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Worksheetsmonet eeeecon
Total questions: 88
Worksheet time: 8hrs 7mins
The real business cycle (RBC) approach to macroeconomic modelling overcame the
limitations of previous modelling strategies by
Emphasizing monetary shocks as the main source of business cycles
providing microeconomic foundations for macroeconomic analysis
Removing the role of expectations from economic models
Introducing sticky wages and prices as a core mechanism
According to Mankiw
sovereign government can go bankrupt if it's preferable to hyperinflation
Sovereign governments can print unlimited money without any economic consequences
sovereign governments must always balance their budgets annually
Sovereign governments can never default if they issue debt in their own currency
Which of the following is not a major characteristics of the new Keynesian approach to
theoretical monetary analysis
nominal price stickiness
Imperfect competition
Real wage rigidities
The Walraisan and features of the economy
Monetary policy is effective in the short run but not in the long run according to
Monetaristic Phillips curve
Keynesian Phillips Curve
Phillips Curve with rational expectations
Original Phillips Curve
The “real analysis’ used in classical economics means
That only true money is gold
Construction of a truly monetary model of the economy
construction of a barter model in which one of the goods is called ‘money’
Analyzing only nominal variables
The dynamic stochastic general equilibrium approach to monetary modelling may be
characterised by one of the following features
DSGE models typically include money or nominal features
Expectations are absolutely central to DSGE models.
The so-called perturbation method is used to introduce shocks into such
models
Dynamic inefficiency is not a central concern in DSGE (more in overlapping generations models)
According to the closed-economy three-equation model the stabilisation of shocks
involves a change in the central bank interest rate and the resulting shift in the real interest
rate which of the following features does not have an impact on the optimal central bank
reaction to the shock
The duration of a demand shock (long-term vs. short-term deviation from the target)
The persistence of a demand shock (temporary vs. permanent)
The positive or negative nature of an inflation shock (inflation vs. deflation)
The source of an inflation shock (an increase in investment versus an increase
in consumption)
Which approach to money demand modelling highlights the role of transactional services
provided by money for optimising households
Money-in-the-utility function
Overlapping generations models – focus on money as a store of value
Search-and-matching models – highlight frictions in finding trading partners
Cash-in-advance constraint – models money as a constraint, not a source of utility
According to the direct mechanism in classical economics
Higher M leads to higher interest rates
Higher M leads to lower money balances
Higher M leads to higher money balances
The nominal and uncovered interest parity (up) constitutes an open-economy condition
that implies the following
When the home interest rate is temporarily higher than the worlds rate, the
home currency will immediately appreciate and then steadily depreciate vis-
à-vis the foreign currency
When the home interest rate is temporarily higher than the world's rate, the home currency will immediately depreciate and then appreciate
When the home interest rate is temporarily lower than the world's rate, the home currency will immediately depreciate and then depreciate further
When the home interest rate is temporarily lower than the world's rate, the home currency will immediately appreciate and then steadily depreciate
The so-called rate of return dominance problem with money is related to
Zero lower bound on nominal interest rates
high opportunity cost of holding monetary balances versus other assets
The inflation tax caused by rising prices
the neutrality of money in the long run
Standard quadratic loss function of a central banks implies that
the inflation averse central bank prefers smaller deviations of inflation from
the target rather than smaller output caps
the unemployment-averse central bank ignores inflation deviations entirely
The inflation-averse central bank prefers a higher inflation target
The inflation-averse central bank places a smaller weight on inflation in the loss function
The statement that’ what happens to prices depends on the way in which money gets into
the economies is known as’
Cantillon effect
Pigou effect
Marshall effect
Keynes effect
Statement, that "general over production is possible only in the short run"
Keynes fully accepted Say’s Law in its weak version
Say’s Law proves that unemployment is only voluntary
all the answers are correct,Is known as Say’s Equality, Is a statement believed
by most of classical and neoclassical economists, Is known as the weak
version of Say’s Law
Which sentence is not correct (chatgpt troche sie zdezorientowaal i uwaza, ze ospowiedz z bazy jest zla - patrz wyjasnienie):
Keynes criticized the weak version of say’s law
Say’s Law assumes that all output will eventually be sold
The weak version of Say’s Law allows for short-run overproduction
The interest rate parity (UIP) is an open-economy condition that points to the following
regularity
The real interest rate in every country must always be equal
Foreign exchange markets ignore interest rate differentials
The gain of holding foreign assets is equal to expected depreciation of foreign
currency
UIP guarantees equal capital flows between countries
In the ‘triad of targets’ central banks did not use
Direct targets
Final targets
Intermediate targets
Operational targets
The monetary rule of a central bank is the workhorse three-equation monetary model
Depends only on the Phillips curve parameters
Is derived as a constrained optimization of the central bank loss function
given Phillips curves of the economy.
Coincides with the Phillips curve closest to the central bank bliss point
Depends only on the quadratic loss function parameters
The notion of international risk sharing in the open-economy monetary analysis relates to
The idea that the small open economy interest rate cannot impact the world's interest rate
The growth in financial globalization and its impact on central banking
The real exchange rate stays constant when trade is balanced
The idea that agents hedge themselves against cyclical economic
fluctuations by acquiring foreign assets
The variable most often used by central banks as a final target was
(chat nie zgadza sie z odpowiedzia z bazy - patrz wyjasnienie odpowiedzi (zaznaczona jest ta z bazy))
exchange rate
Inflation rate
Money supply growth
Unemployment rate
According to MMT sovereign government
Is not limited by any constraints
Can print as much money as it wants without consequence
Can influence the exchange rate but not inflation
Is limited by two constraints; real resources and inflation
Belief, that large quantity of money (1) is good for the country, but also (2) causes inflation
is called
Keynesian dilemma
Mercantilist dilemma
Neoclassical paradox
Classical neutrality
The AD-ERU framework shows the medium-run equilibrium in the open economy model.
What will be the effects of a negative demand shock for the medium-run real exchange
rate?
Real currency depreciation and no change in equilibrium employment
(output).
Real currency depreciation and a decline in equilibrium employment (output)
Real currency depreciation and an increase in equilibrium employment (output)
Real currency appreciation and no change in equilibrium employment (output)
Find the statement that is false according to MMT
Government sells bonds to control inflation
Bond selling and open market operations are similar monetary tools
Government does not have to raise taxes to finance its spending
Government sells bonds to finance the budget
The problem of a non-zero money demand may be understood as an attempt, made by
optimizing households, to choose an optimal portfolio of risky assets an money. Which
approach to the theory of money demand highlights this problem?
Cash-in-advance constraint
Cash-in-advance constraint
Money-in-the-utility function
Search-and-matching models
Using the closed-economy three-equation model, let us compare the effects of a
temporary and a permanent demand shock. What is the main difference for the monetary
policy reaction under those two shock?
The central bank does not respond to temporary shocks
Permanent shocks have no effect on monetary policy
Following the temporary shock, the monetary rule changes for a duration of
the shock
Temporary shocks shift the Phillips curve, but permanent ones do not
Monetary policy is ineffective in:
Phillips Curve with rational expectations
Keynesian Phillips Curve
Monetaristic Phillips Curve
Original Phillips Curve
According to mainstream economics:
Money was created by the markets to facilitate trade (barter)
Money without taxes would be impossible
Government has to spend to create money
Money was created by the government
The so-called Fisher equation shows the following relationship:
The real interest rate is always higher than the nominal rate during inflation
Nominal interest rate equals real interest rate minus actual inflation
The Fisher equation shows that inflation causes unemployment
The current nominal interest rate is a sum of a current real rate and the
expected rate of inflation
The ‘nominal anchor’ is:
A nominal anchor is an economic policy tool used to provide stability to the
economy by tying down the expectations of price levels. Limits the freedom
of central bank. Was not needed under gold standard. Can have the form of a
final target
A nominal anchor gives central banks unlimited freedom to react to shocks
A nominal anchor is only used in fixed exchange rate regimes
Nominal anchors are only needed during hyperinflation
A typical approach to modern empirical monetary economics, based on multivariate
statistical models and one that allows the researcher to identify monetary shocks through
various assumptions is:
The Taylor rule model — used for normative policy guidance, not empirical shock identification
IS-LM framework — a theoretical tool, not an empirical statistical method
Structural vector autoregressions. A typical approach to modern empirical
monetary economics that uses multivariate statistical models and allows
researchers to identify monetary shocks through various assumptions is the
Vector Autoregression (VAR) model.
The Quantity Theory of Money — a classical theory, not based on multivariate statistical modeling
MMT goals are:
Achieving a balanced budget every fiscal year
full employment and economic stability.
Maintaining a fixed exchange rate
Maximizing government bond purchases by the central bank
Overproduction of apples is possible. But overproduction of all the goods in the economy
cannot happen’. This statement is known as:
Say’s Law
Keynes’ Principle of Effective Demand
The Paradox of Thrift
According to Marx, the Say’s Law:
Does not include the role of capitalists wanting to multiply the capital
Is fully consistent with Marx’s theory of surplus value
Was rejected by Marx because it denied the labor theory of exploitation
Was used by Marx to support his labor theory of value
According to Schumpeter, the main problem with Say’s Law is that:
It doesn’t include the role of the entrepreneur
It assumes wages are always equal to marginal productivity
It fails to explain international trade imbalances
It ignores the role of government spending in aggregate demand
Person, who introduced the notion of causal relationship between M and P (in Quantity
Theory of Money) was:
Keynes
FISHER (Humme??)
Adam Smith
Karl Marx
If we increase M by 50%, prices will rise by 50%’. This statement is an example of:
Static money neutrality
Dynamic money neutrality
The liquidity trap
Rational expectations
According to the ‘direct mechanism’ in classical economics: MV=PT
Higher M leads to higher interest rates
Higher M leads to lower money balances
Higher M leads to higher money balances
Higher M has no effect on nominal variables
According to the ‘indirect mechanism’ in classical economics:
Prices instantly adjust to restore equilibrium
Equilibrium is restored thanks to changes of interest rates
Interest rates remain constant despite monetary changes
Output is assumed to remain fixed at all times
What were the reasons for abandoning M as final targets?
Inability to control M. Unstable relation between M and inflation.
Development of inflation targeting
Governments needed to fix exchange rates instead
Central banks lost legal authority to issue money
Money supply was irrelevant to macroeconomic performance
The view of money as a storage technology is closest to the money demand modelling
strategy used in:
Cash-in-advance models
Money-in-the-utility function
Search-and-matching models
The overlapping generations model
The open-economy exchange rate overshooting phenomenon may be described in one of
the following ways. Choose which one. (chat sie nie zgadza z odpowiedzia z bazy - patrz wyjasnienie odpowiedzi)
The exchange rate stays constant despite monetary policy shocks
The initial appreciation of the real exchange rate is smaller than the
equilibrium appreciation.
Exchange rate overshooting occurs because prices adjust faster than exchange rates
The initial depreciation of the exchange rate is larger than its long-run depreciation
Compared to the close-economy setting, the effects of inflation shocks in an open-
economy in a three-equation model differ in one of the following ways. Choose which one.
Inflation shocks have no impact on output in either economy
The open economy experiences a larger inflation deviation due to exchange rate rigidity
The deviation of the inflation rate from the target is larger in the closed
economy
In a closed economy, inflation shocks are neutralized by capital flows
According to the closed-economy three-equation model, the downward spiral of the
deflation trap is directly related to which phenomena:
The zero-lower bound on interest rates
Rising inflation expectations
A central bank policy that targets nominal GDP directly
An increase in government borrowing costs
All modern empirical monetary models face the so-called identification problem. What is
the best way to describe this problem?
The best way to describe the identification problem faced by all modern
empirical monetary models is: "To discover the causal link between monetary
and real variables, we must isolate an exogenous variation in the former."
Identification problem means central banks cannot measure inflation precisely
It refers to the challenge of identifying which model is best for forecasting GDP
It is the difficulty of identifying the right interest rate to set in real time
A typical example of a Taylor rule used in a dynamic stochastic general equilibrium (DSGE)
does NOT relate the target interest rate of a central bank to:
Inflation rate
Financial asset prices
Output gap
Equilibrium real interest rate
Monetary shocks (disturbances) that are improperly identified in empirical models:
Are usually excluded from modern models
Always produce robust estimates
Are only relevant in closed economy models
Contain possibly spurious correlations
the statement that the open-economy three-equation model predicts the home currency
will depreciate as long as conditions are met is generally true, as long as those conditions
involve factors such as
interest rate differentials and exchange rate expectations that influence the
foreign exchange market.
permanent rise in domestic productivity
A balanced government budget
A decline in international trade volume globally
In the closed-economy three-equation model, the inflation shock may be triggered by:
A supply shock
A decline in the nominal interest rate
A fall in inflation expectations
A balanced budget
According to the closed-economy three-equation model, which of the following shocks
changes (shifts) the monetary rule (monetary policy reaction function)?
A inflation shock
A one-time change in potential output
A change in tax rates
A fall in money demand
Which of the following approaches to empirical monetary analysis takes into account – to
a larger extent – the distinction between public information and monetary news revealed
by policymakers?
VAR (Vector Autoregression) models
DSGE models
The quantity theory approach
The narrative approach
The RX curve in the open-economy monetary model represents the interest rate -
exchange rate relationship uthe interender the flexible exchange rate regime. Which of the
following statements is true?
The RX curve is vertical since the exchange rate is fixed
The RX relationship determines the medium-run equilibrium real exchange
rates
The RX curve shifts left when domestic inflation rises
The RX curve becomes irrelevant under inflation targeting
The AD-ERU framework shows the medium-run equilibrium in the open economy model.
What will be the effects of a negative supply shock that diminishes the labour productivity in
the economy for the medium-run real exchange rate?
Real currency depreciation and no change in equilibrium employment (output)
Real currency depreciation and an increase in equilibrium employment (output)
Real currency appreciation and no change in equilibrium employment (output)
Real currency appreciation and a deciine in real wages in the equilibrium
The AD-ERU framework shows the medium-run equilibrium in the open economy model.
What will be the effects of a negative demand shock for the medium-run real exchange rate?
Real currency depreciation and an increase in equilibrium employment (output)
Real currency depreciation and a decline in equilibrium employment (output)
Real currency depreciation and no change in equilibrium employment (output)
Real currency appreciation and no change in equilibrium employment (output)
In the closed-economy three-equation model, the inflation shock my be triggered by:
An exogenous change in the Phillips curve’
The multiplier effect of the IS equation
An adjustment in the monetary policy rule
A change in the stabilizing real interest rate
When inflation rises above the 2.5% target, cent According to MMT sovereign
government:
Can influence the exchange rate
Is limited by two constraints: real resources and inflation
Is not limited by any constraints
Can print as much money as it wants
central bank under Price Level Targeting has to:
Increase the inflation target
Change the price level path
Lower the inflation below the 2,5%, so that prices return to the previous path
Return the inflation to the 2,5% target
What is the optimal policy target according to MMT?
Full employment
Price level
Exchange rate
Inflation rate
The monetary rule of a central bank is the workhorse three-equation monetary model:
Depends only on the Phillips curve parameters
Coincides with the Phillips curve closes to the central bank bliss point
ls derived as a constrained optimization of the central bank loss function given
Phillips curves of the economy
Depends only on the quadratic loss function parameters
According to the closed-economy three-equation model, the stabilization of shocks
involves a change in the central bank interest rate and the resulting shift in the real interest
rate. Which of the following features does NOT have an impact on the optimal central bank
reaction to the shock:
The source of an inflation shock (an increase in investment vs. an increase in
consumption)
The duration of a demand shock (long-term vs. short-term deviation from the target)
The persistence of a demand shock (temporary vs. permanent)
The positive or negative nature of an inflation shock (inflation vs. deflation)
Monetary policy is ineffective in:
Keynesian Phillips Curve
Monetaristic Phillips Curve
Original Phillips Curve
Phillips Curve with rational expectations
Monetary policy is effective in the short run but not in the long run according to:
Original Phillips Curve
Phillips Curve with rational expectations
Monetaristic Phillips Curve V
Keynesian Phillips Curve
According to mainstream economics:
Money was created by the markets to facilitate trade (barter)
Money without taxes would be impossible
Government has to spend to create money
Money was created by the government
Which approach to money demand modelling highlights the role of transactional services
provided by money for optimizing households?
Money-in-the-utility function
Overlapping generations models
Search-and-matching models
Cash in advance constraint
The problem of a non-zero money demand may be understood as an attempt, made by
optimizing households, to choose an optimal portfolio of risky assets an money. Which
approach to the theory of money demand highlights this problem?
Money-in-the-utility function
Cash-in-advance constraint
Search-and-matching models
Overlapping generations models
Belief, that large quantity of money (1) is good for the country, but also (2) cause inflation
is called:
Calssical dilemma
Mercantilist dilemma
Neoclassical dilemma
Keynesian dilemma
A standard quadratic loss function of a central bank implies that:
The inflation averse central bank has higher inflation target
The inflation averse central bank places a higher weight on the output gap than the
inflatio gap
The unemployment averse central bank places a smaller weight on the output gap
than the inflation gap
The inflation averse central bank prefers smaller deviations of inflation from
the target then smaller output gap
The interest rate parity (UIP) is an open-economy condition that points to the following
regularity:
The real interest rates in small economy can sometimes be higher than the world's
interest rate
The loss of holding home assets is equal to expected appreciation of home's currency
The gain of holding foreign assets is equal to expected depreciation of foreign currency
The real interest rates in small economy is always equal to the world's interest rate
The dynamic stochastic general equilibrium (DSGE) approach to monetary modelling
may be characterized by one the following features:
The so-called perturbation method is used to introduce shocks into such models
Such models describe a barter (cashless) economy
The role of agents' expectations is not important for the solution of such models
One of their central problems in this class of models is the so-called dynamic inefficiency
In the 'triad of targets' central banks did not use:
Final targets
Direct targets
Intermediate targets
Operational targets
The real business cycle (RBC) approach to macroeconomic modelling overcame the
limitations of previous modelling strategies by:
Explaining the role of money as a medium of exchange
Precisely identifying monetary shocks in the model
Incorporating nominal rigidities into the baseline macroeconomic model
Providing microeconomic foundations for macroeconomic analysis
Statement, that 'general overproduction is possible only in the short run
All the answers are correct
Is a statement believed by most of classical and neoclassical economists
Is known as the weak version of Say's Law
Is known as Say's Equality
Which of the following is NOT a major characteristics of the New Keynesian (NI()
approach to theoretical monetary analysis:
Real wage rigidities
The Walrasian features of the economy (RBC)
Imperfect competition
Nominal price stickiness
According to Mankiw:
There is no Laffer-curve related to printing money
Sovereign government can go bankrupt, if it's preferrable to hyperinflation
Each part of MMT is wrong
Sovereign government can never go bankrupt
Under inflation targeting, in the role of intermediate target central banks can use:
Monetary aggregate (such as
There is no intermediate target in inflation targeting
Exchange rate
Interest rate
The notion of international risk sharing in the open-economy monetary analysis relates
to:
The growth in financial globalization and its impact on central banking
The idea that the small open economy interest rate cannot impact the world's interest rate
The idea that agents hedge themselves against cyclical economic fluctuations by
acquiring foreign assets
An increase in cross-border integration of asset markets
The 'real analysis' used in classical economics means:
That only true money is gold
Construction of a truly monetary model of the economy
Construction of a barter model in which one of the goods is called 'money
Analyzing only nominal variables
The statement, that 'what happens to prices depends on the way in which money gets
into the economy' is known as:
Marshall effect
Pigou effect
Cantillon effect
Keynes effect
The variable most often used by central banks as a final target was:
Price lev
Interest rate
Exchange rate
Money aggregate
Find the statement that is false according to MMT:
Government sells bonds to finance the budget
Government sells bonds to control inflation
Bond selling (by government) and open market operations (by central bank) are the same
operations
Government does not have to raise taxes to finance its spending
‘Say’s Law describes capitalism without capitalists’ is a criticism offered by:
Marx
Fischer
Schumpeter
Keynes
A typical example of a Taylor rule used in a dynamic stochastic general equilibrium
(DSGE) does NOT relate the target interest rate of a central bank to:
The deviation between the inflation rate and inflation target
Financial asset prices
The nominal interest rate in the previous period
The output gap
The ‘nominal anchor’:
Can have the form of a final target
Was not needed under gold standard
Limits the freedom of central bank
All the answers are correct
The so-called bliss point of a central bank loss function is achieved when:
There are no negative supply shocks hitting the economy
There are no deviations both from the equilibrium output and the target inflation
There are no negative demand shocks hitting the economy
The deviations between inflation and the target inflation, as well as between the current
output and the equilibrium output are equal
According to the ‘direct mechanism’ in classical economics:
Higher M leads to higher interest rate
Higher M leads to lower money balances
Higher M leads to higher money balances
Higher M leads to lower interest rate
The nominal uncovered interest parity (UIP) constitutes an open-economy condition that
implies the following:
When the home interest rate is temporarily lower than the world’s rate, the home currency
will immediately appreciate and then steadily depreciate vis-à-vis the foreign currency
When the home interest rate is temporarily higher than the world’s rate, the home
currency will immediately depreciate and then appreciate vis-à-vis the foreign currency
When the home interest rate is temporarily lower than the world’s rate, the home currency
will immediately depreciate and then depreciate even further vis-à-vis the foreign currency
When the home interest rate is temporarily higher than the world’s rate, the home
currency will immediately appreciate and then steadily depreciate vis-à-vis the foreign
currency
According to MMT, taxation:
Comes after government spending
All answers are correct
Is used to fight inflation
Is necessary for the existence of money
The interest rate parity (UIP) is an open-economy condition that points to the following
regularity:
The real interest rates in small economy can sometimes be higher than the world’s
interest rate
The loss of holding home assets is equal to expected appreciation of home’s currency
The gain of holding foreign assets is equal to expected depreciation of foreign
currency
The real interest rates in small economy is always equal to the world’s interest rate
