Question

If last years inflation rate was 5% and analysts for wall street think this year's interest rate will be 4%, what will peoples beliefs be according to rational or adaptive expectation theories?

According to:

a) rational expectations, people think there will be a 5% inflation this year

b)adaptive expectations, people think there will be 4% inflation this year

c)rational expectations, people think there will be 1% inflation this year

d) adaptive expectations, people think there will be 1% inflation this year

e) None of these are right

2. What happens if the public doens't believe in the Fed's ability to carry out its policy?

a)Monetary policy works better

b)Mon. policy works faster

c) mon. policy takes longer to get it's effect

d)Mon. policy will not work

e) Fiscal policy will not work.

3. How big does the tax break have an effect on the economy?

a)No effect

b)Depends on whether there is a temporary/permanent decrease in taxes

c)Tax breaks of dollar amount will increase GDP by the same dollar amount.

d)tax breaks of dollar amount will decrease GDP by the same dollar amount

e)Depends on the perception people have on if it is permanent or temporary decrease in taxes.

4. In the 1980s, tax breaks and increase in gov. spending happened at the same time, which increased fed. gov. debt. How does an increased debt affect growth long term?

a) Increases long term growth

b)Decreases long term groth

c) doesn't effect long term growth

d)Too early to tell

e) None of the above are right

Answer 1