Question 1

The expectations effect is the

Accepted Answer

A) increase in the interest rate brought on by an expected increase in Real GDP. 
B) increase in the interest rate due to a higher expected inflation rate. 
C) decrease in the interest rate due to an expected increase in the supply of loanable funds. 
D) idea that people form their expectations of inflation by considering all available information about past, present, and future inflation. 
E) idea that people form their expectations of inflation by considering only information about past inflation experience. 
A) increase in the interest rate brought on by an expected increase in Real GDP. 
B) increase in the interest rate due to a higher expected inflation rate. 
C) decrease in the interest rate due to an expected increase in the supply of loanable funds. 
D) idea that people form their expectations of inflation by considering all available information about past, present, and future inflation. 
E) idea that people form their expectations of inflation by considering only information about past inflation experience. B

Question 2

The change in the interest rate due to a change in the supply of loanable funds is referred to as the __________ effect.

Accepted Answer

A) income 
B) expectations 
C) liquidity 
D) real 
A) income 
B) expectations 
C) liquidity 
D) real C

Question 3

When the Fed conducts open market operations, the impact of the buying or selling of bonds will include changes in

Accepted Answer

A) the money supply. 
B) interest rates. 
C) the expected rate of inflation. 
D) a and c 
E) a, b and c 
A) the money supply. 
B) interest rates. 
C) the expected rate of inflation. 
D) a and c 
E) a, b and c E

Question 4

The simple quantity theory of money assumes that

Accepted Answer

A) velocity and Real GDP are constant. 
B) only velocity is constant. 
C) only the money supply is constant. 
D) only the price level is constant. 
A) velocity and Real GDP are constant. 
B) only velocity is constant. 
C) only the money supply is constant. 
D) only the price level is constant.

Question 5

Monetarists can be described as a group of macroeconomists who

Accepted Answer

A) emphasize the importance of the federal government's involvement in the economy to dampen the harmful effects of the business cycle. 
B) emphasize the importance of the money supply as a determinant of macroeconomic activity. 
C) tend to view government spending and taxation policy as the chief means of stabilizing the economy. 
D) feel that money should not be created in the private banking system, but only by government. 
A) emphasize the importance of the federal government's involvement in the economy to dampen the harmful effects of the business cycle. 
B) emphasize the importance of the money supply as a determinant of macroeconomic activity. 
C) tend to view government spending and taxation policy as the chief means of stabilizing the economy. 
D) feel that money should not be created in the private banking system, but only by government.

Question 6

If the real interest rate is 4.1 percent and the expected inflation rate is 0.7 percent, the nominal interest rate is

Accepted Answer

A) 3.4 percent. 
B) 7.1 percent. 
C) 4.8 percent. 
D) 5.8 percent. 
E) 0.5 percent. 
A) 3.4 percent. 
B) 7.1 percent. 
C) 4.8 percent. 
D) 5.8 percent. 
E) 0.5 percent.

Question 7

Which of the following statements is true?

Accepted Answer

A) Velocity equals the money supply. 
B) GDP is larger than the money supply if velocity is greater than 1. 
C) The money supply must be equal to GDP. 
D) GDP is always twice the money supply. 
A) Velocity equals the money supply. 
B) GDP is larger than the money supply if velocity is greater than 1. 
C) The money supply must be equal to GDP. 
D) GDP is always twice the money supply.

Question 8

The liquidity effect is the

Accepted Answer

A) decrease in the interest rate due to an increase in the supply of loanable funds. 
B) increase in the interest rate due to an increase in national income. 
C) increase in the interest rate due to a higher expected inflation rate. 
D) increase in the interest rate due to an increase in the price level. 
A) decrease in the interest rate due to an increase in the supply of loanable funds. 
B) increase in the interest rate due to an increase in national income. 
C) increase in the interest rate due to a higher expected inflation rate. 
D) increase in the interest rate due to an increase in the price level.

Question 9

Which of the following factors can change continually in such a way as to bring about continued increases in aggregate demand?

Accepted Answer

A) autonomous consumption 
B) autonomous investment 
C) government spending 
D) the money supply 
E) all of the above 
A) autonomous consumption 
B) autonomous investment 
C) government spending 
D) the money supply 
E) all of the above

Question 10

If the nominal interest rate is 5 percent and the expected inflation rate is 2.1 percent, the real interest rate is

Accepted Answer

A) 1.9 percent. 
B) 7.1 percent. 
C) 4.1 percent. 
D) 2.9 percent. 
E) 0.29 percent. 
A) 1.9 percent. 
B) 7.1 percent. 
C) 4.1 percent. 
D) 2.9 percent. 
E) 0.29 percent.

Question 11

If the money supply is $700, velocity is 5, then in the equation of exchange, PQ is

Accepted Answer

A) $705. 
B) $140. 
C) $1,400. 
D) $3,500. 
E) $350. 
A) $705. 
B) $140. 
C) $1,400. 
D) $3,500. 
E) $350.

Question 12

Grade inflation at colleges and universities is _________ to general price inflation in that ______________.

Accepted Answer

A) similar; both can be deceptive. 
B) not comparable; it is impossible for grades to be inflated. 
C) similar; grades tend to go up when prices are rising. 
D) not comparable; grades tend to fall while prices tend to rise. 
A) similar; both can be deceptive. 
B) not comparable; it is impossible for grades to be inflated. 
C) similar; grades tend to go up when prices are rising. 
D) not comparable; grades tend to fall while prices tend to rise.

Question 13

The equation of exchange is

Accepted Answer

A) an identity. 
B) a theory. 
C) an abstraction 
D) a hypothesis. 
E) a, b, and c 
A) an identity. 
B) a theory. 
C) an abstraction 
D) a hypothesis. 
E) a, b, and c

Question 14

What is the only factor that can continually increase in such a way as to bring about continued increases in aggregate demand, and thus bring about continued inflation? Give two reasons why government purchases cannot continually increase, and so cannot be the cause of continued inflation.

Accepted Answer

The only factor that can continually inc

Question 15

Continued inflation occurs

Accepted Answer

A) if there is a sustained increase in the price level. 
B) only if there is a sustained increase in the price of every good and service. 
C) only if there is a sustained increase in the price of every good and service by the same dollar amount. 
D) only if there is a sustained increase in the price of every good and service by the same percentage. 
A) if there is a sustained increase in the price level. 
B) only if there is a sustained increase in the price of every good and service. 
C) only if there is a sustained increase in the price of every good and service by the same dollar amount. 
D) only if there is a sustained increase in the price of every good and service by the same percentage.

Question 16

According to the simple quantity theory of money, an increase in the money supply will shift the __________ curve to the right and raise __________.

Accepted Answer

A) AD; Real GDP 
B) AS; the price level 
C) AD; the price level 
D) AS; Real GDP 
E) none of the above 
A) AD; Real GDP 
B) AS; the price level 
C) AD; the price level 
D) AS; Real GDP 
E) none of the above

Question 17

In the equation of exchange, the money supply multiplied by velocity equals

Accepted Answer

A) GDP. 
B) the price level. 
C) the quantity of goods produced. 
D) the average number of times that a dollar is used to purchase a final good or service. 
A) GDP. 
B) the price level. 
C) the quantity of goods produced. 
D) the average number of times that a dollar is used to purchase a final good or service.

Question 18

Exhibit 14-2
  
-Refer to Exhibit 14-2. The economy moves from point 1 to 2 to 3 to 4 to 5 to 6 to 7. Is this consistent with one-shot declines originating on the supply-side of the economy combined with continued increases in aggregate demand?

Accepted Answer

A) No, continued supply-induced inflation would be more likely to move the economy from point 1 to 2 and then in a northwesterly direction from point 2. 
B) No, continued supply-induced inflation would be more likely to move the economy from point 1 to 3 to 5. 
C) No, continued supply-induced inflation would be more likely to move the economy from 1 to 2 and then in a southwesterly direction from point 2. 
D) Yes. 
A) No, continued supply-induced inflation would be more likely to move the economy from point 1 to 2 and then in a northwesterly direction from point 2. 
B) No, continued supply-induced inflation would be more likely to move the economy from point 1 to 3 to 5. 
C) No, continued supply-induced inflation would be more likely to move the economy from 1 to 2 and then in a southwesterly direction from point 2. 
D) Yes.

Question 19

The equation of exchange

Accepted Answer

A) is a theory of the macroeconomy as it stands. 
B) can be turned into a theory of the macroeconomy if certain assumptions are made about some of its variables. 
C) cannot be turned into a theory of the macroeconomy. 
D) is a theory in microeconomics as it stands. 
A) is a theory of the macroeconomy as it stands. 
B) can be turned into a theory of the macroeconomy if certain assumptions are made about some of its variables. 
C) cannot be turned into a theory of the macroeconomy. 
D) is a theory in microeconomics as it stands.

Question 20

In the equation of exchange, GDP divided by the money supply is equal to

Accepted Answer

A) M. 
B) V. 
C) P. 
D) Q. 
A) M. 
B) V. 
C) P. 
D) Q.

Exam 14: Money and the Economy

The expectations effect is the

The change in the interest rate due to a change in the supply of loanable funds is referred to as the __________ effect.

When the Fed conducts open market operations, the impact of the buying or selling of bonds will include changes in

The simple quantity theory of money assumes that

Monetarists can be described as a group of macroeconomists who

If the real interest rate is 4.1 percent and the expected inflation rate is 0.7 percent, the nominal interest rate is

Which of the following statements is true?

The liquidity effect is the

Which of the following factors can change continually in such a way as to bring about continued increases in aggregate demand?

If the nominal interest rate is 5 percent and the expected inflation rate is 2.1 percent, the real interest rate is

If the money supply is $700, velocity is 5, then in the equation of exchange, PQ is

Grade inflation at colleges and universities is _________ to general price inflation in that ______________.

The equation of exchange is

What is the only factor that can continually increase in such a way as to bring about continued increases in aggregate demand, and thus bring about continued inflation? Give two reasons why government purchases cannot continually increase, and so cannot be the cause of continued inflation.

Continued inflation occurs

According to the simple quantity theory of money, an increase in the money supply will shift the __________ curve to the right and raise __________.

In the equation of exchange, the money supply multiplied by velocity equals

Exhibit 14-2 -Refer to Exhibit 14-2. The economy moves from point 1 to 2 to 3 to 4 to 5 to 6 to 7. Is this consistent with one-shot declines originating on the supply-side of the economy combined with continued increases in aggregate demand?

The equation of exchange

In the equation of exchange, GDP divided by the money supply is equal 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 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

Monetary Policy

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

Grade inflation at colleges and universities is _ to general price inflation in that ______.

According to the simple quantity theory of money, an increase in the money supply will shift the curve to the right and raise .