Question 1

Which of the following is true of home mortgage loans since the late 1990s?

Accepted Answer

A) Government regulations required homebuyers to make larger down payments in order to obtain a mortgage. 
B) Traditional fixed-rate, long-term mortgages grew in popularity. 
C) There was a substantial increase in the volume of mortgage loans extended with little or no down payment. 
D) High interest rates made it less attractive to lock in to a fixed-rate, long-term loan. 
A) Government regulations required homebuyers to make larger down payments in order to obtain a mortgage. 
B) Traditional fixed-rate, long-term mortgages grew in popularity. 
C) There was a substantial increase in the volume of mortgage loans extended with little or no down payment. 
D) High interest rates made it less attractive to lock in to a fixed-rate, long-term loan.

Question 2

If the Fed unexpectedly shifts to a more restrictive monetary policy, which of the following will most likely occur in the short run?

Accepted Answer

A) a decrease in the real interest rate 
B) an increase in unemployment 
C) an increase in real GDP 
D) an increase in inflation 
A) a decrease in the real interest rate 
B) an increase in unemployment 
C) an increase in real GDP 
D) an increase in inflation

Question 3

Shifts in monetary policy will

Accepted Answer

A) stimulate output and employment almost immediately, and this will make it easier for policy-makers to change monetary policy in a manner that will promote macroeconomic stability. 
B) stimulate output and employment almost immediately, and this will make it more difficult for policy-makers to change monetary policy in a manner that will promote macroeconomic stability. 
C) stimulate output and employment with time lags that are long and variable and this will make it easier for policy-makers to change monetary policy in a manner that will promote macroeconomic stability. 
D) stimulate output and employment with time lags that are long and variable and this will make it more difficult for policy-makers to change monetary policy in a manner that will promote macroeconomic stability. 
A) stimulate output and employment almost immediately, and this will make it easier for policy-makers to change monetary policy in a manner that will promote macroeconomic stability. 
B) stimulate output and employment almost immediately, and this will make it more difficult for policy-makers to change monetary policy in a manner that will promote macroeconomic stability. 
C) stimulate output and employment with time lags that are long and variable and this will make it easier for policy-makers to change monetary policy in a manner that will promote macroeconomic stability. 
D) stimulate output and employment with time lags that are long and variable and this will make it more difficult for policy-makers to change monetary policy in a manner that will promote macroeconomic stability.

Question 4

The primary cause of inflation is

Accepted Answer

A) large budget deficits. 
B) high taxes. 
C) rapid expansion of the money supply. 
D) government expenditures that are large relative to the size of the economy. 
A) large budget deficits. 
B) high taxes. 
C) rapid expansion of the money supply. 
D) government expenditures that are large relative to the size of the economy.

Question 5

Which of the following contributed to the financial crisis of 2008?

Accepted Answer

A) the housing price boom (2002-2005), followed by a housing price bust (2007-2008) 
B) a sharp reduction in stock prices in 2008 
C) a sharp increase in the price of crude oil from January 2007 to mid-year 2008 
D) all of the above 
A) the housing price boom (2002-2005), followed by a housing price bust (2007-2008) 
B) a sharp reduction in stock prices in 2008 
C) a sharp increase in the price of crude oil from January 2007 to mid-year 2008 
D) all of the above

Question 6

In the short run, an unanticipated shift to a more restrictive monetary policy is most likely to result in

Accepted Answer

A) a decrease in short-term interest rates. 
B) a reduction in the growth rate of real GDP. 
C) an increase in the rate of inflation. 
D) an increase in employment. 
A) a decrease in short-term interest rates. 
B) a reduction in the growth rate of real GDP. 
C) an increase in the rate of inflation. 
D) an increase in employment.

Question 7

Starting from a position of macroeconomic equilibrium at the full-employment level of real GDP, in the short run an unanticipated increase in the money supply will

Accepted Answer

A) raise real interest rates, lower prices, and reduce real GDP. 
B) raise real interest rates, lower prices, and leave real GDP unchanged. 
C) raise nominal interest rates, lower prices, and leave real GDP unchanged. 
D) lower real interest rates, raise prices, and increase real GDP. 
A) raise real interest rates, lower prices, and reduce real GDP. 
B) raise real interest rates, lower prices, and leave real GDP unchanged. 
C) raise nominal interest rates, lower prices, and leave real GDP unchanged. 
D) lower real interest rates, raise prices, and increase real GDP.

Question 8

When the Fed buys bonds and injects additional reserves into the banking system, this action will

Accepted Answer

A) place downward pressure on short-term interest rates. 
B) cause many decision makers to expect that the future rate of inflation will fall. 
C) place upward pressure on both short-term and long-term interest rates. 
D) place upward pressure on short-term interest rates and downward pressure on long-term interest rates. 
A) place downward pressure on short-term interest rates. 
B) cause many decision makers to expect that the future rate of inflation will fall. 
C) place upward pressure on both short-term and long-term interest rates. 
D) place upward pressure on short-term interest rates and downward pressure on long-term interest rates.

Question 9

Why didn't the Fed's quantitative easing policies exert a stronger impact on aggregate demand and lead to a more rapid recovery during 2010-2012?

Accepted Answer

A) The low interest rates accompanying the policy failed to increase stock prices. 
B) Even though the Fed made additional reserves available to the banking system, the policy did not result in lower interest rates. 
C) The velocity of money increased, partially offsetting the impact of the Fed's low interest rate policy. 
D) The earnings of senior citizens and others from money market accounts, saving deposits, and other forms of savings fell, reducing their incentive to spend and thereby increasing aggregate demand. 
A) The low interest rates accompanying the policy failed to increase stock prices. 
B) Even though the Fed made additional reserves available to the banking system, the policy did not result in lower interest rates. 
C) The velocity of money increased, partially offsetting the impact of the Fed's low interest rate policy. 
D) The earnings of senior citizens and others from money market accounts, saving deposits, and other forms of savings fell, reducing their incentive to spend and thereby increasing aggregate demand.

Question 10

If policy makers wanted to use both monetary and fiscal policy to stimulate demand and reduce a high rate of unemployment, which of the following would be most appropriate?

Accepted Answer

A) a larger budget deficit and the purchase of securities in the open market 
B) a government surplus and the sale of securities in the open market 
C) a larger government deficit and an increase in the discount rate 
D) a government surplus and a reduction in the discount rate 
A) a larger budget deficit and the purchase of securities in the open market 
B) a government surplus and the sale of securities in the open market 
C) a larger government deficit and an increase in the discount rate 
D) a government surplus and a reduction in the discount rate

Question 11

If the Fed unexpectedly decreases the money supply, real GDP

Accepted Answer

A) increases because the resulting increase in the interest rate leads to a decrease in investment. 
B) increases because the resulting decrease in the interest rate leads to an increase in investment. 
C) decreases because the resulting increase in the interest rate leads to a decrease in investment. 
D) decreases because the resulting increase in the interest rate leads to an increase in investment. 
E) decreases because the resulting decrease in the interest rate leads to an increase in investment. 
A) increases because the resulting increase in the interest rate leads to a decrease in investment. 
B) increases because the resulting decrease in the interest rate leads to an increase in investment. 
C) decreases because the resulting increase in the interest rate leads to a decrease in investment. 
D) decreases because the resulting increase in the interest rate leads to an increase in investment. 
E) decreases because the resulting decrease in the interest rate leads to an increase in investment.

Question 12

What happens to the aggregate demand curve when the Fed reduces the money supply?

Accepted Answer

A) It shifts leftward, lowering real GDP and the price level. 
B) It shifts leftward, raising real GDP and the price level. 
C) It shifts leftward, lowering real GDP but raising the price level. 
D) It shifts rightward, raising real GDP and the price level. 
E) It shifts rightward, lowering real GDP but raising the price level. 
A) It shifts leftward, lowering real GDP and the price level. 
B) It shifts leftward, raising real GDP and the price level. 
C) It shifts leftward, lowering real GDP but raising the price level. 
D) It shifts rightward, raising real GDP and the price level. 
E) It shifts rightward, lowering real GDP but raising the price level.

Question 13

An unexpected increase in the supply of money will

Accepted Answer

A) reduce the real rate of interest and, thereby, trigger an increase in current spending by households and businesses. 
B) reduce aggregate demand and real output in the short run. 
C) increase only the general level of prices in the short run. 
D) lead to a higher rate of unemployment in the short run. 
A) reduce the real rate of interest and, thereby, trigger an increase in current spending by households and businesses. 
B) reduce aggregate demand and real output in the short run. 
C) increase only the general level of prices in the short run. 
D) lead to a higher rate of unemployment in the short run.

Question 14

According to the quantity theory of money, which one of the following economic variables would change in response to an increase in the money supply?

Accepted Answer

A) prices 
B) real income 
C) velocity 
D) employment 
A) prices 
B) real income 
C) velocity 
D) employment

Question 15

If the Federal Reserve unexpectedly increases the money supply, which of the following will most likely happen in the short run?

Accepted Answer

A) real GDP will rise. 
B) real GDP will fall. 
C) real interest rates will rise. 
D) the budget deficit will rise. 
A) real GDP will rise. 
B) real GDP will fall. 
C) real interest rates will rise. 
D) the budget deficit will rise.

Question 16

Unanticipated restrictive monetary policy would tend to cause

Accepted Answer

A) real interest rates to rise. 
B) the exchange rate value of the dollar to fall (the dollar to depreciate). 
C) loans to become more available for small businesses. 
D) asset prices to rise. 
A) real interest rates to rise. 
B) the exchange rate value of the dollar to fall (the dollar to depreciate). 
C) loans to become more available for small businesses. 
D) asset prices to rise.

Question 17

Figure 14-4  
-In Figure 14-4, an unanticipated shift to a more restrictive monetary policy will shift

Accepted Answer

A) AD to the right and temporarily increase real GDP. 
B) AD to the left and temporarily reduce real GDP. 
C) AD to the right and SRAS to the left and lead to higher prices (inflation). 
D) both AD and SRAS to the right and lead to an increase in real GDP. 
A) AD to the right and temporarily increase real GDP. 
B) AD to the left and temporarily reduce real GDP. 
C) AD to the right and SRAS to the left and lead to higher prices (inflation). 
D) both AD and SRAS to the right and lead to an increase in real GDP.

Question 18

If the Fed fears an economic downturn, it would be most likely to

Accepted Answer

A) buy additional bonds in order to reduce the federal funds rate. 
B) buy additional bonds in order to increase the federal funds rate. 
C) sell additional bonds in order to increase the federal funds rate. 
D) sell additional bonds in order to reduce the federal funds rate. 
A) buy additional bonds in order to reduce the federal funds rate. 
B) buy additional bonds in order to increase the federal funds rate. 
C) sell additional bonds in order to increase the federal funds rate. 
D) sell additional bonds in order to reduce the federal funds rate.

Question 19

Which of the following contributed to the strong auto sales and soaring housing prices during 2002-2004?

Accepted Answer

A) the Fed's high-interest rate policy during the period 
B) the tightening of loan standards by commercial lenders 
C) the increasing popularity of fixed-rate, long-term loans to lock in low interest rates 
D) the Fed's low-interest rate policy during the period 
A) the Fed's high-interest rate policy during the period 
B) the tightening of loan standards by commercial lenders 
C) the increasing popularity of fixed-rate, long-term loans to lock in low interest rates 
D) the Fed's low-interest rate policy during the period

Question 20

The short run sequence of events following an unanticipated shift to restrictive monetary policy would be higher interest rates followed by dollar

Accepted Answer

A) depreciation, higher exports, and lower imports. 
B) depreciation, lower exports, and higher imports. 
C) appreciation, lower exports, and higher imports. 
D) appreciation, higher exports, and lower imports. 
A) depreciation, higher exports, and lower imports. 
B) depreciation, lower exports, and higher imports. 
C) appreciation, lower exports, and higher imports. 
D) appreciation, higher exports, and lower imports.

Which of the following is true of home mortgage loans since the late 1990s?

If the Fed unexpectedly shifts to a more restrictive monetary policy, which of the following will most likely occur in the short run?

Shifts in monetary policy will

The primary cause of inflation is

Which of the following contributed to the financial crisis of 2008?

In the short run, an unanticipated shift to a more restrictive monetary policy is most likely to result in

Starting from a position of macroeconomic equilibrium at the full-employment level of real GDP, in the short run an unanticipated increase in the money supply will

When the Fed buys bonds and injects additional reserves into the banking system, this action will

Why didn't the Fed's quantitative easing policies exert a stronger impact on aggregate demand and lead to a more rapid recovery during 2010-2012?

If policy makers wanted to use both monetary and fiscal policy to stimulate demand and reduce a high rate of unemployment, which of the following would be most appropriate?

If the Fed unexpectedly decreases the money supply, real GDP

What happens to the aggregate demand curve when the Fed reduces the money supply?

An unexpected increase in the supply of money will

According to the quantity theory of money, which one of the following economic variables would change in response to an increase in the money supply?

If the Federal Reserve unexpectedly increases the money supply, which of the following will most likely happen in the short run?

Unanticipated restrictive monetary policy would tend to cause

Figure 14-4 -In Figure 14-4, an unanticipated shift to a more restrictive monetary policy will shift

If the Fed fears an economic downturn, it would be most likely to

Which of the following contributed to the strong auto sales and soaring housing prices during 2002-2004?

The short run sequence of events following an unanticipated shift to restrictive monetary policy would be higher interest rates followed by dollar

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy, Incentives, and Secondary Effects

Money and the Banking System

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Filters

Exam 14: Modern Macroeconomics and Monetary Policy

Which of the following is true of home mortgage loans since the late 1990s?

If the Fed unexpectedly shifts to a more restrictive monetary policy, which of the following will most likely occur in the short run?

Shifts in monetary policy will

The primary cause of inflation is

Which of the following contributed to the financial crisis of 2008?

In the short run, an unanticipated shift to a more restrictive monetary policy is most likely to result in

Starting from a position of macroeconomic equilibrium at the full-employment level of real GDP, in the short run an unanticipated increase in the money supply will

When the Fed buys bonds and injects additional reserves into the banking system, this action will

Why didn't the Fed's quantitative easing policies exert a stronger impact on aggregate demand and lead to a more rapid recovery during 2010-2012?

If policy makers wanted to use both monetary and fiscal policy to stimulate demand and reduce a high rate of unemployment, which of the following would be most appropriate?

If the Fed unexpectedly decreases the money supply, real GDP

What happens to the aggregate demand curve when the Fed reduces the money supply?

An unexpected increase in the supply of money will

According to the quantity theory of money, which one of the following economic variables would change in response to an increase in the money supply?

If the Federal Reserve unexpectedly increases the money supply, which of the following will most likely happen in the short run?

Unanticipated restrictive monetary policy would tend to cause

Figure 14-4 -In Figure 14-4, an unanticipated shift to a more restrictive monetary policy will shift

If the Fed fears an economic downturn, it would be most likely to

Which of the following contributed to the strong auto sales and soaring housing prices during 2002-2004?

The short run sequence of events following an unanticipated shift to restrictive monetary policy would be higher interest rates followed by dollar

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy, Incentives, and Secondary Effects

Money and the Banking System

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Filters