Chapter 12

Question 1

What will the fed do when the economy is below potential output?

Answer 1

Pursue expansionary monetary policy, shifting AD curve to the right

Question 2

What will the Fed do if the economy is above potential output?

Answer 2

The Fed may pursue contractionary policy, shifting the AD curve to the left

Question 3

What is recognition lag?

Answer 3

The delay between the time a macroeconomic problem arises and the time policy makers become aware

Question 4

What is implementation lag?

Answer 4

delay between the time a problem is recognized and the time a policy is enacted

Question 5

What is impact lag?

Answer 5

delay between when a policy is enacted and a policy has its impact

Question 6

What is a liquidity trap?

Answer 6

situation when a change in monetary policy has no effect on interest rates

Question 7

What is the short-run Phillips Curve?

Answer 7

Curve that suggests a negative relationship between inflation and unemployment