ECON 304 WITH 121 EXAM QUESTIONS & CORRECT
ANSWERS
In lecture we showed that real wages were rising in the US during the beginning of the internet, in the mid 1990s, since the growth rate in nominal wages was greater than the growth rate in the general price level. - ANSWER-true
If you buy a US Treasury bond, you hope interest rates on that bond fall so that you can realize a capital gain by selling the bond for a higher price than you bought it for. This would be a good strategy if you knew that the Fed was going to conduct quantitative easing before they announced it. - ANSWER-true
When the Fed conducts quantitative easing they buy US Government Securities which increases the demand of US Government Securities and thus, lowers interest rates on these US Government Securities. - ANSWER-true
Suppose the interest rate on a one year government security in January of 2019 is 2.58%. Also, suppose the CPI price index is 252.55 in January of 2019 and 258.82 in January of 2020. Calculate the ex-post real rate of interest. True or false: The ex- post real rate of interest is negative (less than zero). - ANSWER-false
The reason the bond demand curve slopes downward is due to the fact that as prices fall, interest rates rise and thus, all else constant, bonds become more attractive relative to substitutes and thus, people buy more of them. - ANSWER- true
One reason the Fed wants inflation to rise is due to the fact that higher inflation results in higher real interest rates (the Fisher effect) and thus, higher inflation will give more bullets to the Fed to fight a recession. - ANSWER-false
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Shortly before the breakdown of the Bretton Woods system, the US $ become undervalued and thus, member countries were desperate to convert their gold into US $. As a response, President Nixon abandoned the Bretton Woods system in
- Since then, the US $ remains the world's reserve currency. - ANSWER-false
Currently, the inflation rate is slightly higher than the Fed would like it to be. Part of the reason is due to the recent rounds of quantitative easing. - ANSWER-false
According to the Fed's new policy regime, they really don't care what the unemployment rate is since the Phillips curve is currently flat indicating there is no relationship between inflation and unemployment. - ANSWER-false
In a deflationary environment, real interest rates are positive even if nominal interest rates are zero (0%). - ANSWER-true
During the beginning of the Great Recession, right after the Fed hit the zero bound, the Fed could have done better with their forward guidance - that is, the Fed should have put a date on their forward guidance rather than using vague terms like "for sometime" and "for an extended period" - ANSWER-true
We argued that the Fed has less power now, relative to the onset of the Great Recession since longer term interest rates are lower now that they were in the beginning of the Great Recession - ANSWER-true
The income effect for labor supply implies that the labor supply curve is positively sloped - the higher the wage, the higher the labor supply. - ANSWER-false
If MPN rises above the real wage then the firm should hire more workers. - ANSWER-true
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A positive shock to the production function, such as in the New Economy, resulted in the production function shifting up and the long run aggregate supply curve shifting to the right. - ANSWER-true
The Fed better be careful with the amount of quantitative easing they are currently conducting since last time they conducted quantitative easing (during the Great Recession), the excessive money growth resulted in high inflation - ANSWER- false the relationship between money growth and inflation has disappeared, we are not worried about inflation right now
Given the Fed's new regime, they basically admitted that for the time being at least, NAIRU does not exist. - ANSWER-true
NAIRU is defined as the highest the unemployment rate can go without inflation accelerating. - ANSWER-false NAIRU is the lowest unemployment can go without inflation accelerating
Given the pandemic shock, the unemployment rate in the US rose to its highest level in over 70 years! - ANSWER-true
Currently, the inflation rate is slightly higher than the Fed would like it to be. Part of the reason is due to the recent rounds of quantitative easing - ANSWER-false the inflation rate is extremely low at the moment
The Phillips curve has flattened over recent decades. This flattening of the Phillips explains, in part, the Fed's notion that NAIRU is currently non-existent since a flat Phillips curve implies no relationship between unemployment and inflation. - ANSWER-true
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