Question 1

The Austrian view of the business cycle stresses that

Accepted Answer

A) expansionary monetary policy will stimulate aggregate demand and thereby promote lengthy economic expansions. 
B) the velocity of money is constant and therefore an increase in the quantity of money will lead only to a proportional increase in the general level of prices. 
C) expansionary monetary policy will lead to higher interest rates that will retard investment and throw the economy into a recession. 
D) the interest rate is one of the most important prices and manipulation of the interest rate by monetary policy-makers is a major source of economic instability. 
A) expansionary monetary policy will stimulate aggregate demand and thereby promote lengthy economic expansions. 
B) the velocity of money is constant and therefore an increase in the quantity of money will lead only to a proportional increase in the general level of prices. 
C) expansionary monetary policy will lead to higher interest rates that will retard investment and throw the economy into a recession. 
D) the interest rate is one of the most important prices and manipulation of the interest rate by monetary policy-makers is a major source of economic instability.

Question 2

In the short run, which of the following is the most likely effect of an unanticipated move to a more expansionary monetary policy?

Accepted Answer

A) an increase in employment 
B) a decrease in employment 
C) an increase in the velocity of money 
D) an increase in prices proportional to the rise in the money supply 
A) an increase in employment 
B) a decrease in employment 
C) an increase in the velocity of money 
D) an increase in prices proportional to the rise in the money supply

Question 3

If the Federal Reserve lowered the reserve requirements imposed on the banking industry, which of the following will most likely happen in the short run?

Accepted Answer

A) an increase in the demand for loanable funds, which will exert upward pressure on the interest rate 
B) an increase in the supply of loanable funds, which will exert downward pressure on the interest rate 
C) an increase in the unemployment rate 
D) a decrease in the rate of inflation 
A) an increase in the demand for loanable funds, which will exert upward pressure on the interest rate 
B) an increase in the supply of loanable funds, which will exert downward pressure on the interest rate 
C) an increase in the unemployment rate 
D) a decrease in the rate of inflation

Question 4

According to modern analysis, what is the link between the long-run growth rate of the money supply and inflation?

Accepted Answer

A) there is little correlation between money growth and inflation 
B) there is a positive link between money growth and inflation, contrary to the quantity theory of money 
C) there is a strong, positive link between rapid money growth and inflation 
D) there is an inverse relationship between rapid money growth and inflation 
A) there is little correlation between money growth and inflation 
B) there is a positive link between money growth and inflation, contrary to the quantity theory of money 
C) there is a strong, positive link between rapid money growth and inflation 
D) there is an inverse relationship between rapid money growth and inflation

Question 5

The cost of holding money balances increases when

Accepted Answer

A) the inflation rate decreases. 
B) the nominal interest rate increases. 
C) the nominal interest rate decreases. 
D) nominal GDP is far from full employment. 
A) the inflation rate decreases. 
B) the nominal interest rate increases. 
C) the nominal interest rate decreases. 
D) nominal GDP is far from full employment.

Question 6

The Fed's sale of U.S. government securities in its open market operations constitutes

Accepted Answer

A) a restrictive policy because it lowers the amount of total reserves in the banking system. 
B) a restrictive policy because it raise the amount of required reserves in the banking system. 
C) an expansionary policy because it raises the amount of total and excess reserves in the banking system. 
D) an expansionary policy because it raises the amount of excess reserves and lowers the amount of required reserves in the banking system. 
E) an expansionary policy because it raises the amount of required reserves in the banking system. 
A) a restrictive policy because it lowers the amount of total reserves in the banking system. 
B) a restrictive policy because it raise the amount of required reserves in the banking system. 
C) an expansionary policy because it raises the amount of total and excess reserves in the banking system. 
D) an expansionary policy because it raises the amount of excess reserves and lowers the amount of required reserves in the banking system. 
E) an expansionary policy because it raises the amount of required reserves in the banking system.

Question 7

Discuss the following views concerning the impact of monetary policy:
a.classicals
b.Keynesians
c.monetarists
d."modern view"

Accepted Answer

a.
The classicals believe in the quantit

Question 8

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

Accepted Answer

A) encourage banks to provide loans by lowering the discount rate. 
B) encourage banks to provide loans by raising the discount rate. 
C) restrict bank lending by lowering the discount rate. 
D) restrict bank lending by raising the discount rate. 
E) restrict bank lending by lowering the federal funds rate. 
A) encourage banks to provide loans by lowering the discount rate. 
B) encourage banks to provide loans by raising the discount rate. 
C) restrict bank lending by lowering the discount rate. 
D) restrict bank lending by raising the discount rate. 
E) restrict bank lending by lowering the federal funds rate.

Question 9

According to the monetarists, what is the primary cause of a recession? Explain the steps by which reductions in the money supply lead to reductions in real output.

Accepted Answer

Monetarists consider unanticipated restr

Question 10

Given the strict quantity theory of money, if the quantity of money were decreased by 50 percent, prices would

Accepted Answer

A) fall by 50 percent. 
B) rise by 50 percent. 
C) increase by 100 percent. 
D) decrease by 100 percent. 
A) fall by 50 percent. 
B) rise by 50 percent. 
C) increase by 100 percent. 
D) decrease by 100 percent.

Question 11

An expansionary monetary policy is most likely to produce an inflationary effect with little impact on output when the economy

Accepted Answer

A) is near full employment and the short-run aggregate supply curve is flat. 
B) is near full employment and the short-run aggregate supply curve is steep. 
C) has substantial unemployment and the short-run aggregate supply curve is steep. 
D) has substantial unemployment and the short-run aggregate supply curve is flat. 
A) is near full employment and the short-run aggregate supply curve is flat. 
B) is near full employment and the short-run aggregate supply curve is steep. 
C) has substantial unemployment and the short-run aggregate supply curve is steep. 
D) has substantial unemployment and the short-run aggregate supply curve is flat.

Question 12

According to the Austrian view of the business cycle, expansionary monetary policy that pushes the interest rate to an artificially low level will

Accepted Answer

A) lead to an increase in long-term investments like houses and office buildings without generating the savings that will be required for their purchase in the future. 
B) lead to a reduction in long-term investments like houses and office buildings that will quickly throw the economy into a recession. 
C) lead to an increase in long-term investments like houses and office buildings that will enhance the long-term growth of the economy. 
D) lead to a reduction in investment, but there will be no impact on output, employment or the general level of prices. 
A) lead to an increase in long-term investments like houses and office buildings without generating the savings that will be required for their purchase in the future. 
B) lead to a reduction in long-term investments like houses and office buildings that will quickly throw the economy into a recession. 
C) lead to an increase in long-term investments like houses and office buildings that will enhance the long-term growth of the economy. 
D) lead to a reduction in investment, but there will be no impact on output, employment or the general level of prices.

Question 13

Which of the following options would be most likely to cause an increase in short-term real interest rates?

Accepted Answer

A) The Federal Reserve cuts the discount rate. 
B) The Federal Reserve lowers the reserve requirement. 
C) The Federal Reserve sells bonds in the open market. 
D) The federal budget is shifted toward a surplus. 
A) The Federal Reserve cuts the discount rate. 
B) The Federal Reserve lowers the reserve requirement. 
C) The Federal Reserve sells bonds in the open market. 
D) The federal budget is shifted toward a surplus.

Question 14

If the economy is in an inflationary boom, the Fed would most likely

Accepted Answer

A) increase bank reserves by raising the discount rate. 
B) increase bank reserves by buying government securities 
C) decrease bank reserves by lowering the discount rate. 
D) decrease bank reserves by selling government securities. 
E) decrease bank reserves by lowering the legal reserve requirement. 
A) increase bank reserves by raising the discount rate. 
B) increase bank reserves by buying government securities 
C) decrease bank reserves by lowering the discount rate. 
D) decrease bank reserves by selling government securities. 
E) decrease bank reserves by lowering the legal reserve requirement.

Question 15

When the Fed unexpectedly reduces the money supply, it will cause a decrease in aggregate demand because

Accepted Answer

A) real interest rates will rise, lowering business investment and consumer spending. 
B) the dollar will depreciate on the foreign exchange market, leading to an increase in net exports. 
C) lower interest rates will cause the value of assets (for example, stocks) to rise. 
D) the national debt will increase, causing consumers to reduce their spending. 
A) real interest rates will rise, lowering business investment and consumer spending. 
B) the dollar will depreciate on the foreign exchange market, leading to an increase in net exports. 
C) lower interest rates will cause the value of assets (for example, stocks) to rise. 
D) the national debt will increase, causing consumers to reduce their spending.

Question 16

The sharp increase in the excess reserves held by the commercial banking system since the second half of 2008 increases the potential for

Accepted Answer

A) a sharp contraction in the money supply, which is likely to increase the length and severity of the recession. 
B) a rapid increase in the money supply, potentially leading to inflation. 
C) a gradual increase in the money supply, following the trend of the previous decade. 
D) a reduction in the ability of banks to extend additional loans. 
A) a sharp contraction in the money supply, which is likely to increase the length and severity of the recession. 
B) a rapid increase in the money supply, potentially leading to inflation. 
C) a gradual increase in the money supply, following the trend of the previous decade. 
D) a reduction in the ability of banks to extend additional loans.

Question 17

An increase in the nominal interest rate would

Accepted Answer

A) encourage people to hold smaller money balances. 
B) encourage people to hold larger money balances. 
C) force the Fed to reduce the money supply. 
D) cause the real interest rate to decline. 
A) encourage people to hold smaller money balances. 
B) encourage people to hold larger money balances. 
C) force the Fed to reduce the money supply. 
D) cause the real interest rate to decline.

Question 18

In response to the severe recession of 2008-2009, the Fed

Accepted Answer

A) expanded the monetary base and pushed short-term interest rates sharply higher. 
B) reduced the size of the monetary base and pushed short-term interest rates sharply higher. 
C) more than doubled the size of the monetary base and pushed short-term interest rates to near zero. 
D) more than doubled the size of the monetary base and pushed short-term interest rates to a historic high. 
A) expanded the monetary base and pushed short-term interest rates sharply higher. 
B) reduced the size of the monetary base and pushed short-term interest rates sharply higher. 
C) more than doubled the size of the monetary base and pushed short-term interest rates to near zero. 
D) more than doubled the size of the monetary base and pushed short-term interest rates to a historic high.

Question 19

The highest interest rates in the world are found in countries

Accepted Answer

A) that have followed a monetary policy that is highly restrictive. 
B) with governments that have run large budget surpluses. 
C) with governments that have run sizable budget deficits. 
D) that have followed an expansionary monetary policy that resulted in high rates of inflation. 
A) that have followed a monetary policy that is highly restrictive. 
B) with governments that have run large budget surpluses. 
C) with governments that have run sizable budget deficits. 
D) that have followed an expansionary monetary policy that resulted in high rates of inflation.

Question 20

Use the figure below to answer the following question(s).
Figure 14-5  
-In Figure 14-5, AD1 and SRAS1 indicate an economy initially operating at full-employment output level, Y1. The long-run impact of the Fed unexpectedly shifting to a more restrictive monetary policy will be

Accepted Answer

A) a decrease in aggregate demand to AD2 and a decrease in real output to Y2. 
B) a decrease in the full-employment level of output to Y2. 
C) a decrease in aggregate demand to AD2 and an increase in short-run aggregate supply to SRAS2, causing the price level to fall to P3 and real output to remain unchanged at Y1. 
D) no change; AD and SRAS will stay at AD1 and SRAS1. 
A) a decrease in aggregate demand to AD2 and a decrease in real output to Y2. 
B) a decrease in the full-employment level of output to Y2. 
C) a decrease in aggregate demand to AD2 and an increase in short-run aggregate supply to SRAS2, causing the price level to fall to P3 and real output to remain unchanged at Y1. 
D) no change; AD and SRAS will stay at AD1 and SRAS1.

The Austrian view of the business cycle stresses that

In the short run, which of the following is the most likely effect of an unanticipated move to a more expansionary monetary policy?

If the Federal Reserve lowered the reserve requirements imposed on the banking industry, which of the following will most likely happen in the short run?

According to modern analysis, what is the link between the long-run growth rate of the money supply and inflation?

The cost of holding money balances increases when

The Fed's sale of U.S. government securities in its open market operations constitutes

Discuss the following views concerning the impact of monetary policy: a.classicals b.Keynesians c.monetarists d."modern view"

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

According to the monetarists, what is the primary cause of a recession? Explain the steps by which reductions in the money supply lead to reductions in real output.

Given the strict quantity theory of money, if the quantity of money were decreased by 50 percent, prices would

An expansionary monetary policy is most likely to produce an inflationary effect with little impact on output when the economy

According to the Austrian view of the business cycle, expansionary monetary policy that pushes the interest rate to an artificially low level will

Which of the following options would be most likely to cause an increase in short-term real interest rates?

If the economy is in an inflationary boom, the Fed would most likely

When the Fed unexpectedly reduces the money supply, it will cause a decrease in aggregate demand because

The sharp increase in the excess reserves held by the commercial banking system since the second half of 2008 increases the potential for

An increase in the nominal interest rate would

In response to the severe recession of 2008-2009, the Fed

The highest interest rates in the world are found in countries

Use the figure below to answer the following question(s). Figure 14-5 -In Figure 14-5, AD₁ and SRAS₁ indicate an economy initially operating at full-employment output level, Y₁. The long-run impact of the Fed unexpectedly shifting to a more restrictive monetary policy will be

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

The Austrian view of the business cycle stresses that

In the short run, which of the following is the most likely effect of an unanticipated move to a more expansionary monetary policy?

If the Federal Reserve lowered the reserve requirements imposed on the banking industry, which of the following will most likely happen in the short run?

According to modern analysis, what is the link between the long-run growth rate of the money supply and inflation?

The cost of holding money balances increases when

The Fed's sale of U.S. government securities in its open market operations constitutes

Discuss the following views concerning the impact of monetary policy: a.classicals b.Keynesians c.monetarists d."modern view"

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

According to the monetarists, what is the primary cause of a recession? Explain the steps by which reductions in the money supply lead to reductions in real output.

Given the strict quantity theory of money, if the quantity of money were decreased by 50 percent, prices would

An expansionary monetary policy is most likely to produce an inflationary effect with little impact on output when the economy

According to the Austrian view of the business cycle, expansionary monetary policy that pushes the interest rate to an artificially low level will

Which of the following options would be most likely to cause an increase in short-term real interest rates?

If the economy is in an inflationary boom, the Fed would most likely

When the Fed unexpectedly reduces the money supply, it will cause a decrease in aggregate demand because

The sharp increase in the excess reserves held by the commercial banking system since the second half of 2008 increases the potential for

An increase in the nominal interest rate would

In response to the severe recession of 2008-2009, the Fed

The highest interest rates in the world are found in countries

Use the figure below to answer the following question(s). Figure 14-5 -In Figure 14-5, AD1 and SRAS1 indicate an economy initially operating at full-employment output level, Y1. The long-run impact of the Fed unexpectedly shifting to a more restrictive monetary policy will be

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

Use the figure below to answer the following question(s). Figure 14-5 -In Figure 14-5, AD₁ and SRAS₁ indicate an economy initially operating at full-employment output level, Y₁. The long-run impact of the Fed unexpectedly shifting to a more restrictive monetary policy will be