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1) The tying down of the price level to a nominal variable by the central bank is known as committing to ________. A) a nominal anchor. B) rational expectations. C) a customs union. D) a positive aggregate demand shock. 2) In the equation for the short-run aggregate supply curve, Ï€ = Ï€e + γ + ρ, an improvement in the credibility of monetary policy is represented by a change in ________. A) expected inflation B) the price shock C) the sensitivity of inflation to the output gap D) the output gap 3) One requirement for an effective nominal anchor is ________. A) price stability. B) credibility. C) fixed exchange rates. D) rational expectations. 4) The “anchor” that sustains the credibility of monetary policy is ________. A) easily weighed during the slightest of macroeconomic storms B) composed of some indestructible substance C) necessary to avoid central bank independence D) available for scrutiny to all who care to observe 5) A nominal anchor helps policy makers to avoid ________. A) adaptive expectations B) constrained discretion C) negative demand shocks D) the time-inconsistency problem 6) The immediate objective of a nominal anchor is to reduce the variability of ________. A) monetary policy targets B) expected inflation C) aggregate demand D) central bank credibility 7) For the most part, central bank credibility, or lack thereof, is reflected in the behavior of ________. A) short-run aggregate supply B) short-run aggregate demand C) long-run aggregate supply D) aggregate price shocks 8) If the public believes the commitment to a nominal anchor to be credible, the effect of a positive aggregate demand shock is for ________. A) short-run aggregate supply to shift up B) short-run aggregate supply to be unaffected C) short-run aggregate supply to shift down D) inflation, but not economic activity, to increase 9) If the public believes that the commitment to a nominal anchor is not credible, the effect of a positive aggregate demand shock is for ________. A) short-run aggregate supply to shift down B) short-run aggregate supply to remain unchanged C) short-run aggregate supply to shift up D) inflation, but not economic activity, to increase 10) If the public believes the commitment to a nominal anchor to be credible, the effect of a negative aggregate demand shock is for ________. A) short-run aggregate supply to shift up B) short-run aggregate supply to be unaffected C) short-run aggregate supply to shift down D) inflation, but not economic activity, to decrease

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