Question 1

An expansionary monetary policy increases net exports by ________ interest rates and ________ the value of the dollar.

Accepted Answer

A) lowering nominal; decreasing 
B) lowering real; decreasing 
C) raising nominal; increasing 
D) raising real; increasing 
A) lowering nominal; decreasing 
B) lowering real; decreasing 
C) raising nominal; increasing 
D) raising real; increasing

Question 2

In the late 1990s,the stock market bubble ________ the value of Tobin's q,and caused ________ in business equipment.

Accepted Answer

A) increased; underinvestment 
B) increased; overinvestment 
C) decreased; underinvestment 
D) decreased; overinvestment 
A) increased; underinvestment 
B) increased; overinvestment 
C) decreased; underinvestment 
D) decreased; overinvestment

Question 3

Due to asymmetric information in credit markets,monetary policy may affect economic activity through the balance sheet channel,where an increase in the money supply

Accepted Answer

A) raises stock prices,lowering the cost of new capital relative to firms' market value,thus increasing investment spending. 
B) raises firms' net worth,decreasing adverse selection and moral hazard problems,thus increasing banks' willingness to lend to finance investment spending. 
C) raises the level of bank reserves,deposits,and bank loans,thereby raising spending by those individuals who do not have access to credit markets. 
D) lowers the value of the dollar,increasing net exports and aggregate demand. 
A) raises stock prices,lowering the cost of new capital relative to firms' market value,thus increasing investment spending. 
B) raises firms' net worth,decreasing adverse selection and moral hazard problems,thus increasing banks' willingness to lend to finance investment spending. 
C) raises the level of bank reserves,deposits,and bank loans,thereby raising spending by those individuals who do not have access to credit markets. 
D) lowers the value of the dollar,increasing net exports and aggregate demand.

Question 4

During the Great Depression,Tobin's q

Accepted Answer

A) rose dramatically,as did real interest rates. 
B) fell to unprecedentedly low levels. 
C) stayed fairly constant,in contrast to most other economic measures. 
D) rose only slightly,in spite of Hoover's attempts to prop it up. 
A) rose dramatically,as did real interest rates. 
B) fell to unprecedentedly low levels. 
C) stayed fairly constant,in contrast to most other economic measures. 
D) rose only slightly,in spite of Hoover's attempts to prop it up.

Question 5

Analysis of the transmission mechanisms of monetary policy provides four basic lessons for a central bank's conduct of monetary policy.Which of the following is not one of these lessons?

Accepted Answer

A) Rising interest rates indicate a tightening of monetary policy,whereas falling interest rates indicate an easing of monetary policy. 
B) Monetary policy can be highly effective in reviving a weak economy even if short-term interest rates are already near zero. 
C) Avoiding unanticipated fluctuations in the price level is an important objective of monetary policy,thus providing a rationale for price stability as the primary long-run goal for monetary policy. 
D) Other asset prices beside those on short-term debt instruments do not contain important information about the stance of monetary policy because they are important elements in various monetary policy transmission mechanisms. 
A) Rising interest rates indicate a tightening of monetary policy,whereas falling interest rates indicate an easing of monetary policy. 
B) Monetary policy can be highly effective in reviving a weak economy even if short-term interest rates are already near zero. 
C) Avoiding unanticipated fluctuations in the price level is an important objective of monetary policy,thus providing a rationale for price stability as the primary long-run goal for monetary policy. 
D) Other asset prices beside those on short-term debt instruments do not contain important information about the stance of monetary policy because they are important elements in various monetary policy transmission mechanisms.

Question 6

A contractionary monetary policy decreases net exports by ________ interest rates and ________ the value of the dollar.

Accepted Answer

A) lowering real; decreasing 
B) lowering real; increasing 
C) raising nominal; increasing 
D) raising real; increasing 
A) lowering real; decreasing 
B) lowering real; increasing 
C) raising nominal; increasing 
D) raising real; increasing

Question 7

If monetary policy can influence ________ prices and conditions in ________ markets,then it can affect spending through channels other than the traditional interest-rate channel.

Accepted Answer

A) asset; labor 
B) asset; credit 
C) commodity; labor 
D) commodity; credit 
A) asset; labor 
B) asset; credit 
C) commodity; labor 
D) commodity; credit

Question 8

A rise in stock prices ________ the net worth of firms and so leads to ________ investment spending because of the reduction in moral hazard.

Accepted Answer

A) raises; higher 
B) raises; lower 
C) reduces; higher 
D) reduces; lower 
A) raises; higher 
B) raises; lower 
C) reduces; higher 
D) reduces; lower

Question 9

If the aggregate price level adjusts slowly over time,then an expansionary monetary policy lowers

Accepted Answer

A) only the short-term nominal interest rate. 
B) only the short-term real interest rate. 
C) both the short-term nominal and real interest rates. 
D) the short-term nominal,the short-term real,and the long-term real interest rates. 
A) only the short-term nominal interest rate. 
B) only the short-term real interest rate. 
C) both the short-term nominal and real interest rates. 
D) the short-term nominal,the short-term real,and the long-term real interest rates.

Question 10

Recent Japanese experience has been characterized by tight monetary policy,as indicated by

Accepted Answer

A) falling interest rates. 
B) short-term interest rates near zero. 
C) falling asset prices. 
D) low real interest rates. 
A) falling interest rates. 
B) short-term interest rates near zero. 
C) falling asset prices. 
D) low real interest rates.

Question 11

According to the household liquidity effect,an expansionary monetary policy causes a ________ in the value of households' financial assets,causing consumer durable expenditure to ________.

Accepted Answer

A) decline; rise 
B) rise; rise 
C) rise; fall 
D) decline; fall 
A) decline; rise 
B) rise; rise 
C) rise; fall 
D) decline; fall

Question 12

Tobin's q is defined as the market value of firms ________ the replacement cost of capital.

Accepted Answer

A) times 
B) minus 
C) plus 
D) divided by 
A) times 
B) minus 
C) plus 
D) divided by

Question 13

Tobin's q theory suggests that monetary policy may affect investment spending through its impact on

Accepted Answer

A) stock prices. 
B) interest rates. 
C) bond prices. 
D) cash flow. 
A) stock prices. 
B) interest rates. 
C) bond prices. 
D) cash flow.

Question 14

If a contractionary monetary policy lowers the price level by more than expected,it raises the real value of consumer debt.This reduces consumer expenditure through

Accepted Answer

A) the bank lending channel. 
B) Tobin's q. 
C) the traditional interest-rate channel. 
D) the household liquidity effect. 
A) the bank lending channel. 
B) Tobin's q. 
C) the traditional interest-rate channel. 
D) the household liquidity effect.

Question 15

An expansionary monetary policy may cause asset prices to rise,thereby reducing the likelihood of financial distress and causing consumer durable and housing expenditures to rise.This monetary transmission mechanism is referred to as

Accepted Answer

A) the household liquidity effect. 
B) the wealth effect. 
C) Tobin's q theory. 
D) the cash flow effect. 
A) the household liquidity effect. 
B) the wealth effect. 
C) Tobin's q theory. 
D) the cash flow effect.

Question 16

According to Tobin's q theory,________ policy can affect ________ spending through its effect on the prices of common stock.

Accepted Answer

A) fiscal; consumption 
B) fiscal; investment 
C) monetary; consumption 
D) monetary; investment 
A) fiscal; consumption 
B) fiscal; investment 
C) monetary; consumption 
D) monetary; investment

Exam 25: Transmission Mechanisms of Monetary Policy

An expansionary monetary policy increases net exports by ________ interest rates and ________ the value of the dollar.

In the late 1990s,the stock market bubble ________ the value of Tobin's q,and caused ________ in business equipment.

Due to asymmetric information in credit markets,monetary policy may affect economic activity through the balance sheet channel,where an increase in the money supply

During the Great Depression,Tobin's q

Analysis of the transmission mechanisms of monetary policy provides four basic lessons for a central bank's conduct of monetary policy.Which of the following is not one of these lessons?

A contractionary monetary policy decreases net exports by ________ interest rates and ________ the value of the dollar.

If monetary policy can influence ________ prices and conditions in ________ markets,then it can affect spending through channels other than the traditional interest-rate channel.

A rise in stock prices ________ the net worth of firms and so leads to ________ investment spending because of the reduction in moral hazard.

If the aggregate price level adjusts slowly over time,then an expansionary monetary policy lowers

Recent Japanese experience has been characterized by tight monetary policy,as indicated by

According to the household liquidity effect,an expansionary monetary policy causes a ________ in the value of households' financial assets,causing consumer durable expenditure to ________.

Tobin's q is defined as the market value of firms ________ the replacement cost of capital.

Tobin's q theory suggests that monetary policy may affect investment spending through its impact on

If a contractionary monetary policy lowers the price level by more than expected,it raises the real value of consumer debt.This reduces consumer expenditure through

An expansionary monetary policy may cause asset prices to rise,thereby reducing the likelihood of financial distress and causing consumer durable and housing expenditures to rise.This monetary transmission mechanism is referred to as

According to Tobin's q theory,________ policy can affect ________ spending through its effect on the prices of common stock.

Why Study Money, banking, and Financial Markets

An Overview of the Financial System

What Is Money

Understanding Interest Rates

The Behavior of Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

An Economic Analysis of Financial Structure

Financial Crises

Banking and the Management of Financial Institutions

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Central Banks and the Federal Reserve System

The Money Supply Process

Tools of Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

Quantity Theory,inflation and the Demand for Money

The Is Curve

The Monetary Policy and Aggregate Demand Curves

Aggregate Demand and Supply Analysis

Monetary Policy Theory

The Role of Expectations in Monetary Policy

The ISLM Model

Filters

An expansionary monetary policy increases net exports by interest rates and the value of the dollar.

In the late 1990s,the stock market bubble the value of Tobin's q,and caused in business equipment.

A contractionary monetary policy decreases net exports by interest rates and the value of the dollar.

If monetary policy can influence prices and conditions in markets,then it can affect spending through channels other than the traditional interest-rate channel.

A rise in stock prices the net worth of firms and so leads to investment spending because of the reduction in moral hazard.

According to the household liquidity effect,an expansionary monetary policy causes a in the value of households' financial assets,causing consumer durable expenditure to .

According to Tobin's q theory, policy can affect spending through its effect on the prices of common stock.