SOLVED

1) The equilibrium real interest rate is the rate ________. A) at which the output gap is zero B) at which the inflation rate is low C) controlled by the central bank D) all of the above E) none of the above 2) A change in the equilibrium real interest rate may result from ________. A) an autonomous monetary policy B) a change in the central bank’s target inflation rate C) a change in expected inflation D) all of the above E) none of the above 3) Every six weeks, the Federal Open Market Committee (FOMC) meets to discuss monetary policy. This discussion is mainly focused on ________. A) information of the equilibrium real interest rate from the past three years B) the current month’s release of the CPI by the BLS C) the three year projections of the equilibrium real interest rate D) the past 18 month history and future 18 month projections of the discount rate E) none of the above 4) Shocks to the macroeconomy will cause a change in the equilibrium real interest rate, except ________. A) permanent supply shocks B) aggregate demand shocks C) temporary supply shocks D) all of the above E) none of the above 5) Every six weeks, the Federal Open Market Committee (FOMC) meets to discuss how to best adjust ________ to accommodate shocks that shift the level of ________. A) the equilibrium real interest rate; the target Fed Funds rate B) the target Fed Funds rate; the equilibrium real interest rate C) the 3 month T-bill rate; the inflation gap D) target rate of inflation; money demand E) none of the above 6) Ceteris Paribus, if current output has fallen below potential ________. A) a positive inflation gap will ensue B) it is likely that the equilibrium real rate has fallen below the policy rate C) a negative unemployment gap will ensue D) it is likely that the equilibrium real rate has risen above the policy rate E) none of the above 7) Many borrowers defaulted on subprime mortgages ultimately disrupting financial markets by August 2007. Which of the following is a likely result of this financial disruption? A) The AD curve likely shifted left which caused a positive inflation gap B) The AD curve likely shifted right which caused a positive inflation gap C) The AD curve likely shifted left which caused an upward movement along the MP curve to a higher general equilibrium interest rate D) The AD curve likely did not shift E) none of the above 8) Many borrowers defaulted on subprime mortgages ultimately disrupting financial markets by August 2007. Which of the following is a likely result of this financial disruption? A) The AD curve likely shifted left which caused a negative output gap B) The AD curve likely shifted left which caused a positive inflation gap C) The AD curve likely shifted left which caused an upward movement along the MP curve to a higher general equilibrium interest rate D) The AD curve likely did not shift E) none of the above 9) Many borrowers defaulted on subprime mortgages ultimately disrupting financial markets by August 2007. Which of the following is a likely result of this financial disruption? A) The AD curve likely shifted left which caused a negative output gap B) The AD curve likely shifted left causing a negative inflation gap C) The AD curve likely shifted left followed by an downward movement along the MP curve to a lower equilibrium interest rate in the short run D) all of the above E) none of the above 10) A negative shock in aggregate demand will likely result in ________. A) a short run decrease in output B) a permanently lower equilibrium inflation rate if the central bank does not respond by lowering interest rates C) an eventual increase in aggregate supply for any inflation rate if the central bank does not respond by lowering interest rates D) all of the above E) none of the above