1. Estimates of the sacrifice ratio that define a disinflation episode induced by tighter monetary policy as some finite period after which real output growth returns to its prior trend will always overstate the true cost of the policy because they ignore the persistence and hysteresis effects.

Answer: False

Explanation: Please see The Great Moderation myth for more information or post a comment.

2. The IMF is forecasting that the US economy will grow by 2.7 per cent in real terms in 2010 and moderate to 2.4 per cent in 2011. At the end of 2009, the official unemployment rate in the US was 10 per cent. If real output per person employed grows constantly by 1.5 per cent in each of these years; the labour force grows by 1.2 per cent in 2010 and 1.3 per cent in 2011; and firms make no changes to average weekly hours overall, then you would expect the unemployment rate at the end of 2011 to be:

Answer: 10.4 per cent

Explanation: Please see What do the IMF growth projections mean? for more information or post a comment.

3. The Quantity Theory of Money cannot possibly be used to predict the movement in the general price level in an economy that has 10 per cent unemployment because firms do not face any wage pressures.

Answer: False

Explanation: Please see Questions and answers 1 for more information or post a comment.

4. Quantitative easing of the type the Bank of England is currently engaged in cannot be compared to a net fiscal injection because it creates no new net financial assets in the currency of issue.

Answer: True

Explanation: Please see Questions and answers 1 for more information or post a comment.

5. While the central bank unambiguously sets the short-term interest rate, it can also control all yields along the maturity curve by announcing explicit ceilings for yields on longer-maturity government debt and then offering an infinite capacity to purchase such bonds at prices consistent with the ceilings. This statement is clearly false because ratings agencies can influence spreads on government debt.

Answer: False

Explanation: Please see Things that bothered me today for more information or post a comment.