Monetary Economics (ECS3701) Selected Examination Questions and suggested solutions (Level A+)2023

1960s-1980s The Great ___________? - -Inflation -1980s-2007 The Great ___________? - -Moderation - The Great _____________? - -Recession -Dual Mandate Two Elements - -Price Stability and Maximum Employment -What is Monetary Policy? - -actions undertaken by a central bank to influence the availability and cost of money and credit. -Price Stability - -If inflation is too high decrease money supply (tighten) -Economic Growth - -If demand weakens and the economy is in a recession increase the money supply to promote growth -The Great Inflation Years Rate - -As high as 14 -Gerald Ford - -Took office in 974 and decided to make inflation "Public Enemy #1". Started the WIN campaign -Wage-price spiral - -Expectation of higher future inflation leads to higher inflation today -Factors contributing to the Great Inflation - -- was logged deep in the American Psyche - World Price Oil Shock/ OPEC raised the price of oil - The Vietnam War (fiscal deficit so more money was printed) -Arthur Burns - -Did not have a good reputation as Chairman. Lowered the FFR in order to reduce unemployment (to help Nixon's election). Faced with rising prices, instead of lowering money supply, the Fed cut interest rates in 1971.