Related to the Economics in Practice on p. 647: Surveys by the bank of England suggest that consumers tend to expect future inflation to be
A. relatively unpredictable.
B. what they perceive past inflation to have been.
C. directly related to the interest rate.
D. equal to the actual estimates of past inflation made by the government.
Answer: B
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In 1995 House Speaker Newt Gingrich threatened to send the United States into default on its debt. During the day of this announcement, U.S. interest rates rose and the real exchange rate of the U.S. dollar depreciated. Which of these changes is consistent with the results of the open-economy macroeconomic model?
a. the increase in U.S. interest rates b. the depreciation of the real exchange rate of the U.S. dollar c. Both a and b are consistent. d. Neither a nor b are consistent.
Suppose the actual equilibrium federal funds rate is below the rate implied by a particular inflation goal. In this situation, the Taylor rule implies that
A. fiscal policy is contractionary. B. monetary policy is contractionary. C. fiscal policy is expansionary. D. monetary policy is expansionary.