Question

1. As the economy recovers, the Fed will wind down its bond purchases, causing interest rates to fall.

A) True

B) False

2. In a jobless recovery neither output nor employment growth occurs.

A) True

B) False

3. Social Security payments rise according to the rate of inflation.

A) True

B) False

4. Unemployment often keeps increasing after the economy begins to recover.

A) True

B) False

5. The willingness of people around the world to use and hold dollars allows the U.S. government to increase the money supply without the immediate risk of inflation.

A) True

B) False

6. The cost of financing U.S. government debt would be lower if foreigners decided to hold fewer U.S. dollars.

A) True

B) False

7. Medicare payments rise with the rate of inflation.

A) True

B) False

Answer 1

1. If fed decreases bond purchase, this means that it is stopping its inflow of money to economy. This money supply to stop increasing. During recovery maintaing steady money supply is important to keep interest rates low. Fed's action could increase interest rate. So statement is false.

2. False. In a jobless recovery unemployment does not decrease but the output can increase due to various reasons like positive supply shocks due to government intervention, technological innovation which boosts output.

3. True. The cost of living adjustment (COLA) maintains the pace of social security benefits with the inflation rate.

4. True. After economy starts recovering - two things happen. First, people who did not look for jobs previously during recession, start looking for jobs, seing recovery and prospects. Secondly when economy recovers from recession it goes through certain structural changes - which often cause certain level of structural unemployment.