One potential limitation of monetary policy is that long-term rates may not move with short-term rates because:
Explanation
Long-term rates are influenced by expected inflation and future growth, not just current policy rates.
Other questions
Which of the following is NOT one of the three primary functions of money?
If the required reserve ratio in a fractional reserve banking system is 25 percent, what is the maximum potential money multiplier?
According to the quantity theory of money, if velocity and real output remain constant, a 5 percent increase in the money supply will lead to:
Which motive for holding money is positively related to the perceived risk in other financial instruments?
The Fisher effect describes the relationship between:
Which of the following is considered a cost of expected inflation?
The central bank's role as 'lender of last resort' is primarily intended to:
If a bank receives a deposit of $1,000 and the reserve requirement is 20 percent, what is the maximum amount the bank can lend from this specific deposit?
In the context of monetary policy tools, open market operations refer to:
Which of the following actions by a central bank is considered expansionary?
The concept of 'money neutrality' implies that in the long run, an increase in the money supply will affect:
An increase in the policy rate is likely to lead to which of the following outcomes via the transmission mechanism?
Which quality of an effective central bank refers to its ability to determine the policy rate independently?
The 'neutral interest rate' of an economy is best defined as:
If an economy has a real trend growth rate of 2.5 percent and an inflation target of 2.0 percent, what is the neutral interest rate?
Targeting a fixed exchange rate is most likely to result in:
A 'liquidity trap' is a situation where:
Quantitative easing (QE) is best described as:
What are 'bond market vigilantes'?
Which type of fiscal policy is triggered by the state of the economy without explicit government action?
Which of the following is considered a current spending tool in fiscal policy?
Indirect taxes are levied on:
The fiscal multiplier is calculated as:
Calculate the fiscal multiplier if the Marginal Propensity to Consume (MPC) is 0.80 and the tax rate is 25 percent.
Ricardian Equivalence suggests that:
The 'crowding-out effect' refers to:
Which type of lag in fiscal policy is described as the time it takes for the economy to respond to policy changes?
If a government increases spending by $100 and increases taxes by $100 simultaneously, the balanced budget multiplier implies aggregate demand will:
A structural budget deficit is defined as:
In the interaction of monetary and fiscal policy, if both are contractionary, the likely result is:
If fiscal policy is expansionary and monetary policy is contractionary, what is the expected impact on government spending as a proportion of GDP?
Which of the following is an argument AGAINST being concerned about the size of a fiscal deficit?
According to the Keynesian school, fiscal policy should be used to:
Monetary policy is said to be contractionary when the policy rate is:
Which definition of money includes savings accounts and time deposits under $100,000?
If a central bank buys securities, what is the immediate effect on bank reserves?
Which of the following describes 'Menu Costs'?
If the real interest rate is 3 percent and expected inflation is 2 percent, what is the nominal interest rate according to the Fisher effect?
Which central bank tool typically has the most direct impact on the federal funds rate in the United States?
Which of the following is a role of the central bank?
A specific desirable attribute of tax policy is 'efficiency,' which means:
Which spending tool is expected to boost the future productivity of the economy?
If a country has a debt ratio that rises over time, it implies that:
What is 'money neutrality'?
In the United States, the 'federal funds rate' is:
Which lags are generally harder to forecast and can vary over time, potentially making fiscal policy counterproductive?
The phenomenon where widespread price increases for producers' goods are passed to consumers is observed in:
Developing economies face unique challenges in implementing monetary policy due to:
If the government increases spending by $100 million, and the fiscal multiplier is 2.5, the potential increase in aggregate demand is: