Question

Which of the following statements is not true?

-An increase in real domestic income while the price level and the real money supply are constant.

-An increase in the price4 level while real domestic income and the nominal money supply are rising

-A decrease in the real money supply while the price3 level and real domestic income are constant

-An increase in the price level while real domestic income and the nominal money supply are constant

Which of the following is not an example of time inconsistency?

-Drinking so much at a party that you have a hangover in the morning

-Drinking too much at a party and then driving home in your car

-Pursuing a college education with high student loans, in the expectation of increased future prospects

-Starting a course of medicine and then stopping before the end of the treatment because you feel better

Fine-tuning the economy is not easy due to which of the following problems?

-All of the statements are true.

-Forecasting errors

-Lags

-Time-inconsistency

What are the twin goals of macroeconomic policy?

-Stability and consistency

-Stability and prosperity

-Inflation and inflation targeting

Prosperity and a balanced budget _____________ target achieves long-term price stability only if both __________ and the growth rate of real output (Q) are stable.

-A money growth; velocity

-An interest rate; productivity

-A money growth; productivity

-An interest rate; velocity

Other things being equal, which of the following would tend to cause an increase in the quantity of goods imported into the United States from China?

-A depreciation of the yuan (the Chinese currency)

-An increased rate of growth of consumer income in the U.S.

-An appreciation of the U.S. dollar

-All of the statements are true.

Under the Taylor rule, the Fed would adjust its interest-rate operating target _________ by a specified amount whenever the rate of inflation increased, and also ________ interest rates whenever real output exceeded its natural level

-downward; lower

-upward; lower

-downward; raise

-upward; raise

Answer 1

• An increae in price level will lead to decrease in money supply because at that time people will have to spend more on the consumptios. Thus money supply will increase and real income will decrease since more is spent on expenditure. Thus second statement is wrong.
• Time inconsistency implies that, taking a decision at present and enacting different in future. Here such scenario occurs in fourth example. Here the medicine course is started due to some illness with an expectation to recover. After few days out of filling better the course stopped instead of continuing. Hence fourth statement is wrong.
• In an economy there exist some errors regarding forecasting the future. The error in forcasting may act as a barrier to impliment any policy to the economy. On the other hand, any implimented policy includes some time lag to be effective. This lag slow down the development. More over in some cases it can be seen that any policy that is implimented is stopped midway due to any of the reason. This is the problem of time inconsistency. These are the problem behind fine tuning the economy.
• Macro polices are implimented to make the economic condition stable, to achive full employment and to maintain economic growth throughout. Hence by summarizing these targets we can say that twin goals of macroeconomic policy are stability and prosperity ( growth & full employment).Thus second option is correct.
• Under balanced budget, a targeted interst rate will ensure price stability if productivity and growth of output are stable. Thus correct option is : interest rate and productivity.
• More imports from China to US will be done if by spending same US dollar, US can obtain more than before. The same may happen if US people are available with more currency. Thus if income of US people grows, that will lead to an increase in imports. Thus option 2 is correct.
• Taylor targeted high interest rate and also increased interest when inflations are high. Hence the correct alternative is : upward, raise