Question 1

Since the 1970s, the M1 demand for money has been

Accepted Answer

A)  relatively stable. 
B)  unpredictable. 
C)  constant. 
D)  unmeasurable. 
A)  relatively stable. 
B)  unpredictable. 
C)  constant. 
D)  unmeasurable. B

Question 2

The Federal Reserve econometric model estimates that a 1 percent increase in government spending, with the money supply held constant, will

Accepted Answer

A)  increase real GDP by 1 percent per year for two years. 
B)  increase real GDP by 2 percent per year for two years. 
C)  decrease real GDP by 1 percent per year for two years. 
D)  have no effect on real GDP. 
A)  increase real GDP by 1 percent per year for two years. 
B)  increase real GDP by 2 percent per year for two years. 
C)  decrease real GDP by 1 percent per year for two years. 
D)  have no effect on real GDP. A

Question 3

Approximately __________ of the impact of monetary policy on GDP after one year stems from the effective of changes in wealth on consumer spending.

Accepted Answer

A)  10 percent 
B)  25 percent 
C)  50 percent 
D)  75 percent 
A)  10 percent 
B)  25 percent 
C)  50 percent 
D)  75 percent B

Question 4

One of the reasons the velocity of M1 has risen over the long-run is

Accepted Answer

A)  increased economic uncertainty. 
B)  growth in the money supply. 
C)  new techniques of cash management by corporate treasurers. 
D)  an increase in the demand for money. 
A)  increased economic uncertainty. 
B)  growth in the money supply. 
C)  new techniques of cash management by corporate treasurers. 
D)  an increase in the demand for money.

Question 5

The wealth effect on consumer spending is

Accepted Answer

A)  about the same as the effect on plant and equipment expenditure. 
B)  about the same as the effect on residential construction. 
C)  less than the effect on plant and equipment expenditure. 
D)  larger than the effect on residential construction. 
A)  about the same as the effect on plant and equipment expenditure. 
B)  about the same as the effect on residential construction. 
C)  less than the effect on plant and equipment expenditure. 
D)  larger than the effect on residential construction.

Question 6

The Federal Reserve econometric model estimates that the liquidity effect an increase in the money supply will

Accepted Answer

A)  lower interest rates for 6 months to a year. 
B)  lower interest rates permanently. 
C)  have no effect on interest rates. 
D)  raise interest rates after 6 months to a year. 
A)  lower interest rates for 6 months to a year. 
B)  lower interest rates permanently. 
C)  have no effect on interest rates. 
D)  raise interest rates after 6 months to a year.

Question 7

A Monetarist-oriented econometric model is likely to emphasize that monetary policy affects economic activity

Accepted Answer

A)  directly through changes in government spending. 
B)  directly through changes in the money supply. 
C)  indirectly through changes in velocity. 
D)  indirectly through changes in money demand. 
A)  directly through changes in government spending. 
B)  directly through changes in the money supply. 
C)  indirectly through changes in velocity. 
D)  indirectly through changes in money demand.

Question 8

The velocity of M2 is equal to

Accepted Answer

A)  M3 minus M1. 
B)  GDP divided by M2. 
C)  GDP multiplied by M2. 
D)  the velocity of M1. 
A)  M3 minus M1. 
B)  GDP divided by M2. 
C)  GDP multiplied by M2. 
D)  the velocity of M1.

Question 9

The impact lag is the time between

Accepted Answer

A)  a change in the money supply and a change in interest rates. 
B)  a change in the money supply and a change in GDP. 
C)  the use of a Federal Reserve tool and its effect on GDP. 
D)  the use of a Federal Reserve tool and its effect on the money supply. 
A)  a change in the money supply and a change in interest rates. 
B)  a change in the money supply and a change in GDP. 
C)  the use of a Federal Reserve tool and its effect on GDP. 
D)  the use of a Federal Reserve tool and its effect on the money supply.

Question 10

All of the following explain the impact lag except the time between

Accepted Answer

A)  a change in the money supply and a change in interest rates. 
B)  a change in interest rates and a change in investment. 
C)  a change in investment and the change in GDP. 
D)  a change in the economy and the use of a tool of monetary policy. 
A)  a change in the money supply and a change in interest rates. 
B)  a change in interest rates and a change in investment. 
C)  a change in investment and the change in GDP. 
D)  a change in the economy and the use of a tool of monetary policy.

Question 11

Federal Reserve policy appears to be

Accepted Answer

A)  more concerned with avoiding recession rather than preventing inflation. 
B)  more concerned with preventing inflation rather than avoiding recession. 
C)  equally concerned with avoiding recession and preventing inflation. 
D)  motivated by whether inflation or recession is the current problem. 
A)  more concerned with avoiding recession rather than preventing inflation. 
B)  more concerned with preventing inflation rather than avoiding recession. 
C)  equally concerned with avoiding recession and preventing inflation. 
D)  motivated by whether inflation or recession is the current problem.

Question 12

The Federal Reserve appears to tighten monetary policy after a trough __________ it eases policy after a peak in the business cycle.

Accepted Answer

A)  sooner than 
B)  after about the same length of time as 
C)  later than 
D)  no sooner or later than 
A)  sooner than 
B)  after about the same length of time as 
C)  later than 
D)  no sooner or later than

Question 13

One of the major weaknesses of the Federal Reserve Bank of St. Louis econometric model was that it

Accepted Answer

A)  was large and cumbersome. 
B)  was limited to analyzing an economy with substantial unemployment. 
C)  did not specify the categories of private spending that were affected by monetary policy. 
D)  included a government spending multiplier that was clearly too high. 
A)  was large and cumbersome. 
B)  was limited to analyzing an economy with substantial unemployment. 
C)  did not specify the categories of private spending that were affected by monetary policy. 
D)  included a government spending multiplier that was clearly too high.

Question 14

Empirical studies on velocity and money demand have limited usefulness for monetary policy because they often ignore

Accepted Answer

A)  money supply effects. 
B)  interest rate effects. 
C)  inflation effects. 
D)  lags in monetary policy. 
A)  money supply effects. 
B)  interest rate effects. 
C)  inflation effects. 
D)  lags in monetary policy.

Question 15

The increasing attractiveness of a variety of liquid financial assets has caused the

Accepted Answer

A)  velocity of M1 to rise. 
B)  demand for M1 to rise. 
C)  velocity of M1 to decline. 
D)  supply of M1 to decline. 
A)  velocity of M1 to rise. 
B)  demand for M1 to rise. 
C)  velocity of M1 to decline. 
D)  supply of M1 to decline.

Question 16

When comparing the velocity of M2 (V2), with the velocity of M1 (V1), the evidence shows that V2 has been __________ and V1 has been __________ over time.

Accepted Answer

A)  relatively stable; relatively stable 
B)  relatively stable; relatively unstable 
C)  relatively unstable; relatively stable 
D)  relatively unstable; relatively unstable 
A)  relatively stable; relatively stable 
B)  relatively stable; relatively unstable 
C)  relatively unstable; relatively stable 
D)  relatively unstable; relatively unstable

Question 17

The consensus of major econometric models is that monetary policy has

Accepted Answer

A)  no effect on real GDP. 
B)  an effect on real GDP only in the long run. 
C)  a negative effect on real GDP. 
D)  a substantial short-run effect on real GDP. 
A)  no effect on real GDP. 
B)  an effect on real GDP only in the long run. 
C)  a negative effect on real GDP. 
D)  a substantial short-run effect on real GDP.

Question 18

Lower interest rates cause the velocity of M1 to

Accepted Answer

A)  turn negative. 
B)  move erratically. 
C)  increase. 
D)  decline. 
A)  turn negative. 
B)  move erratically. 
C)  increase. 
D)  decline.

Question 19

The Federal Reserve often begins to tighten monetary policy after a trough in the business cycle because of

Accepted Answer

A)  the impact lag. 
B)  the recognition lag. 
C)  bureaucratic indecision. 
D)  the time necessary to get Congress to act. 
A)  the impact lag. 
B)  the recognition lag. 
C)  bureaucratic indecision. 
D)  the time necessary to get Congress to act.

Question 20

In most cases, higher interest rates cause the velocity of M1 to

Accepted Answer

A)  turn negative. 
B)  move erratically. 
C)  increase. 
D)  decline. 
A)  turn negative. 
B)  move erratically. 
C)  increase. 
D)  decline.

Exam 28: Empirical Evidence on the Effectiveness of Monetary Policy

Since the 1970s, the M1 demand for money has been

The Federal Reserve econometric model estimates that a 1 percent increase in government spending, with the money supply held constant, will

Approximately __________ of the impact of monetary policy on GDP after one year stems from the effective of changes in wealth on consumer spending.

One of the reasons the velocity of M1 has risen over the long-run is

The wealth effect on consumer spending is

The Federal Reserve econometric model estimates that the liquidity effect an increase in the money supply will

A Monetarist-oriented econometric model is likely to emphasize that monetary policy affects economic activity

The velocity of M2 is equal to

The impact lag is the time between

All of the following explain the impact lag except the time between

Federal Reserve policy appears to be

The Federal Reserve appears to tighten monetary policy after a trough __________ it eases policy after a peak in the business cycle.

One of the major weaknesses of the Federal Reserve Bank of St. Louis econometric model was that it

Empirical studies on velocity and money demand have limited usefulness for monetary policy because they often ignore

The increasing attractiveness of a variety of liquid financial assets has caused the

When comparing the velocity of M2 (V2), with the velocity of M1 (V1), the evidence shows that V2 has been __________ and V1 has been __________ over time.

The consensus of major econometric models is that monetary policy has

Lower interest rates cause the velocity of M1 to

The Federal Reserve often begins to tighten monetary policy after a trough in the business cycle because of

In most cases, higher interest rates cause the velocity of M1 to

Introducing Money, Banking, and Financial Markets

The Role of Money in the Macroeconomy

Financial Instruments, Markets, and Institutions

Interest Rate Measurement and Behavior

The Term and Risk Structure of Interest Rates

The Structure and Performance of Securities Markets

The Pricing of Risky Financial Assets

Money and Capital Markets

Demystifying Derivatives

Understanding Foreign Exchange

The Nature of Financial Intermediation

Depository Financial Institutions

Nondepository Financial Institutions

Understanding Financial Contracts

The Regulation of Markets and Institutions

Financial System Design

Who's in Charge Here?

Bank Reserves and the Money Supply

The Instruments of Central Bankin

Understanding Movements in Bank Reserves

Monetary Policy Strategy

The Classical Foundations

The Keynesian Framework

The ISLM World

Money and Economic Stability in the ISLM World

An Aggregate Supply and Demand Perspective on Money and Economic Stability

Rational Expectations: Theory and Policy Implications

Tying It All Together

Filters

When comparing the velocity of M2 (V2), with the velocity of M1 (V1), the evidence shows that V2 has been and V1 has been over time.