1) The Fed is said to conduct countercyclical monetary policy when it adjusts its interest rate target to ______. This policy implies that it would respond to a decrease in business and consumer confidence by _____ its interest rate target.

a) offset both positive and negative expenditure shocks and keep output close to potential; decreasing

b) reinforce positive expenditure shocks and offset negative expenditure shocks; decreasing

c) offset both positive and negative expenditure shocks and keep output close to potential; increasing

d) reinforce positive expenditure shocks and offset negative expenditure shocks; decreasing

2) Suppose the nominal interest rate is 2% and the expected rate of inflation is 3%. Then the real interest rate is approximately ____%. Because this measure uses expected rather than actual inflation, it is sometimes referred to as the ____ real interest rate,

a) 1; ex post

b) 5; ex ante

c) 1; ex ante

d) 5; ex post