SOLVED

14) When monetary policies result in a worsening of economic performance, the least likely explanation is ________. A) a political business cycle B) changes in one or more key structural parameters of the economy C) a policy-induced change in the expectations and behaviors of households and businesses D) faulty interpretation of incomplete and ambiguous economic data 15) The argument that ________ receives strong support from the innovative policy response to the recent financial crisis. A) rules can be too rigid B) discretionary policies are vulnerable to the time-inconsistency problem C) money is the sole source of fluctuations in aggregate demand D) changes in policies can change the coefficients in macroeconometric models 16) Which of the following provides support for the use of discretion in economic policy-making? A) any policy rule that is based on a particular model will prove wrong if that model is wrong. B) the existence of a political business cycle. C) the conclusions of Friedman and Schwartz with respect to monetary and fiscal policy. D) the Watergate scandal. 17) In 1975 the Swiss National Bank announced a policy of targeting ________. A) the level of income. B) interest rates. C) rational expectations. D) monetary aggregates. 18) Swiss attempts to target monetary aggregates ended in the 1990s because ________. A) the expectations of Swiss households had evolved from being adaptive to rational. B) structural changes in the economy had rendered existing practices inflationary. C) of the resulting increase in interest rates. D) the ensuing deflation increased the real value of debt held by Swiss manufacturing firms. 19) Swiss experience in the 1980s evidences the ________. A) effectiveness of targeting monetary aggregates. B) need for discretion in the face of structural changes in the economy. C) value of fiscal policy over monetary policy. D) ascendancy of flexible exchange rate regimes over fixed exchange rate systems. 20) Constrained discretion ________. A) eliminates all discretion in policymaking. B) imposes an inherent discipline on consumers. C) imposes an inherent discipline on policymakers but does not eliminate all flexibility. D) requires policymakers follow a constant growth rate rule for money. 21) Of these policies, which is the best example of constrained discretion? A) the annual federal budget deficit shall not exceed three percent of the GDP B) the growth rate of the money supply, with appropriate adjustments for changes in the velocity of money, shall be between two percent and five percent C) macroeconomic policies shall promote rapid economic growth and low inflation D) macroeconomic policies shall aim to keep inflation — on average over each five-year interval — within a range of two percent to four percent, 22) Evidence suggests that, with rare exceptions, economic policies are not manipulated in an effort to influence electoral outcomes. Use the Lucas critique to explain why not. 23) How are rule-based policies similar to adaptive expectations?