Question 1

Evidence that is based on a variable having its effect on another variable through channels rather than a direct effect is known as ________.

Accepted Answer

A)  indirect-model evidence 
B)  organizational-model evidence 
C)  reduced-form evidence 
D)  structural-model evidence 
A)  indirect-model evidence 
B)  organizational-model evidence 
C)  reduced-form evidence 
D)  structural-model evidence

Question 2

Monetarists contend that ________.

Accepted Answer

A)  monetary policy affects aggregate demand solely through investment 
B)  monetary policy may affect aggregate demand through many channels 
C)  a weak link between nominal interest rates and investment spending implies monetary policy ineffectiveness 
D)  monetary policy affects aggregate demand solely through consumption 
A)  monetary policy affects aggregate demand solely through investment 
B)  monetary policy may affect aggregate demand through many channels 
C)  a weak link between nominal interest rates and investment spending implies monetary policy ineffectiveness 
D)  monetary policy affects aggregate demand solely through consumption

Question 3

Early Keynesians believed that ________ interest rates during the Great Depression indicated that monetary policy had been ________.

Accepted Answer

A)  high; contractionary 
B)  high; expansionary 
C)  low; contractionary 
D)  low; expansionary 
A)  high; contractionary 
B)  high; expansionary 
C)  low; contractionary 
D)  low; expansionary

Question 4

Early Keynesians believed that ________ interest rates during the Great Depression indicated that monetary policy was ________.

Accepted Answer

A)  high; easy 
B)  high; tight 
C)  low; easy 
D)  low; tight 
A)  high; easy 
B)  high; tight 
C)  low; easy 
D)  low; tight

Question 5

A model that is composed of many equations that show the channels through which monetary and fiscal policy affect aggregate output and spending is called a ________.

Accepted Answer

A)  reduced-form model 
B)  median-voter model 
C)  informed median-voter model 
D)  structural model 
A)  reduced-form model 
B)  median-voter model 
C)  informed median-voter model 
D)  structural model

Question 6

What structural evidence lead early Keynesians to believe that monetary policy does not matter?

Accepted Answer

a. Interest rates during the Great Depre

Question 7

In a period of deflation, when there is a declining price level, low nominal interest rates do not necessarily indicate that the cost of borrowing is ________ or that monetary policy is ________.

Accepted Answer

A)  low; tight 
B)  low; easy 
C)  high; tight 
D)  high; easy 
A)  low; tight 
B)  low; easy 
C)  high; tight 
D)  high; easy

Question 8

In response to the early Keynesians, monetarists contended that ________.

Accepted Answer

A)  monetary policy during the Great Depression was not easy 
B)  bank failures during the Great Depression were not the cause of the decline in the money supply 
C)  evidence from the Great Depression demonstrated the ineffectiveness of monetary policy 
D)  there is a weak link between interest rates and investment spending 
A)  monetary policy during the Great Depression was not easy 
B)  bank failures during the Great Depression were not the cause of the decline in the money supply 
C)  evidence from the Great Depression demonstrated the ineffectiveness of monetary policy 
D)  there is a weak link between interest rates and investment spending

Question 9

According to the household liquidity effect, higher stock prices lead to increased consumption expenditures because consumers ________.

Accepted Answer

A)  feel more secure about their financial position 
B)  want to sell stocks and spend the proceeds before stock prices fall 
C)  believe that their wages will increase due to increased profitability of firms 
D)  can now afford more expensive imports 
A)  feel more secure about their financial position 
B)  want to sell stocks and spend the proceeds before stock prices fall 
C)  believe that their wages will increase due to increased profitability of firms 
D)  can now afford more expensive imports

Question 10

When the Bank of Canada has an interest rate target, ________ output might lead to a ________ money supply.

Accepted Answer

A)  higher; higher 
B)  higher; lower 
C)  higher; stable 
D)  lower; lower 
A)  higher; higher 
B)  higher; lower 
C)  higher; stable 
D)  lower; lower

Question 11

The monetarist reduced-form evidence does not specify the working of the economy and thus is considered to be a ________.

Accepted Answer

A)  scientific model 
B)  open model 
C)  black box 
D)  black hole 
A)  scientific model 
B)  open model 
C)  black box 
D)  black hole

Question 12

Most Keynesians currently believe that ________.

Accepted Answer

A)  monetary policy does matter 
B)  monetary policy is irrelevant 
C)  fiscal policy does matter 
D)  A and C only 
A)  monetary policy does matter 
B)  monetary policy is irrelevant 
C)  fiscal policy does matter 
D)  A and C only

Question 13

On the evening news you hear of a scientific study that directly links premature births to cigarette smoking. This is an example of ________.

Accepted Answer

A)  direct-model evidence 
B)  informed voter-model evidence 
C)  structural-model evidence 
D)  reduced-form evidence 
A)  direct-model evidence 
B)  informed voter-model evidence 
C)  structural-model evidence 
D)  reduced-form evidence

Question 14

A contractionary monetary policy raises the real interest rate, causing the domestic currency to ________, thereby ________ net exports.

Accepted Answer

A)  appreciate; raising 
B)  appreciate; lowering 
C)  depreciate; raising 
D)  depreciate; lowering 
A)  appreciate; raising 
B)  appreciate; lowering 
C)  depreciate; raising 
D)  depreciate; lowering

Question 15

Which of the following is not an advantage of a correctly specified structural model?

Accepted Answer

A)  Structural models may help us to more accurately predict the effect that monetary policy has on economic activity. 
B)  A structural model provides more pieces of evidence about monetary policy's effect on economic activity. 
C)  Structural models may allow economists to more accurately predict the impact institutional changes have on the link between monetary policy and income. 
D)  A structural model imposes no restrictions on the way monetary policy affects the economy. 
A)  Structural models may help us to more accurately predict the effect that monetary policy has on economic activity. 
B)  A structural model provides more pieces of evidence about monetary policy's effect on economic activity. 
C)  Structural models may allow economists to more accurately predict the impact institutional changes have on the link between monetary policy and income. 
D)  A structural model imposes no restrictions on the way monetary policy affects the economy.

Question 16

Because of the presence of asymmetric information problems in credit markets, an expansionary monetary policy causes a ________ in net worth, which ________ the adverse selection problem, thereby ________ increased lending to finance investment spending.

Accepted Answer

A)  decline; increases; encouraging 
B)  rise; increases; discouraging 
C)  rise; reduces; encouraging 
D)  decline; reduces; discouraging 
A)  decline; increases; encouraging 
B)  rise; increases; discouraging 
C)  rise; reduces; encouraging 
D)  decline; reduces; discouraging

Question 17

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 18

Predicting the impact of institutional change on the effectiveness of monetary policy is best done with a ________.

Accepted Answer

A)  structural model 
B)  reduced-form model 
C)  black-box model 
D)  scientific model 
A)  structural model 
B)  reduced-form model 
C)  black-box model 
D)  scientific model

Question 19

One of the best examples of an episode in which a change in monetary policy appears to have been an exogenous event is the ________ in reserve requirements in ________.

Accepted Answer

A)  increase; 1936-1937 
B)  decrease; 1936-1937 
C)  decrease; 1818-1819 
D)  increase; 1818-1819 
A)  increase; 1936-1937 
B)  decrease; 1936-1937 
C)  decrease; 1818-1819 
D)  increase; 1818-1819

Question 20

In a study published in 1963, Milton Friedman and Anna Schwartz found that in every business cycle they studied over nearly a hundred-year period, the growth rate of the ________ decreased before ________ decreased.

Accepted Answer

A)  money supply; interest rates 
B)  money supply; output 
C)  budget deficit; interest rates 
D)  budget deficit; output 
A)  money supply; interest rates 
B)  money supply; output 
C)  budget deficit; interest rates 
D)  budget deficit; output

Exam 26: Transmission Mechanisms of Monetary Policy

Evidence that is based on a variable having its effect on another variable through channels rather than a direct effect is known as ________.

Monetarists contend that ________.

Early Keynesians believed that ________ interest rates during the Great Depression indicated that monetary policy had been ________.

Early Keynesians believed that ________ interest rates during the Great Depression indicated that monetary policy was ________.

A model that is composed of many equations that show the channels through which monetary and fiscal policy affect aggregate output and spending is called a ________.

What structural evidence lead early Keynesians to believe that monetary policy does not matter?

In a period of deflation, when there is a declining price level, low nominal interest rates do not necessarily indicate that the cost of borrowing is ________ or that monetary policy is ________.

In response to the early Keynesians, monetarists contended that ________.

According to the household liquidity effect, higher stock prices lead to increased consumption expenditures because consumers ________.

When the Bank of Canada has an interest rate target, ________ output might lead to a ________ money supply.

The monetarist reduced-form evidence does not specify the working of the economy and thus is considered to be a ________.

Most Keynesians currently believe that ________.

On the evening news you hear of a scientific study that directly links premature births to cigarette smoking. This is an example of ________.

A contractionary monetary policy raises the real interest rate, causing the domestic currency to ________, thereby ________ net exports.

Which of the following is not an advantage of a correctly specified structural model?

Because of the presence of asymmetric information problems in credit markets, an expansionary monetary policy causes a ________ in net worth, which ________ the adverse selection problem, thereby ________ increased lending to finance investment spending.

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?

Predicting the impact of institutional change on the effectiveness of monetary policy is best done with a ________.

One of the best examples of an episode in which a change in monetary policy appears to have been an exogenous event is the ________ in reserve requirements in ________.

In a study published in 1963, Milton Friedman and Anna Schwartz found that in every business cycle they studied over nearly a hundred-year period, the growth rate of the ________ decreased before ________ decreased.

Why Study Money, Banking, and Financial Markets

An Overview of the Financial System

What Is Money

The Meaning of Interest Rates

The Behaviour 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

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Financial Crises

Banking and the Management of Financial Institutions

Risk Management With Financial Derivatives

Central Banks and the Bank of Canada

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

Filters

Early Keynesians believed that interest rates during the Great Depression indicated that monetary policy had been .

Early Keynesians believed that interest rates during the Great Depression indicated that monetary policy was .

In a period of deflation, when there is a declining price level, low nominal interest rates do not necessarily indicate that the cost of borrowing is or that monetary policy is .

When the Bank of Canada has an interest rate target, output might lead to a money supply.

A contractionary monetary policy raises the real interest rate, causing the domestic currency to , thereby net exports.

Because of the presence of asymmetric information problems in credit markets, an expansionary monetary policy causes a in net worth, which the adverse selection problem, thereby increased lending to finance investment spending.

One of the best examples of an episode in which a change in monetary policy appears to have been an exogenous event is the in reserve requirements in .

In a study published in 1963, Milton Friedman and Anna Schwartz found that in every business cycle they studied over nearly a hundred-year period, the growth rate of the decreased before decreased.