SOLVED

1) The MP curve indicates the relationship between ________ and the ________. A) taxes; price level B) the real interest rate; inflation rate C) monetary policy; IS curve D) all of the above E) none of the above 2) The exogenous variable in the monetary policy curve is ________. A) the policy parameter, λ B) the real interest rate C) the autonomous component, D) the federal funds rate E) the inflation rate 3) The endogenous variable in the monetary policy curve is ________. A) the policy parameter, λ B) the real interest rate C) the autonomous component, D) the federal funds rate E) the inflation rate 4) When the Federal Reserve ________. A) drains liquidity, the federal funds rate falls B) drains liquidity, real interest rates fall C) provides more liquidity, the federal funds rate falls D) all of the above E) none of the above 5) The Federal Reserve ________. A) sets the federal funds rate once a year B) controls the interest rate in the short run C) controls the interest rate in the long run D) all of the above E) none of the above 6) The federal funds rate is ________. A) a real interest rate B) set periodically by Congress C) a nominal interest rate D) all of the above E) none of the above 7) A central bank can control the real interest rate precisely, so long as ________ remains constant. A) the nominal interest rate B) monetary policy C) expected inflation D) all of the above E) none of the above 8) In the very short run ________. A) the real interest rate will be affected by changes in the nominal rate B) monetary policy has an immediate effect on inflation C) the inflation rate is determined by the federal funds rate D) all of the above E) none of the above 9) Which of the following is true about the Taylor principle? A) it explains the link between higher inflation and higher real interest rates B) it is the foundation for an upward sloping MP curve C) it reflects the practice of monetary policy D) all of the above E) none of the above 10) If the central bank did not follow the Taylor principle, an increase in inflation would lead to a decrease in ________. A) the nominal interest B) the real interest rate C) aggregate output D) all of the above E) none of the above 1