Question 1

Exhibit 15-l
  
-Refer to Exhibit 15-l.A Keynesian monetary policy to eliminate an inflationary gap can be portrayed as a movement between point

Accepted Answer

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

Question 2

According to the Keynesian transmission mechanism,if the Fed conducts an open market purchase 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 3

Exhibit 15-l
  
-Refer to Exhibit 15-1.A Keynesian would say that market forces work more quickly in taking the economy from point______________ than from point _______________.

Accepted Answer

A)  A to point D; D to point C 
B)  A to point D; A to point B 
C)  D to point C; B to point A 
D)  C to point D; C to point B 
A)  A to point D; D to point C 
B)  A to point D; A to point B 
C)  D to point C; B to point A 
D)  C to point D; C to point B

Question 4

Under a constant growth rate of money rule of 4 percent in an economy in which Real GDP grows at an average rate of 3 percent and velocity is constant,the inflation rate is

Accepted Answer

A)  7 percent. 
B)  -7 percent. 
C)  1 percent. 
D)  -1 percent. 
E)  constant at zero. 
A)  7 percent. 
B)  -7 percent. 
C)  1 percent. 
D)  -1 percent. 
E)  constant at zero.

Question 5

Activists hold that

Accepted Answer

A)  activist monetary policy is flexible. 
B)  nonactivist monetary policy is inflexible. 
C)  the economy does not always return quickly enough to full-employment output. 
D)  a and b 
E)  all of the above 
A)  activist monetary policy is flexible. 
B)  nonactivist monetary policy is inflexible. 
C)  the economy does not always return quickly enough to full-employment output. 
D)  a and b 
E)  all of the above

Question 6

Economists who favor activist monetary policy often argue that

Accepted Answer

A)  during the mid-1970s, money supply growth rates were nearly constant and still the economy went through a recession. 
B)  during the mid-1970s, activist monetary policy was applied and the economy was healthy and stable. 
C)  activist monetary policy is inflexible and this is one of its virtues; the money supply doesn't change every year in response to political considerations. 
D)  activist monetary policy is likely to be destabilizing most of the time, but still it is the better way to proceed. 
A)  during the mid-1970s, money supply growth rates were nearly constant and still the economy went through a recession. 
B)  during the mid-1970s, activist monetary policy was applied and the economy was healthy and stable. 
C)  activist monetary policy is inflexible and this is one of its virtues; the money supply doesn't change every year in response to political considerations. 
D)  activist monetary policy is likely to be destabilizing most of the time, but still it is the better way to proceed.

Question 7

Exhibit 15-4
   
Assume that people have only two choices when it comes to holding their wealth: in money or in bonds.
-Refer to Exhibit 15-4. In the row of this table containing blank (B),people are holding ______________ of their wealth in bonds and ________________ of their wealth in money.

Accepted Answer

A)  too much; too little 
B)  too little; too much 
C)  just the right amount; too little 
D)  just the right amount; too much 
E)  just the right amount; just the right amount 
A)  too much; too little 
B)  too little; too much 
C)  just the right amount; too little 
D)  just the right amount; too much 
E)  just the right amount; just the right amount

Question 8

Buddy bought a bond last year for $10,000.His bond pays $1,000 a year.This year a bond that sells for $10,000 pays $900 a year. If Buddy were to sell his (old)bond,its price would be approximately

Accepted Answer

A)  $11,111. 
B)  $10,120. 
C)  $9,000. 
D)  $12,000. 
E)  $9,500. 
A)  $11,111. 
B)  $10,120. 
C)  $9,000. 
D)  $12,000. 
E)  $9,500.

Question 9

The demand for money rises.According to the Keynesian transmission mechanism,the interest rate __________,investment spending __________ (assuming it is interest-sensitive),the AD curve shifts to the __________ and if the AS curve is horizontal,Real GDP __________.

Accepted Answer

A)  rises; falls; left; rises 
B)  falls; rises; right; does not change 
C)  rises; falls; right; rises 
D)  falls; falls; left; does not change 
E)  rises; falls; left; falls 
A)  rises; falls; left; rises 
B)  falls; rises; right; does not change 
C)  rises; falls; right; rises 
D)  falls; falls; left; does not change 
E)  rises; falls; left; falls

Question 10

Exhibit 15-4
   
Assume that people have only two choices when it comes to holding their wealth: in money or in bonds.
-Refer to Exhibit 15-4. In the row of this table containing blank (A),people are holding ______________ of their wealth in bonds and ________________ of their wealth in money.

Accepted Answer

A)  too much; too little 
B)  too little; too much 
C)  just the right amount; too little 
D)  just the right amount; too much 
E)  just the right amount; just the right amount 
A)  too much; too little 
B)  too little; too much 
C)  just the right amount; too little 
D)  just the right amount; too much 
E)  just the right amount; just the right amount

Question 11

Exhibit 15-3
  
-Refer to Exhibit 15-3.The economy is initially at point 1.Ideally,__________ monetary policy will move the economy to point __________.

Accepted Answer

A)  expansionary; 9 
B)  contractionary; 4 
C)  expansionary; 8 
D)  expansionary; 7 
E)  contractionary; 2 
A)  expansionary; 9 
B)  contractionary; 4 
C)  expansionary; 8 
D)  expansionary; 7 
E)  contractionary; 2

Question 12

If people have only two ways of holding their wealth,money or bonds,a surplus in the money market implies a surplus in the bond market.

Accepted Answer

A) True 
 B)False

Question 13

According to the Taylor Rule: if the inflation rate is 2% and the GDP gap is 3%,what does the federal funds rate target equal?

Accepted Answer

A)  9.5 percent 
B)  7.5 percent 
C)  5.5 percent 
D)  8.5 percent 
A)  9.5 percent 
B)  7.5 percent 
C)  5.5 percent 
D)  8.5 percent

Question 14

If the interest rate falls,the opportunity cost of holding money __________ and the quantity demanded of money __________.

Accepted Answer

A)  rises, rises 
B)  rises, falls 
C)  falls, rises 
D)  falls, falls 
A)  rises, rises 
B)  rises, falls 
C)  falls, rises 
D)  falls, falls

Question 15

The quantity demanded of money falls as the

Accepted Answer

A)  interest rate falls. 
B)  interest rate rises. 
C)  supply of money rises. 
D)  none of the above, since the quantity demanded of money is unrelated to the interest rate 
A)  interest rate falls. 
B)  interest rate rises. 
C)  supply of money rises. 
D)  none of the above, since the quantity demanded of money is unrelated to the interest rate

Question 16

The rules-based monetary policy reads: The annual growth rate in the money supply will be equal to the average annual growth rate in Real GDP minus the growth rate in velocity.If the average growth rate in Real GDP this year is 3 percent and the growth rate in velocity is 2 percent,then the money supply will increase by ______________ percent this year.

Accepted Answer

A)  1 
B)  2 
C)  3 
D)  4 
A)  1 
B)  2 
C)  3 
D)  4

Question 17

When is it best to sell bonds?

Accepted Answer

A)  When interest rates are expected to rise, because this means bond prices will rise. 
B)  When interest rates are expected to fall, because this means bond prices will rise. 
C)  When interest rates are expected to rise, because this means bond prices will fall. 
D)  When interest rates are expected to fall, because this means bond prices will fall. 
A)  When interest rates are expected to rise, because this means bond prices will rise. 
B)  When interest rates are expected to fall, because this means bond prices will rise. 
C)  When interest rates are expected to rise, because this means bond prices will fall. 
D)  When interest rates are expected to fall, because this means bond prices will fall.

Question 18

The supply curve of bonds is graphed as a vertical line.

Accepted Answer

A) True 
 B)False

Question 19

The economy is in a recessionary gap and there is complete crowding out.Furthermore,there is no evidence that the economy is in a liquidity trap or that investment is interest-insensitive.This makes the case for the use of __________ policy stronger than it might be otherwise.

Accepted Answer

A)  contractionary monetary 
B)  contractionary fiscal 
C)  expansionary fiscal 
D)  expansionary monetary 
A)  contractionary monetary 
B)  contractionary fiscal 
C)  expansionary fiscal 
D)  expansionary monetary

Question 20

Monetary policy refers to

Accepted Answer

A)  actions taken by banks and other financial institutions regarding their approaches to lending, account management, etc. 
B)  changes in the money supply to achieve particular economic goals. 
C)  changes in government expenditures and taxation to achieve particular economic goals. 
D)  the change in private expenditures that occurs as a consequence of changes in the money supply. 
A)  actions taken by banks and other financial institutions regarding their approaches to lending, account management, etc. 
B)  changes in the money supply to achieve particular economic goals. 
C)  changes in government expenditures and taxation to achieve particular economic goals. 
D)  the change in private expenditures that occurs as a consequence of changes in the money supply.

Exam 15: Monetary Policy

Exhibit 15-l -Refer to Exhibit 15-l.A Keynesian monetary policy to eliminate an inflationary gap can be portrayed as a movement between point

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

Exhibit 15-l -Refer to Exhibit 15-1.A Keynesian would say that market forces work more quickly in taking the economy from point______________ than from point _______________.

Under a constant growth rate of money rule of 4 percent in an economy in which Real GDP grows at an average rate of 3 percent and velocity is constant,the inflation rate is

Activists hold that

Economists who favor activist monetary policy often argue that

Exhibit 15-4 Assume that people have only two choices when it comes to holding their wealth: in money or in bonds. -Refer to Exhibit 15-4. In the row of this table containing blank (B),people are holding ______________ of their wealth in bonds and ________________ of their wealth in money.

Buddy bought a bond last year for $10,000.His bond pays $1,000 a year.This year a bond that sells for $10,000 pays $900 a year. If Buddy were to sell his (old)bond,its price would be approximately

The demand for money rises.According to the Keynesian transmission mechanism,the interest rate __________,investment spending __________ (assuming it is interest-sensitive),the AD curve shifts to the __________ and if the AS curve is horizontal,Real GDP __________.

Exhibit 15-4 Assume that people have only two choices when it comes to holding their wealth: in money or in bonds. -Refer to Exhibit 15-4. In the row of this table containing blank (A),people are holding ______________ of their wealth in bonds and ________________ of their wealth in money.

Exhibit 15-3 -Refer to Exhibit 15-3.The economy is initially at point 1.Ideally,__________ monetary policy will move the economy to point __________.

If people have only two ways of holding their wealth,money or bonds,a surplus in the money market implies a surplus in the bond market.

According to the Taylor Rule: if the inflation rate is 2% and the GDP gap is 3%,what does the federal funds rate target equal?

If the interest rate falls,the opportunity cost of holding money __________ and the quantity demanded of money __________.

The quantity demanded of money falls as the

When is it best to sell bonds?

The supply curve of bonds is graphed as a vertical line.

The economy is in a recessionary gap and there is complete crowding out.Furthermore,there is no evidence that the economy is in a liquidity trap or that investment is interest-insensitive.This makes the case for the use of __________ policy stronger than it might be otherwise.

Monetary policy refers to

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-l -Refer to Exhibit 15-1.A Keynesian would say that market forces work more quickly in taking the economy from point than from point _.

Exhibit 15-4 Assume that people have only two choices when it comes to holding their wealth: in money or in bonds. -Refer to Exhibit 15-4. In the row of this table containing blank (B),people are holding of their wealth in bonds and __ of their wealth in money.

The demand for money rises.According to the Keynesian transmission mechanism,the interest rate ,investment spending (assuming it is interest-sensitive),the AD curve shifts to the and if the AS curve is horizontal,Real GDP .

Exhibit 15-4 Assume that people have only two choices when it comes to holding their wealth: in money or in bonds. -Refer to Exhibit 15-4. In the row of this table containing blank (A),people are holding of their wealth in bonds and __ of their wealth in money.

Exhibit 15-3 -Refer to Exhibit 15-3.The economy is initially at point 1.Ideally, monetary policy will move the economy to point .

If the interest rate falls,the opportunity cost of holding money and the quantity demanded of money .