ECON 214 InQuizitive ch. 18 Liberty University Solution

In which sequence will events occur when the economy adjusts to an expansionary monetary policy, in the short run and then in the long run?

Suppose you own a small business and have been thinking about expanding production, including hiring more workers. Until recently, interest rates at your bank have been too high for you to obtain a loan. However, the central bank decides to expand the money supply, which lowers interest rates to a level where you can take out a loan and expand production. Select the ways in which your actions affect the macroeconomy.

This figure illustrates what happens when the Federal Reserve buys a large amount of Treasury bonds. Place the following events in order.

People’s thinking about inflation is forward-looking in the rational expectations theory, while the adaptive expectations theory only considers past experience.

The figure depicts the short-term effects of a contractionary monetary policy. Apply the labels to show how each element in the economy is affected.

Which of the following is true in the long run, as depicted in the figure showing the effects of an expansionary monetary policy?

Suppose that the nation of Rationalia experiences the inflation rates shown from 2013 through 2015. If the Rationalian citizenry behaves according to the rational expectations theory, what will they expect the inflation rate to be in 2016?

In the short term, expansionary policy benefits many people by increasing – and reducing –. However, it hurts suppliers whose prices are –. They have higher overall costs but their overall revenue does not go up –.

The traditional short-run Phillips curve implies a powerful role for monetary policy. According to the theory, place the events in order based on what happens when the central bank unexpectedly expands the money supply.

In 2007, the Federal Reserve began buying greater quantities of Treasury bonds than usual. What was the intent of this decision?

Monetary neutrality is the idea that money is neutral in the –. It is a means of exchanging, tracking, and storing value, but is not a – of value. An economy does not become inherently more or less – by virtue of a change in the amount of money in circulation. Real productivity depends on resources, technology, and –.

Each dot on the figure below represents a year between 1948 and 2015. Place each label on the area of the graph where you would expect to find the most dots for those years.

Does each statement about inflation listed below have to do with adaptive expectations theory or rational expectations theory? Drag the correct label to each statement.

Suppose that in the nation of Adaptistan, the inflation rate is highly variable. Three years' worth of inflation rates are shown in the table.

In year 4, however, the inflation rate shoots up to 10%. Assuming adaptive expectations, by what percentage will the Adaptistanian public underestimate the year 4 inflation rate?

Suppose that the nation of Adaptistan experiences the inflation rates shown from 2013 through 2015. If the Adaptistanian citizenry behaves according to the adaptive expectations theory, what will they expect the inflation rate to be in 2016?

In the short term, unexpected expansionary policy is –. In the long term, prices adjust and the effects of monetary policy –. What remains are – prices and correspondingly – money.