Question 1

The liquidity trap is the

Accepted Answer

A)  vertical portion of the demand curve for money. 
B)  horizontal portion of the demand curve for money. 
C)  vertical portion of the supply curve of money. 
D)  horizontal portion of the supply curve of money. 
E)  vertical portion of the demand curve for investment. 
A)  vertical portion of the demand curve for money. 
B)  horizontal portion of the demand curve for money. 
C)  vertical portion of the supply curve of money. 
D)  horizontal portion of the supply curve of money. 
E)  vertical portion of the demand curve for investment.

Question 2

A decrease in the money supply will shift the aggregate __________ curve to the __________.

Accepted Answer

A)  supply; left 
B)  supply; right 
C)  demand; left 
D)  demand; right 
A)  supply; left 
B)  supply; right 
C)  demand; left 
D)  demand; right

Question 3

Suppose that an individual can hold her wealth in only two forms: money and bonds. A _______________ in the bond market would then imply that there is a ________________ in the money market.

Accepted Answer

A)  surplus; surplus 
B)  shortage; shortage 
C)  surplus; shortage 
D)  shortage; surplus 
E)  c and d 
A)  surplus; surplus 
B)  shortage; shortage 
C)  surplus; shortage 
D)  shortage; surplus 
E)  c and d

Question 4

Compared to the Keynesian transmission mechanism,the monetarist transmission mechanism is

Accepted Answer

A)  indirect and long. 
B)  direct and long. 
C)  direct and short. 
D)  indirect and short. 
A)  indirect and long. 
B)  direct and long. 
C)  direct and short. 
D)  indirect and short.

Question 5

Last year,Leah bought a bond for $1,000 that promises to pay $110 a year.This year,a person who buys a bond for $1,000 receives $90 a year.If Leah were to sell her (old)bond,its price would be approximately

Accepted Answer

A)  $818. 
B)  $846. 
C)  $890. 
D)  $1,222. 
E)  $1,273. 
A)  $818. 
B)  $846. 
C)  $890. 
D)  $1,222. 
E)  $1,273.

Question 6

The existence of a liquidity trap implies that

Accepted Answer

A)  a decrease in the interest rate might not increase investment spending. 
B)  an increase in the demand for money will be followed by an equal increase in the supply of money. 
C)  an increase in the supply of money may not lower interest rates. 
D)  a and c 
A)  a decrease in the interest rate might not increase investment spending. 
B)  an increase in the demand for money will be followed by an equal increase in the supply of money. 
C)  an increase in the supply of money may not lower interest rates. 
D)  a and c

Question 7

The money supply decreased and the AD curve shifted to the left.This is consistent with the

Accepted Answer

A)  Keynesian transmission mechanism when there is neither a liquidity trap nor interest-insensitive investment. 
B)  monetarist transmission mechanism. 
C)  Keynesian transmission mechanism when there is a liquidity trap. 
D)  Keynesian transmission mechanism with interest-insensitive investment. 
E)  a and b 
A)  Keynesian transmission mechanism when there is neither a liquidity trap nor interest-insensitive investment. 
B)  monetarist transmission mechanism. 
C)  Keynesian transmission mechanism when there is a liquidity trap. 
D)  Keynesian transmission mechanism with interest-insensitive investment. 
E)  a and b

Question 8

Economists who propose a constant-money-growth-rate rule often argue that setting the annual growth rate in the money supply equal to the average annual growth rate in Real GDP

Accepted Answer

A)  maintains price level stability over time. 
B)  is a way to raise Real GDP. 
C)  will cause the price level to fall over time. 
D)  a and b 
E)  a, b and c 
A)  maintains price level stability over time. 
B)  is a way to raise Real GDP. 
C)  will cause the price level to fall over time. 
D)  a and b 
E)  a, b and c

Question 9

Last year,Danielle bought a bond for $1,000 that promises to pay $115 a year.This year,a person who buys a bond for $1,000 receives $120 a year.If Danielle were to sell her (old)bond,its price would be approximately

Accepted Answer

A)  $958. 
B)  $1,043. 
C)  $1,211. 
D)  $1,115. 
A)  $958. 
B)  $1,043. 
C)  $1,211. 
D)  $1,115.

Question 10

Economist Jones favors a constant-money-growth-rate rule.She says that if the annual money supply growth rate each year is equal to the average annual growth rate in Real GDP,price stability will exist over time.What would economist Smith,who favors activist monetary policy,say to economist Jones?

Accepted Answer

A)  Your analysis assumes that Real GDP is constant over time, and it is not. 
B)  Your analysis assumes that velocity is constant, and it is not. 
C)  Your analysis assumes that you can correctly define the money supply. 
D)  b and c 
E)  a, b and c 
A)  Your analysis assumes that Real GDP is constant over time, and it is not. 
B)  Your analysis assumes that velocity is constant, and it is not. 
C)  Your analysis assumes that you can correctly define the money supply. 
D)  b and c 
E)  a, b and c

Question 11

Monetarists believe that changes in the supply of money

Accepted Answer

A)  do not affect aggregate demand. 
B)  affect aggregate demand through the loanable funds market only. 
C)  affect only the investment component of aggregate demand. 
D)  affect aggregate demand directly. 
A)  do not affect aggregate demand. 
B)  affect aggregate demand through the loanable funds market only. 
C)  affect only the investment component of aggregate demand. 
D)  affect aggregate demand directly.

Question 12

Last year,Bentley bought a bond for $1,000 that promises to pay $115 a year.This year,a person who buys a bond for $1,000 receives $125 a year.If Bentley were to sell his (old)bond,its price would be approximately

Accepted Answer

A)  $920. 
B)  $1,125. 
C)  $1,087. 
D)  $1,350. 
A)  $920. 
B)  $1,125. 
C)  $1,087. 
D)  $1,350.

Question 13

The Taylor Rule specifies that the federal funds rate target should be equal to

Accepted Answer

A)  0.5 ( inflation rate) + 1.5 (GDP gap) + 1 
B)  1.5 (inflation rate) + 0.5 (GDP gap) + 1. 
C)  interest rate - expected inflation rate. 
D)  equilibrium federal funds rate + inflation rate +1 
A)  0.5 ( inflation rate) + 1.5 (GDP gap) + 1 
B)  1.5 (inflation rate) + 0.5 (GDP gap) + 1. 
C)  interest rate - expected inflation rate. 
D)  equilibrium federal funds rate + inflation rate +1

Question 14

Explain how,according to the theory of PSST (patterns of specialization and sustainable trade),economic activity can decline in the face of unchanged aggregate demand. Give a hypothetical example to help support your answer.

Accepted Answer

With a specialized labor force,there can

Question 15

The price of holding money balances is equal to the

Accepted Answer

A)  price of bonds that could have been purchased with those money balances. 
B)  price of goods and services that could have been purchased with those money balances. 
C)  the interest rate that could have been earned had those money balances been invested in an interest-bearing alternative (e.g., a bond). 
D)  any of the above 
A)  price of bonds that could have been purchased with those money balances. 
B)  price of goods and services that could have been purchased with those money balances. 
C)  the interest rate that could have been earned had those money balances been invested in an interest-bearing alternative (e.g., a bond). 
D)  any of the above

Question 16

Suppose the economy is experiencing an inflationary gap.Based on available data,the Fed starts implementing contractionary monetary policy,but this moves the economy into a recessionary gap.The most probable explanation is that,because of the total lag in monetary policy,the government did not realize that the economy was already healing itself,i.e.,that the

Accepted Answer

A)  AD curve was shifting rightward. 
B)  AD curve was shifting leftward. 
C)  SRAS curve was shifting rightward. 
D)  SRAS curve was shifting leftward. 
A)  AD curve was shifting rightward. 
B)  AD curve was shifting leftward. 
C)  SRAS curve was shifting rightward. 
D)  SRAS curve was shifting leftward.

Exam 15: Monetary Policy

The liquidity trap is the

A decrease in the money supply will shift the aggregate __________ curve to the __________.

Suppose that an individual can hold her wealth in only two forms: money and bonds. A _______________ in the bond market would then imply that there is a ________________ in the money market.

Compared to the Keynesian transmission mechanism,the monetarist transmission mechanism is

Last year,Leah bought a bond for $1,000 that promises to pay $110 a year.This year,a person who buys a bond for $1,000 receives $90 a year.If Leah were to sell her (old)bond,its price would be approximately

The existence of a liquidity trap implies that

The money supply decreased and the AD curve shifted to the left.This is consistent with the

Economists who propose a constant-money-growth-rate rule often argue that setting the annual growth rate in the money supply equal to the average annual growth rate in Real GDP

Last year,Danielle bought a bond for $1,000 that promises to pay $115 a year.This year,a person who buys a bond for $1,000 receives $120 a year.If Danielle were to sell her (old)bond,its price would be approximately

Economist Jones favors a constant-money-growth-rate rule.She says that if the annual money supply growth rate each year is equal to the average annual growth rate in Real GDP,price stability will exist over time.What would economist Smith,who favors activist monetary policy,say to economist Jones?

Monetarists believe that changes in the supply of money

Last year,Bentley bought a bond for $1,000 that promises to pay $115 a year.This year,a person who buys a bond for $1,000 receives $125 a year.If Bentley were to sell his (old)bond,its price would be approximately

The Taylor Rule specifies that the federal funds rate target should be equal to

Explain how,according to the theory of PSST (patterns of specialization and sustainable trade),economic activity can decline in the face of unchanged aggregate demand. Give a hypothetical example to help support your answer.

The price of holding money balances is equal to the

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

A decrease in the money supply will shift the aggregate curve to the .

Suppose that an individual can hold her wealth in only two forms: money and bonds. A _ in the bond market would then imply that there is a __ in the money market.