Explain how discretionary monetary policy may have brought about the end of the Great Moderation and ushered in the Great Recession
What will be an ideal response?
The Great Moderation ended when the collapse of the housing bubble led to the financial crisis and the Great Recession. The federal funds rate was far below the rate suggested by the Taylor rule at the exact time that the housing market bubble was developing in the United States, and many countries experienced housing bubbles at the same time, and the extent of those bubbles is related to how far central banks in those countries deviated from well-established rules like the Taylor rule. Evidence suggests that discretionary monetary policy during 2001-2006 led to a housing bubble and helped contribute to the financial crisis and the end of the Great Moderation.
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Refer to the above figure. The figure gives the payoff matrix for two individuals who are being accused of robbing a bank together. If Bob does not confess, what is the best strategy for Harry?
A) Confess. B) Don't confess. C) Flip a coin to decide what to do. D) There is no best strategy.
Which of the following is accurately predicted by GDP?
a. production b. education c. health d. environmental protection
Net exports is a positive number in the national income accounts when
A. imports exceed exports.
B. exports exceed imports.
C. national income exceeds personal income.
D. capital consumption exceeds net investment.
Which of the following factors may cause velocity to fluctuate?
I. changes in interest rates II. changes in expectations about inflation III. changes in expectations about bond prices IV. an increase in the number of financial products that affects the demand for money A) I, II, III, and IV B) I, II, and III C) I, III, and IV D) I and II