at the same point, and at full employment. The central bank increases money growth as a result of an unannounced policy change. Under the assumption of adaptive expectations the likely short-run result is __________ output and __________ price level. A) rising; a rising B) rising; an unchanged C) unchanged; a rising D) unchanged; an unchanged 11) Suppose that for several periods the aggregate demand and supply curves have been intersecting at the same point, and at full employment. Then the central bank increases money growth as the result of an announced policy change. Under New Classical assumptions the likely short-run result is __________ output and __________ price level. A) rising; a rising B) rising; an unchanged C) unchanged; a rising D) unchanged; an unchanged 12) Suppose that for several periods the aggregate demand and supply curves have been intersecting at the same point, and at full employment. Then the central bank increases money growth as the result of an unannounced policy change. Under New Classical assumptions the likely short-run result is __________ output and __________ price level. A) rising; a rising B) rising; an unchanged C) unchanged; a rising D) unchanged; an unchanged 13) If wages do not instantaneously adjust to reflect expected inflation that is based on an anticipated increase in the money supply, A) the aggregate demand and positively sloped aggregate supply curve shift to the right at the same time. B) the positively sloping aggregate supply curve shifts to the left after the aggregate demand curve shifts to the right. C) the positively sloping aggregate supply curve shifts to the left before the aggregate demand curve shifts to the right. D) the positively sloping aggregate supply curve does not shift to the right at the same time as the aggregate demand curve shifts to the left. 14) If wages instantaneously adjust to reflect expected inflation that is based on an anticipated increase in the money supply, A) the aggregate demand and positively sloped aggregate supply curve shift to the right at the same time. B) the positively sloping aggregate supply curve shifts to the left after the aggregate demand curve shifts to the right. C) the positively sloping aggregate supply curve shifts to the left before the aggregate demand curve shifts to the right. D) the positively sloping aggregate supply curve does not shift to the right at the same time as the aggregate demand curve shifts to the left.