Name: Date:

Schedule: Score:

Part l. TRUE OR FALSE

Instruction: Write T if the statement is True and F if the statement is False. Write your answer
on the space provided.

1. Price level targeting is a monetary policy where the central bank uses its tool to achieve a
stated rate of inflation overtime.
2. Inflation targeting is a monetary policy where the central bank uses its tool to achieve stated
price index overtime.
3. Fractional or short term is an unemployment that lasts only a few weeks or a few months.
4. Structural unemployment is an unemployment that occurs as some industries or sectors of
the economy are contracting while other is expanding.
5. Cyclical unemployment is an unemployment that occurs as a result of a downturn in the
business cycle.
6. Taylor’s rule was invented and published from 1990 to 1992.
7. Taylor's rule is essentially a forecasting model used to determine what inflation rates will be.
8. Taylors rule is based on three factors.
9. Price stability is a necessary and almost sufficient condition for economic stability.
10. There is such thing as an Asset Bubble.

Part ll. IDENTIFICATION.

_____________ 1. A monetary policy where the central bank uses its tool to achieve a stated rate of
inflation over time.
_____________ 2. A monetary policy where the central bank uses its tool to achieve a stated price index
over time
_____________ 3. A proposed guideline for how central banks, such as the Federal Reserve, should alter
interest rates in response to changes in economic conditions
_____________ 4. Who published the Taylor's Rule?
_____________ 5. The situation in which a policymaker may prefer one policy in advance, but when it
comes time to implement the policy the policymaker prefers a completely different policy.

_____________ 6. When policymakers do not have what they need to undertake the optimal policy
because of a lack of readily available information.

_____________ 7. When a policy implemented in the present does not affect the overall economy until well
into the future. As a result, when the policy’s impact is achieved it may be the wrong policy for that time.

_____________ 8. A monetary policy where the central bank states an explicit desired inflation rate and
the central bank pledges to use monetary policy to achieve that inflation rate.

_____________ 9. A policy where the central bank does not state an explicit target or goal, but rather has
targets that are not well defined.

_____________ 10. A market where all available information is used to make correct predictions about the
future and market participants learn from their mistakes.