Question 1

If the economy is in the liquidity trap, people think that

Accepted Answer

A) the money supply will soon rise. 
B) bond prices have nowhere to go but up. 
C) bond prices will not change. 
D) bond prices have nowhere to go but down. 
E) none of the above 
A) the money supply will soon rise. 
B) bond prices have nowhere to go but up. 
C) bond prices will not change. 
D) bond prices have nowhere to go but down. 
E) none of the above

Question 2

According to Keynesian economists, monetary policy is __________ effective at changing the price level and Real GDP.

Accepted Answer

A) always 
B) sometimes 
C) never 
D) There is no Keynesian position with respect to monetary policy. 
A) always 
B) sometimes 
C) never 
D) There is no Keynesian position with respect to monetary policy.

Question 3

What do Keynesians mean when they say that "you can't push on a string"?

Accepted Answer

A) An increase in the supply of goods does not really create its own demand. 
B) If the government reduces taxes in an attempt to increase household consumption, it will not always work. 
C) An increase in the money supply will not always stimulate the economy. 
D) If the government wants to get something done, the best way is not to force the issue, but to offer incentives. 
E) If the government puts too much expansionary pressure on the economy, it will probably "overheat." 
A) An increase in the supply of goods does not really create its own demand. 
B) If the government reduces taxes in an attempt to increase household consumption, it will not always work. 
C) An increase in the money supply will not always stimulate the economy. 
D) If the government wants to get something done, the best way is not to force the issue, but to offer incentives. 
E) If the government puts too much expansionary pressure on the economy, it will probably "overheat."

Question 4

If a country's rules-based monetary policy sets the annual money supply growth rate equal to the average annual growth rate of Real GDP, and velocity is a constant, then the price level

Accepted Answer

A) is also constant. 
B) rises in years when Real GDP rises. 
C) rises in years when Real GDP growth is less than average. 
D) rises in years when Real GDP growth is greater than average. 
A) is also constant. 
B) rises in years when Real GDP rises. 
C) rises in years when Real GDP growth is less than average. 
D) rises in years when Real GDP growth is greater than average.

Question 5

Persons who argue that monetary and fiscal policy should be deliberately used to smooth out the business cycle are called

Accepted Answer

A) activists. 
B) disciples. 
C) nonactivists. 
D) controllers. 
A) activists. 
B) disciples. 
C) nonactivists. 
D) controllers.

Question 6

Which of the following statements is likely to be made by an economist who believes in activist monetary policy? (1) The more closely monetary policy can be designed to meet the particulars of a given economic environment, the better. (2) Because of long and uncertain time lags, activist monetary policy may be destabilizing rather than stabilizing. (3) There is sufficient flexibility in wages and prices in modern economies to allow the economy to equilibrate in reasonable speed at the natural level of Real GDP. (4) The "same-for-all-seasons" monetary policy is the way to proceed. (5) There is evidence that monetary policy in the mid-1970s caused a recession.

Accepted Answer

A) (1), (2), and (3) 
B) (1), (4), and (5) 
C) (1) and (5) 
D) (4) and (5) 
E) (1), (3), and (4) 
A) (1), (2), and (3) 
B) (1), (4), and (5) 
C) (1) and (5) 
D) (4) and (5) 
E) (1), (3), and (4)

Question 7

Exhibit 15-1
  
-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 8

Suppose that there is a financial crisis, and people choose to spend less. As a result, velocity drops by 5 percent. According to market monetarists, if the GDP target growth rate is 3 percent, the Fed would need to increase the money supply by ______________ percent in order to achieve their GDP target.

Accepted Answer

A) 8 
B) 2 
C) 4 
D) 5 
A) 8 
B) 2 
C) 4 
D) 5

Question 9

Exhibit 15-2
  
-Refer to Exhibit 15-2. If the interest rate is i1 and the relevant money supply curve is S2, 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 10

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 11

Under a constant growth rate of money rule of 3 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) 6 percent. 
B) -6 percent. 
C) 9 percent. 
D) -9 percent. 
E) constant at zero. 
A) 6 percent. 
B) -6 percent. 
C) 9 percent. 
D) -9 percent. 
E) constant at zero.

Question 12

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 13

Economist Smith favors an activist monetary policy. He says that if the economy is going to be stabilized over time, it is necessary to fine-tune the money supply to the particular economic conditions that exist. What would economist Jones, who favors rules-based monetary policy, say to economist Smith?

Accepted Answer

A) Because of long lags, activist monetary policy is likely to be destabilizing rather than stabilizing. 
B) There have been times when activist monetary policy has worked well. 
C) There have been times when a constant-money-growth-rate rule has worked poorly. 
D) Flexibility is desirable when it comes to monetary policy. 
A) Because of long lags, activist monetary policy is likely to be destabilizing rather than stabilizing. 
B) There have been times when activist monetary policy has worked well. 
C) There have been times when a constant-money-growth-rate rule has worked poorly. 
D) Flexibility is desirable when it comes to monetary policy.

Question 14

Traditional monetarists advocate for a rule for _____________ , while market monetarists argue that monetary policy should focus on a ______________________.

Accepted Answer

A) nominal GDP target; money supply growth 
B) Real GDP target; nominal GDP target 
C) money supply growth; Real GDP target 
D) money supply growth; nominal GDP target 
A) nominal GDP target; money supply growth 
B) Real GDP target; nominal GDP target 
C) money supply growth; Real GDP target 
D) money supply growth; nominal GDP target

Question 15

Nonactivists favor

Accepted Answer

A) the use of fiscal policies to manage the economy. 
B) the use of monetary polices to manage the economy. 
C) fine-tuning. 
D) rules for conducting monetary and fiscal policies. 
A) the use of fiscal policies to manage the economy. 
B) the use of monetary polices to manage the economy. 
C) fine-tuning. 
D) rules for conducting monetary and fiscal policies.

Question 16

Economic fine-tuning is the (usually frequent) use of

Accepted Answer

A) monetary policy that is based on a predetermined steady growth rate in the money supply to counteract even small undesirable movements in economic activity. 
B) only fiscal policy to counteract even small undesirable movements in economic activity. 
C) monetary and fiscal policies to counteract even small undesirable movements in economic activity. 
D) fiscal policy that both balances the budget and counteracts even small undesirable movements in economic activity. 
A) monetary policy that is based on a predetermined steady growth rate in the money supply to counteract even small undesirable movements in economic activity. 
B) only fiscal policy to counteract even small undesirable movements in economic activity. 
C) monetary and fiscal policies to counteract even small undesirable movements in economic activity. 
D) fiscal policy that both balances the budget and counteracts even small undesirable movements in economic activity.

Question 17

Exhibit 15-2
  
-Refer to Exhibit 15-2. A(n)__________ in the money supply from S1 to S2 would have a tendency to __________ the amount of investment, assuming investment is sensitive to changes in the interest rate.

Accepted Answer

A) decrease; raise 
B) decrease; lower 
C) increase; raise 
D) increase; lower 
A) decrease; raise 
B) decrease; lower 
C) increase; raise 
D) increase; lower

Question 18

The economy is in a recessionary gap, wages are inflexible downward, and investment spending is insensitive to changes in the interest rate. In this situation, a Keynesian is likely to advocate the use of __________ policy.

Accepted Answer

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

Question 19

Exhibit 15-6​
​
  
-Refer to Exhibit 15-6. At Q1, this economy is in a(n) ___________________ gap. An economist who believes that the economy is self-regulating would assert that the ________________ curve will shift rightward to push the economy to point _____________.

Accepted Answer

A) inflationary; SRAS; A 
B) recessionary; SRAS; A 
C) inflationary; AD; B 
D) recessionary; AD; B 
A) inflationary; SRAS; A 
B) recessionary; SRAS; A 
C) inflationary; AD; B 
D) recessionary; AD; B

Question 20

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

Exam 15: Monetary Policy

If the economy is in the liquidity trap, people think that

According to Keynesian economists, monetary policy is __________ effective at changing the price level and Real GDP.

What do Keynesians mean when they say that "you can't push on a string"?

If a country's rules-based monetary policy sets the annual money supply growth rate equal to the average annual growth rate of Real GDP, and velocity is a constant, then the price level

Persons who argue that monetary and fiscal policy should be deliberately used to smooth out the business cycle are called

Exhibit 15-1 -Refer to Exhibit 15-l. A Keynesian monetary policy to eliminate an inflationary gap can be portrayed as a movement between point

Exhibit 15-2 -Refer to Exhibit 15-2. If the interest rate is i1 and the relevant money supply curve is S2, then there is a

The quantity demanded of money falls as the

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

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.

Traditional monetarists advocate for a rule for _____________ , while market monetarists argue that monetary policy should focus on a ______________________.

Nonactivists favor

Economic fine-tuning is the (usually frequent) use of

Exhibit 15-2 -Refer to Exhibit 15-2. A(n)__________ in the money supply from S1 to S2 would have a tendency to __________ the amount of investment, assuming investment is sensitive to changes in the interest rate.

The economy is in a recessionary gap, wages are inflexible downward, and investment spending is insensitive to changes in the interest rate. In this situation, a Keynesian is likely to advocate the use of __________ policy.

Exhibit 15-6​ ​ -Refer to Exhibit 15-6. At Q1, this economy is in a(n) ___________________ gap. An economist who believes that the economy is self-regulating would assert that the ________________ curve will shift rightward to push the economy to point _____________.

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

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand Theory

Prices Free Controlled and Relative

Supply Demand and Price Applications

Macroeconomic Measurements Part I Prices and Unemployment

Macroeconomic Measurements Part II 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

Debates in Macroeconomics Over the Role and Effects of Government

Elasticity

Consumer Choice 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

The Economic Case for and Against Government Five Topics Considered

Stocks Bonds Futures and Options

Filters

Exhibit 15-2 -Refer to Exhibit 15-2. If the interest rate is i₁ and the relevant money supply curve is S₂, then there is a

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.

Traditional monetarists advocate for a rule for _ , while market monetarists argue that monetary policy should focus on a __________.

Exhibit 15-2 -Refer to Exhibit 15-2. A(n) in the money supply from S₁ to S₂ would have a tendency to the amount of investment, assuming investment is sensitive to changes in the interest rate.

Exhibit 15-6 -Refer to Exhibit 15-6. At Q₁, this economy is in a(n) _______ gap. An economist who believes that the economy is self-regulating would assert that the curve will shift rightward to push the economy to point _.

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