Question 1

Nonactivists hold that

Accepted Answer

A)  activist monetary policies are likely to be destabilizing rather than stabilizing. 
B)  economic fine-tuning is quite feasible. 
C)  flexibility in wages and prices is sufficient to allow the economy to return at a reasonable speed to full-employment output. 
D)  a and c 
E)  all of the above 
A)  activist monetary policies are likely to be destabilizing rather than stabilizing. 
B)  economic fine-tuning is quite feasible. 
C)  flexibility in wages and prices is sufficient to allow the economy to return at a reasonable speed to full-employment output. 
D)  a and c 
E)  all of the above

Question 2

Economists who believe that the economy is self-regulating are more likely to be nonactivists than activists.

Accepted Answer

A) True 
 B)False

Question 3

Exhibit 15-2
  
-Refer to Exhibit 15-2. If the interest rate is i2 and the relevant money supply curve is S1,then there is a

Accepted Answer

A)  shortage of money between points B and A. 
B)  surplus of money between points B and A. 
C)  surplus of money between points C and D. 
D)  shortage of money between points C and D. 
A)  shortage of money between points B and A. 
B)  surplus of money between points B and A. 
C)  surplus of money between points C and D. 
D)  shortage of money between points C and D.

Question 4

People should buy bonds when they think that interest rates are as high as they will go.

Accepted Answer

A) True 
 B)False

Question 5

The Keynesian link between the money market and the goods and services market is __________.Changes in the money market must affect the __________ market before the goods and services market is affected.

Accepted Answer

A)  direct; credit 
B)  indirect; labor 
C)  indirect; investment goods 
D)  direct; stock 
E)  none of the above 
A)  direct; credit 
B)  indirect; labor 
C)  indirect; investment goods 
D)  direct; stock 
E)  none of the above

Question 6

If Real GDP increases at an annual rate of 3 percent and velocity increases at a rate of 2 percent per year,then rules-based monetary policy advocates who wish to maintain a stable price level would set the annual money supply growth rate at

Accepted Answer

A)  -2 percent. 
B)  0 percent. 
C)  1 percent. 
D)  6 percent. 
E)  -1 percent. 
A)  -2 percent. 
B)  0 percent. 
C)  1 percent. 
D)  6 percent. 
E)  -1 percent.

Question 7

In the Keynesian transmission mechanism,if the money market is in the liquidity trap,an increase in the money supply will

Accepted Answer

A)  cause total expenditures and aggregate demand to increase. 
B)  cause total expenditures and aggregate demand to decrease. 
C)  have no impact on total expenditures and aggregate demand. 
D)  cause total expenditures to increase and aggregate demand to decrease. 
E)  cause total expenditures to decrease and aggregate demand to increase. 
A)  cause total expenditures and aggregate demand to increase. 
B)  cause total expenditures and aggregate demand to decrease. 
C)  have no impact on total expenditures and aggregate demand. 
D)  cause total expenditures to increase and aggregate demand to decrease. 
E)  cause total expenditures to decrease and aggregate demand to increase.

Question 8

According to the monetarist transmission mechanism,a decrease in the money supply __________ aggregate demand.

Accepted Answer

A)  directly increases 
B)  indirectly increases 
C)  directly decreases 
D)  indirectly decreases 
E)  equals the increase in 
A)  directly increases 
B)  indirectly increases 
C)  directly decreases 
D)  indirectly decreases 
E)  equals the increase in

Question 9

Assume that because of a long policy lag,the Fed starts implementing expansionary monetary policy too late,i.e.,at a time when the economy is already healing itself.As a result,the economy will probably move from an initial

Accepted Answer

A)  recessionary gap to an even deeper recessionary gap. 
B)  recessionary gap to an inflationary gap. 
C)  inflationary gap to the natural level of Real GDP. 
D)  inflationary gap to a recessionary gap. 
A)  recessionary gap to an even deeper recessionary gap. 
B)  recessionary gap to an inflationary gap. 
C)  inflationary gap to the natural level of Real GDP. 
D)  inflationary gap to a recessionary gap.

Question 10

Suppose that the bond market and the money market start out in equilibrium. Explain the process by which the interest rate and the price of bonds will change as a result of the Fed increasing the money supply.

Accepted Answer

When the Fed increases the money supply

Question 11

A rules-based monetary policy

Accepted Answer

A)  is advocated by activists. 
B)  is advocated by nonactivists. 
C)  could involve a predetermined steady growth rate in the money supply. 
D)  b and c 
E)  all of the above 
A)  is advocated by activists. 
B)  is advocated by nonactivists. 
C)  could involve a predetermined steady growth rate in the money supply. 
D)  b and c 
E)  all of the above

Question 12

According to the Keynesian transmission mechanism (and assuming there is no liquidity trap and investment is not interest insensitive),if the money supply increases,the interest rate __________,investment spending __________ and the AD curve shifts to the __________.

Accepted Answer

A)  falls; falls; left 
B)  rises; rises; right 
C)  falls; rises; left 
D)  falls; rises; right 
E)  rises; falls; right 
A)  falls; falls; left 
B)  rises; rises; right 
C)  falls; rises; left 
D)  falls; rises; right 
E)  rises; falls; right

Question 13

A person who opposes the deliberate use of fiscal and monetary policies is called a(n)

Accepted Answer

A)  Keynesian. 
B)  fiscalist. 
C)  nonactivist. 
D)  activist. 
A)  Keynesian. 
B)  fiscalist. 
C)  nonactivist. 
D)  activist.

Question 14

According to economist Arnold Kling's perspective on the economy,economic activity is best viewed by focusing on

Accepted Answer

A)  aggregate demand. 
B)  the actions of the Federal Reserve. 
C)  changes in spending. 
D)  specialization and trade. 
A)  aggregate demand. 
B)  the actions of the Federal Reserve. 
C)  changes in spending. 
D)  specialization and trade.

Question 15

Assuming that the SRAS curve is upward sloping,which of the following statements represents a correct and sequentially accurate economic explanation?

Accepted Answer

A)  The demand for bonds falls, the price of bonds falls, the interest rate rises, investment spending declines, the AD curve shifts to the left, the price level declines and Real GDP decreases. 
B)  The demand for bonds rises, the price of bonds rises, the interest rate rises, investment spending declines, the AD curve shifts to the left, the price level declines and Real GDP decreases. 
C)  The supply of bonds rises, the price of bonds falls, the interest rate falls, investment spending rises, the AD curve shifts to the right, the price level declines and Real GDP decreases. 
D)  The supply of bonds falls, the price of bonds rises, the interest rate falls, investment spending rises, the AD curve shifts to the right, the price level declines and Real GDP increases. 
A)  The demand for bonds falls, the price of bonds falls, the interest rate rises, investment spending declines, the AD curve shifts to the left, the price level declines and Real GDP decreases. 
B)  The demand for bonds rises, the price of bonds rises, the interest rate rises, investment spending declines, the AD curve shifts to the left, the price level declines and Real GDP decreases. 
C)  The supply of bonds rises, the price of bonds falls, the interest rate falls, investment spending rises, the AD curve shifts to the right, the price level declines and Real GDP decreases. 
D)  The supply of bonds falls, the price of bonds rises, the interest rate falls, investment spending rises, the AD curve shifts to the right, the price level declines and Real GDP increases.

Question 16

As the interest rate falls,the quantity supplied of money falls and the quantity demanded of money rises.

Accepted Answer

A) True 
 B)False

Question 17

In the monetarist transmission mechanism,changes in the money market directly affect aggregate demand.

Accepted Answer

A) True 
 B)False

Question 18

According to the Keynesian transmission mechanism,if the Fed conducts an open market sale of government securities,it may cause which of the following in the investment goods market?

Accepted Answer

A)  a rightward shift in the investment demand curve 
B)  a leftward shift in the investment demand curve 
C)  a movement down and along a given investment demand curve 
D)  a movement up and along a given investment demand curve 
A)  a rightward shift in the investment demand curve 
B)  a leftward shift in the investment demand curve 
C)  a movement down and along a given investment demand curve 
D)  a movement up and along a given investment demand curve

Question 19

Exhibit 15-l
  
-Refer to Exhibit 15-l.A Keynesian would say that natural market forces work so slowly in a recessionary gap in taking the economy between point __________ that an activist monetary policy is called for.

Accepted Answer

A)  B and point D 
B)  B and point C 
C)  C and point B 
D)  B and point A 
A)  B and point D 
B)  B and point C 
C)  C and point B 
D)  B and point A

Question 20

The Keynesian transmission mechanism could be blocked by either interest-insensitive investment or by the liquidity trap.

Accepted Answer

A) True 
 B)False

Exam 15: Monetary Policy

Nonactivists hold that

Economists who believe that the economy is self-regulating are more likely to be nonactivists than activists.

Exhibit 15-2 -Refer to Exhibit 15-2. If the interest rate is i2 and the relevant money supply curve is S1,then there is a

People should buy bonds when they think that interest rates are as high as they will go.

The Keynesian link between the money market and the goods and services market is __________.Changes in the money market must affect the __________ market before the goods and services market is affected.

If Real GDP increases at an annual rate of 3 percent and velocity increases at a rate of 2 percent per year,then rules-based monetary policy advocates who wish to maintain a stable price level would set the annual money supply growth rate at

In the Keynesian transmission mechanism,if the money market is in the liquidity trap,an increase in the money supply will

According to the monetarist transmission mechanism,a decrease in the money supply __________ aggregate demand.

Assume that because of a long policy lag,the Fed starts implementing expansionary monetary policy too late,i.e.,at a time when the economy is already healing itself.As a result,the economy will probably move from an initial

Suppose that the bond market and the money market start out in equilibrium. Explain the process by which the interest rate and the price of bonds will change as a result of the Fed increasing the money supply.

A rules-based monetary policy

According to the Keynesian transmission mechanism (and assuming there is no liquidity trap and investment is not interest insensitive),if the money supply increases,the interest rate __________,investment spending __________ and the AD curve shifts to the __________.

A person who opposes the deliberate use of fiscal and monetary policies is called a(n)

According to economist Arnold Kling's perspective on the economy,economic activity is best viewed by focusing on

Assuming that the SRAS curve is upward sloping,which of the following statements represents a correct and sequentially accurate economic explanation?

As the interest rate falls,the quantity supplied of money falls and the quantity demanded of money rises.

In the monetarist transmission mechanism,changes in the money market directly affect aggregate demand.

According to the Keynesian transmission mechanism,if the Fed conducts an open market sale of government securities,it may cause which of the following in the investment goods market?

Exhibit 15-l -Refer to Exhibit 15-l.A Keynesian would say that natural market forces work so slowly in a recessionary gap in taking the economy between point __________ that an activist monetary policy is called for.

The Keynesian transmission mechanism could be blocked by either interest-insensitive investment or by the liquidity trap.

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand: Theory

Prices: Free, Controlled, and Relative

Supply, Demand, and Price: Applications

Macroeconomic Measurements: Prices and Unemployment

Macroeconomic Measurements: GDP and Real GDP

Aggregate Demand and Aggregate Supply

Classical Macroeconomics and the Self Regulating Economy

Keynesian Macroeconomics and Economic Instability: A Critique of the Self-Regulating Economy

Fiscal Policy and the Federal Budget

Money, Banking,and the Financial System

The Federal Reserve System

Money and the Economy

Expectations Theory and the Economy

Economic Growth: Resources, Technology, Ideas, and Institutions

The Financial Crisis of 2007-2009

Debates in Macroeconomics Over the Role and Effects of Government

Elasticity

Consumer Choice: Maximizing Utility and Behavioral Economics

Production and Costs

Perfect Competition

Monopoly

Monopolistic Competition, Oligopoly, and Game Theory

Government and Product Markets: Antitrust and Regulation

Factor Markets: With Emphasis on the Labor Market

Wages,Unions,and Labor

The Distribution of Income and Poverty

Interest, Rent, and Profit

Market Failure: Externalities, Public Goods, and Asymmetric Information

Public Choice and Special-Interest-Group Politics

Building Theories to Explain Everyday Life: From Observations to Questions to Theories to Predictions

International Trade

International Finance

Globalization and International Impacts on the Economy

The Economic Case For and Against Government: Five Topics Considered

Stocks, Bonds, Futures, and Options

Agriculture: Problems, Policies, and Unintended Effects

Filters

Exhibit 15-2 -Refer to Exhibit 15-2. If the interest rate is i₂ and the relevant money supply curve is S₁,then there is a

The Keynesian link between the money market and the goods and services market is .Changes in the money market must affect the market before the goods and services market is affected.

According to the Keynesian transmission mechanism (and assuming there is no liquidity trap and investment is not interest insensitive),if the money supply increases,the interest rate ,investment spending and the AD curve shifts to the __.