SOLVED

21) As the financial crisis became more severe in 2008, the Federal Reserve undertook a(n) ________ of monetary policy, an effect of which is to ________ inflation. A) contraction; raise B) easing; raise C) contraction; lower D) easing; lower E) none of the above 22) Throughout 2008, inflation and the real interest rate declined together. The cause is a combination of ________. A) monetary policy easing and declining autonomous spending B) declining autonomous spending and movement along a fixed MP curve C) monetary policy tightening and inversion of the MP curve D) increased government spending and movement along a fixed MP curve E) none of the above 23) Referring to the graph above, a movement from point H to point I might represent ________. A) the increase in the inflation rate that occurs when the real interest rate rises B) the automatic response of monetary policy to an increase in the inflation rate C) an autonomous tightening of monetary policy D) any of the above E) none of the above 24) On the graph above, which pair of points best represents the impacts in the U. S. of the financial crisis and policy response from 2007 through 2008? A) H to I B) K to G C) I to H D) K to F E) G to J 25) On the graph above, which pair of points best represents a scenario in which the nominal interest rate and expected inflation decline equally? A) I to H B) G to K C) I to J D) K to F E) J to H 26) Suppose the nominal interest rate is five percent, and the inflation rate rises from two percent to three percent. Might an increase in the nominal interest rate to 5.5 percent be consistent with the Taylor Principle? If not, what consequences might ensue? 27) A key concern of monetary policy makers is credibility. In particular, that people believe that inflation will not deviate far from a rate consistent with a healthy macroeconomy. How might credibility affect the slope of the monetary policy curve? 28) Suppose the economy is just recovering from a recession and all signs now point to robust growth. How might this transition from recovery to expansion be reflected in the monetary policy curve? 29) If the monetary policy curve is correct, then policy makers care only about inflation and not at all about aggregate output and unemployment. Comment.