Question 1

Empirical evidence suggests which of the following about central bank independence and inflation rates?

Accepted Answer

Empirical evidence suggests that more independent central banks are associated with lower rates of inflation. This is because when central banks have independence, they are able to make monetary policy decisions based on economic indicators and not subject to political pressure or influence. This enables them to make decisions that are in line with maintaining price stability, which can lead to lower inflation rates.

Question 2

Inflation targeting refers to:

Accepted Answer

Inflation targeting is a monetary policy strategy in which a central bank sets a target range for the inflation rate and adjusts its interest rates and other policies to keep the inflation rate within that range. Option A is incorrect as central banks generally target a range rather than a precise number for the inflation rate. Option C and D are incorrect as inflation targeting is a monetary policy, not a fiscal policy.

Question 3

What conditions lead to the stagflation of the 1970s?

Accepted Answer

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Question 4

Why is monetary policy ineffective under a fixed exchange rate system?

Accepted Answer

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Question 5

What is the natural level of output?

Accepted Answer

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Question 6

How does an increase in government expenditure impact aggregate demand?

Accepted Answer

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Question 7

Suppose that the economy is in long-run equilibrium,and people in other countries suddenly decide to purchase fewer US goods.Explain the short-run effects on the US economy under both fixed and flexible exchange rates.

Accepted Answer

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Question 8

Suppose that the economy is in long-run equilibrium,and interest rates in the rest of the world rise.Explain the short-run effects on the US economy under fixed and flexible exchange rates.

Accepted Answer

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Question 9

Why does the ease of combating a recession with expansionary fiscal or monetary policy depend on how flexible prices are downward?

Accepted Answer

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Question 10

Which of the following is a correct statement about the effects of monetary and fiscal policies?

Accepted Answer

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Quiz 19: Prices and Output in an Open Economy: Aggregate Demand and Aggregate Supply