Exploring the Limitations of Monetary Policy

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According to the study, which type of monetary policy response leads to higher interest rates immediately?

Monetary accommodation
No monetary accommodation (correct)
Labor tax reductions
Targeted social transfers

What is the effect of government spending increases on GDP compared to similar size social transfers?

Equal
Twice as big
Six times bigger (correct)
Slightly bigger

Which type of social transfers have double the effect compared to non-targeted transfers?

Targeted social transfers (correct)
Labor tax reductions
Monetary accommodation
No monetary accommodation

What is the cumulative multiplier for government expenditure with monetary accommodation compared to no monetary accommodation?

3.9 (D) Signup and view all the answers

What is the effect of labor tax reductions compared to non-targeted transfers?

Slightly bigger (D) Signup and view all the answers

What is the effect of fiscal multipliers when there is no monetary accommodation?

Smaller (B) Signup and view all the answers

What is the effect of rises in aggregate demand and inflation on real interest rates with monetary accommodation?

Falls (B) Signup and view all the answers

What is the effect of additional private sector spending on investment goods with monetary accommodation?

Increases (B) Signup and view all the answers

What is the effect of labor tax cuts compared to other factors with monetary accommodation?

Less positive (B) Signup and view all the answers

What is the effect of targeted social transfer payments without monetary accommodation?

0.5 (C) Signup and view all the answers

Which of the following is true about tight fiscal policy and easy monetary policy?

The private sector will expand and the public sector will shrink (B) Signup and view all the answers

What is the result of both easy fiscal policy and easy monetary policy?

A rise in aggregate demand and lower interest rates (C) Signup and view all the answers

What is the impact of tight monetary policy and tight fiscal policy?

Interest rates rise and private demand decreases (D) Signup and view all the answers

What is the main concern of governments when determining the mix of fiscal and monetary policy?

Stabilizing aggregate demand and promoting potential output growth (C) Signup and view all the answers

When is an expansion in government spending seen as a high priority?

When there is a lack of a good quality, trained workforce (D) Signup and view all the answers

What are the two further issues with implementing fiscal policy in the short run?

Difficulty in implementation and political ease (A) Signup and view all the answers

What is the source of fiscal tightening in many cases?

Automatic stabilizers (C) Signup and view all the answers

What is the advantage of central banks' independence in raising interest rates?

It allows for quick implementation of monetary policy (A) Signup and view all the answers

What is the interaction between monetary and fiscal policies in practice?

An empirical question (D) Signup and view all the answers

What did the IMF researchers examine in their research paper?

The impact of fiscal loosening on tax rates (B) Signup and view all the answers

Which of the following is a limitation of monetary policy?

Monetary authorities cannot control the amount of money households and corporations put in banks on deposit. (A) Signup and view all the answers

What is the relationship between monetary and fiscal policy?

The impact of fiscal policy may vary under different monetary policy conditions. (A) Signup and view all the answers

In the case of easy fiscal policy/tight monetary policy, what is the expected impact on aggregate demand?

Aggregate demand will increase. (C) Signup and view all the answers

What happens to interest rates in the case of easy fiscal policy/tight monetary policy?

Interest rates will increase. (B) Signup and view all the answers

Can monetary authorities easily control the money supply?

No, they cannot always control the money supply. (B) Signup and view all the answers

Are monetary and fiscal policies interchangeable?

No, they have differing impact on aggregate demand. (A) Signup and view all the answers

What channels do fiscal and monetary policies use to alter aggregate demand?

Fiscal policy uses taxes, while monetary policy uses interest rates. (B) Signup and view all the answers

What is the impact of monetary policy on aggregate demand?

Monetary policy has a positive impact on aggregate demand. (C) Signup and view all the answers

What is the impact of fiscal policy on aggregate output?

Fiscal policy has a positive impact on aggregate output. (C) Signup and view all the answers

What is the ultimate problem for monetary authorities in manipulating the supply of money?