Choose the best answer

1			Designing successful economic stabilization policy is difficult since
			A)	public response to policy actions cannot be accurately predicted
			B)	the true structure of the economy is not known for certain
			C)	policy makers never know if an economic disturbance is temporary or persistent
			D)	all of above
2			Which of the following is NOT a severe handicap for the Fed in its conduct of monetary policy?
			A)	multiplier uncertainty
			B)	the length of the outside lag
			C)	the length of the inside lag
			D)	incomplete information about the way the economy works
3			Which of the following is NOT an inside lag?
			A)	transmission lag
			B)	action lag
			C)	decision lag
			D)	recognition lag
4			The inside lag is defined as the length of time it takes
			A)	for a policy to affect the economy after its implementation
			B)	to decide on the most appropriate policy response to a disturbance
			C)	to recognize that a disturbance has occurred
			D)	to recognize that a disturbance has occurred and formulate and implement the right policy response to it
5			The outside lag is defined as the length of time it takes for
			A)	a policy measure to affect the economy after its implementation
			B)	policy makers to recognize that a disturbance has occurred
			C)	policy makers to decide upon the appropriate policy response to a disturbance
			D)	consumers and firms to change their expectations in response to a policy
6			The Fed's response to the events of September 11, 2001 consisted of
			A)	several days of inaction to adequately assess the severity of the situation on financial markets
			B)	large open market sales combined with a change in reserve requirements
			C)	increasing bank reserves to ensure liquidity for the banking system
			D)	asking banks not to extend new loans to brokerages houses for a few days to avoid undue speculation
7			Automatic stabilizers
			A)	shorten the decision lag but increase the recognition lag
			B)	will always stabilize the economy even if a disturbance is very large
			C)	ensure that disposable income fluctuates less than income after a disturbance
			D)	increase the size of the expenditure multiplier
8			If it is not known for certain whether a disturbance is temporary or permanent, then
			A)	allow for quick fiscal policy responses on a case-by-case basis
			B)	reduce the expenditure multiplier to 1
			C)	reduce the inside lag to zero
			D)	increase the fiscal policy multiplier which makes fiscal policy more effective
9			If it is not known for certain whether a disturbance is temporary or permanent, then
			A)	any policy changes should be modest to avoid creating unnecessary fluctuations in the economy
			B)	only monetary policy changes should be undertaken since monetary policy has a short outside lag
			C)	only fiscal policy changes should be undertaken since fiscal policy is easier to reverse
			D)	multiplier uncertainty exists
10			Multiplier uncertainty is defined as uncertainty about
			A)	the accuracy of published economic indicators
			B)	the precise values of the parameters within a given economic model
			C)	the length of the inside lag
			D)	none of the above
11			Which if the following is FALSE?
			A)	a cold turkey approach removes any multiplier uncertainty
			B)	with a cold turkey approach, policy makers often gain a credibility bonus
			C)	a gradualist approach is most appropriate if there is a large unemployment-inflation tradeoff
			D)	with a gradualist approach, policy makers can incorporate new information as the policy plays out
12			Policy makers often divide economic variables into "indicators," "instruments," and "targets." An instrument is a variable that
			A)	provides information feedback for policy makers
			B)	identifies policy makers' ultimate goals
			C)	policy makers can manipulate directly
			D)	signals most accurately whether a policy action will achieve its desired effect
13			Economists will likely favor a strict monetary policy rule if they believe that
			A)	there is a large tradeoff between unemployment and inflation
			B)	the economy is basically unstable
			C)	short-run concerns outweigh long-run concerns
			D)	none of the above
14			A constant monetary growth rate rule is most likely based on which of the following equations?
			A)	π = m + y - v
			B)	π = m - y + v
			C)	m = π + y + v
			D)	m = π - y - v
15			An activist monetary policy rule
			A)	only works if the Phillips curve is vertical even in the short run
			B)	is only possible under real GDP targeting
			C)	helps to minimize the problem of dynamic inconsistency
			D)	produces political cycles
16			Because of his belief that money has a strong effect on economic activity, Milton Friedman advocated that a central bank should
			A)	always use active countercyclical monetary policy
			B)	not respond to economic disturbances even in extreme circumstances
			C)	set interest rate targets and adjust money supply as needed to maintain the targets
			D)	none of the above
17			If a central bank is convinced that it knows the level of the natural unemployment rate and believes that there is a large tradeoff between unemployment and inflation, then it will most likely
			A)	target real GDP
			B)	target nominal GDP
			C)	target inflation
			D)	rely solely on automatic stabilizers
18			A central bank that targets nominal GDP most likely
			A)	is guided by the belief that there is no tradeoff between inflation and unemployment
			B)	is willing to allow for some increase in inflation in order to reduce unemployment
			C)	believes that the economy is basically unstable
			D)	believes that unemployment cannot be reduced without loss of credibility
19			Dynamic inconsistency
			A)	implies that the central bank does not trust its indicators to accurately predict whether ultimate targets can be achieved
			B)	can be minimized by very active monetary policy
			C)	occurs when policies are implemented that appear to be right from the short-run perspective but are wrong from the long-run perspective
			D)	is a result of multiplier uncertainty
20			There is strong empirical evidence that countries that have very independent central banks also have
			A)	very low inflation rates
			B)	very low unemployment rates
			C)	very high economic growth rates
			D)	all of the above