Reading 28: Monetary Policy - LOS d ～ Q1-4

答案和详解如下：

1.Consider an economy operating at full employment, but with a high inflation rate. Based on the long-run Phillips curve, a well anticipated decrease in the growth of the money supply is likely to result in the following changes in the unemployment rate and inflation:

A)         Remains unchanged          Falls to the desired rate

B)              Increase                      Falls to the desired rate

C)              Increase                      Remains above the desired rate

D)         Remains unchanged          Remains above the desired rate

The correct answer was A)

According to the long-run Phillips curve relationship, an expected and credible change in the Fed policy will have the desired effects. Because the Fed policy change is well anticipated, individuals will adjust their inflation expectations downward (moving to a lower short run Phillips curve). The effect on the economy is illustrated as a vertical movement down the long-run Phillips curve, to a lower short-run Phillips curve. Therefore, the unemployment rate remains unchanged at its natural rate, but the inflation rate drops to the desired rate.

2.Consider an economy operating at full employment, but with a high inflation rate. Based on the short-run Phillips curve, an unexpected decrease in money supply growth is likely to result in the following changes in the unemployment rate and inflation rate:

A)            Increase                           Fall to the desired rate

B)      Remain unchanged                 Remain above the desired rate

C)            Increase                           Remain above the desired rate

D)      Remain unchanged                  Fall to the desired rate

The correct answer was C)

The short-run Phillips curve illustrates the downward-sloped short-run relationship between inflation and unemployment. According to an analysis of the Phillips curve, an unexpected decrease in the growth of the money supply will cause inflation to remain above the desired rate, and will cause the economy to fall into a recession (high unemployment). For example, because the change in Fed policy is unexpected, households will continue to have high inflation expectations and will negotiate commensurately high wage increases. Therefore, inflation will not drop significantly even though the Fed has tightened the money supply growth. Moreover, as illustrated by the Phillips curve, the unexpected decrease in money supply growth combined with high inflation expectations will throw the economy into a recession (high unemployment).

3.Consider an economy at full employment but with relatively high inflation. Assume the central bank unexpectedly reduces money supply growth. The unexpected reduction in money supply growth is most likely to have which of the following effects on the inflation rate and output level in the short run?

A) Remains higher than the desired rate      Remains equal to the desired level

B) Remains higher than the desired rate      Drops below the desired level

C) Drops to the desired rate                       Drops below the desired level

D) Drops to the desired rate                       Remains equal to the desired level

The correct answer was B)

This question can be answered using AD-AS (aggregate demand and aggregate supply) curves. The economy is experiencing relatively high inflation, indicating that aggregate demand has been increasing. The Fed unexpectedly tightens the money supply growth in response to the inflation expectations, which will temper the increase in aggregate demand. So the economy likely will experience smaller increases in aggregate demand. However, the drop in aggregate supply will be large because the Fed policy change was unexpected. For example, workers will negotiate wage increases that fully compensate them for their original inflation expectations. The higher wages will cause the short-run aggregate supply of goods and services to be less than if workers had correctly anticipated lower inflation The small increase in aggregate demand combined with the large drop in aggregate supply causes the economy to fall into a recession, in which real GDP is less than potential GDP, and the decrease in inflation is less than the desired decrease (and less than the decrease in the growth rate of the money supply).

4.Ralph Beckett is attending a lecture by economics consultant Amelia Hicks about monetary policy credibility. Two of the points Hicks makes in her speech are as follows:

Statement 1: In an economy that is in long-run equilibrium, monetary policy changes that are unannounced or not credible will cause an unintended change in the unemployment rate by shifting the Phillips curve in the short run.

Statement 2: Credibility problems associated with feedback-rule or discretionary monetary policy argue in favor of a fixed-rule monetary policy.

Should Beckett agree or disagree with Hicks’ statements?

A)                      Agree                               Agree

B)                      Agree                            Disagree

C)                      Disagree                       Disagree

D)                      Disagree                         Agree

The correct answer was D)

Beckett should disagree with Statement 1 but agree with Statement 2. If a monetary policy change is unannounced or not credible, it will cause movement along the short-run Phillips curve (not shift the curve) and change the unemployment rate from its natural rate. A credible monetary policy change will cause inflation expectations to adjust, which will shift the position of the short-run Phillips curve along the long-run Phillips curve and keep the unemployment rate at its natural rate. One of the primary arguments in favor of fixed-rule monetary policy is that it does not have the credibility problems that commonly occur with discretionary policies.