Question 1

Which of the following was an argument for using fiscal policy in situations like the Great Recession?

Accepted Answer

A)  Congress can act quickly. 
B)  The size of a recessionary gap may require the use of both fiscal and monetary policy. 
C)  Once the federal funds rate is reduced to zero, monetary policy is less effective. 
D)  all of the above 
A)  Congress can act quickly. 
B)  The size of a recessionary gap may require the use of both fiscal and monetary policy. 
C)  Once the federal funds rate is reduced to zero, monetary policy is less effective. 
D)  all of the above

Question 2

The equation of exchange is M × Y = P × V.

Accepted Answer

A) True 
 B)False

Question 3

Following an anticapitalist coup, Freedonia forces all citizens to turn in and stop using all credit cards.What is the most likely effect of this on velocity?

Accepted Answer

A)  It will decrease. 
B)  It will increase. 
C)  It will remain constant. 
D)  Velocity is unrelated to credit cards. 
A)  It will decrease. 
B)  It will increase. 
C)  It will remain constant. 
D)  Velocity is unrelated to credit cards.

Question 4

The inability of Congress to pass a stimulus package after September 11, 2001, could be used as an argument for

Accepted Answer

A)  activist fiscal policy. 
B)  activist monetary policy. 
C)  expansionary fiscal policy. 
D)  contractionary monetary policy. 
A)  activist fiscal policy. 
B)  activist monetary policy. 
C)  expansionary fiscal policy. 
D)  contractionary monetary policy.

Question 5

Which of the following lags makes stabilization policy more problematic?

Accepted Answer

A)  expenditure lags 
B)  recognition lags 
C)  policy lags 
D)  All of the above. 
A)  expenditure lags 
B)  recognition lags 
C)  policy lags 
D)  All of the above.

Question 6

The differences between monetarist and Keynesian theories are more apparent than real.

Accepted Answer

A) True 
 B)False

Question 7

What is inflation targeting?

Accepted Answer

A)  Making sure inflation is reduced to zero. 
B)  Increasing the required reserve ratio when there is inflation. 
C)  Increasing the supply of money in the economy. 
D)  Aiming for a particular inflation level. 
A)  Making sure inflation is reduced to zero. 
B)  Increasing the required reserve ratio when there is inflation. 
C)  Increasing the supply of money in the economy. 
D)  Aiming for a particular inflation level.

Question 8

Most economists think that it is impossible to prevent asset price bubbles.

Accepted Answer

A) True 
 B)False

Question 9

How do critics of discretionary stabilization policy view frequent changes in spending and tax policy?

Accepted Answer

A)  The changes make the economy smoother, although it may not look that way to individual firms. 
B)  The changes make life more difficult and hectic for Congress and the Fed. 
C)  The changes smooth out the business cycle, making planning easier. 
D)  The changes cause more instability in the economy and make planning more difficult. 
A)  The changes make the economy smoother, although it may not look that way to individual firms. 
B)  The changes make life more difficult and hectic for Congress and the Fed. 
C)  The changes smooth out the business cycle, making planning easier. 
D)  The changes cause more instability in the economy and make planning more difficult.

Question 10

If you assume that the equation of exchange is a dependable economic model, then the Fed can control

Accepted Answer

A)  real GDP. 
B)  aggregate supply. 
C)  nominal GDP. 
D)  economic growth. 
A)  real GDP. 
B)  aggregate supply. 
C)  nominal GDP. 
D)  economic growth.

Question 11

Which of the following was not a criticism of the unconventional monetary policy used by the Fed in 2009 and 2010?

Accepted Answer

A)  tendency towards higher unemployment 
B)  tendency towards higher inflation 
C)  usurping authority which should be allocated to Congress 
D)  determining which banks would be allowed to fail 
A)  tendency towards higher unemployment 
B)  tendency towards higher inflation 
C)  usurping authority which should be allocated to Congress 
D)  determining which banks would be allowed to fail

Question 12

Believers in a fixed-rule approach to stabilization policy propose that

Accepted Answer

A)  Congress should balance the high employment budget. 
B)  the Fed should keep the money supply growth constant. 
C)  the economy be stabilized by automatic mechanisms. 
D)  All of the above are correct. 
A)  Congress should balance the high employment budget. 
B)  the Fed should keep the money supply growth constant. 
C)  the economy be stabilized by automatic mechanisms. 
D)  All of the above are correct.

Question 13

If the aggregate supply curve is steep,

Accepted Answer

A)  increased aggregate demand will not lead to higher prices. 
B)  greater demand for labor will not cause significant wage increases. 
C)  business firms are probably producing near capacity. 
D)  All of the above are correct. 
A)  increased aggregate demand will not lead to higher prices. 
B)  greater demand for labor will not cause significant wage increases. 
C)  business firms are probably producing near capacity. 
D)  All of the above are correct.

Question 14

If the aggregate supply curve is flat,

Accepted Answer

A)  expansionary fiscal or monetary policy will cause a good deal of inflation with little increase in real output. 
B)  expansionary fiscal or monetary policy will buy large gains in real output at low cost in terms of inflation. 
C)  a contractionary stabilization policy is an effective way to reduce inflation. 
D)  decreasing the income tax will not shift aggregate demand. 
A)  expansionary fiscal or monetary policy will cause a good deal of inflation with little increase in real output. 
B)  expansionary fiscal or monetary policy will buy large gains in real output at low cost in terms of inflation. 
C)  a contractionary stabilization policy is an effective way to reduce inflation. 
D)  decreasing the income tax will not shift aggregate demand.

Question 15

The quantity theory of money builds on the equation of exchange.What specific assumptions are made that turn the equation of exchange from an accounting identity into an economic theory?

Accepted Answer

The principal assumption is that velocit

Question 16

The Fed's quick response to the threat to the economy after September 11, 2001, makes a strong case for

Accepted Answer

A)  a rules-based monetary policy regime. 
B)  a discretionary-based monetary policy regime. 
C)  the superiority of fiscal policy. 
D)  the dominant role of Congress in activist policy. 
A)  a rules-based monetary policy regime. 
B)  a discretionary-based monetary policy regime. 
C)  the superiority of fiscal policy. 
D)  the dominant role of Congress in activist policy.

Question 17

Critics of the Fed's unconventional policies in 2009 and 2010 argued that determining which financial institutions would be bailed out and which would be allowed to fail was a political decision that rightfully belonged to Congress.

Accepted Answer

A) True 
 B)False

Question 18

How rapidly does the economy's self-correcting mechanism work? Most economists agree that it

Accepted Answer

A)  works quickly and reliably. 
B)  works slowly and not very reliably. 
C)  works reliably, but not very quickly. 
D)  does not work at all. 
A)  works quickly and reliably. 
B)  works slowly and not very reliably. 
C)  works reliably, but not very quickly. 
D)  does not work at all.

Question 19

The fiscal stimulus bills of 2001, 2008, and 2009 were unusual examples of rapid implementation of fiscal policy.

Accepted Answer

A) True 
 B)False

Question 20

The difference between the equation of exchange and the quantity theory of money is that the

Accepted Answer

A)  equation of exchange assumes that the level of real GDP is constant. 
B)  quantity theory of money assumes that the Fed has no control over the money supply. 
C)  equation of exchange assumes that the level of nominal GDP is constant. 
D)  quantity theory of money assumes that velocity is virtually constant. 
A)  equation of exchange assumes that the level of real GDP is constant. 
B)  quantity theory of money assumes that the Fed has no control over the money supply. 
C)  equation of exchange assumes that the level of nominal GDP is constant. 
D)  quantity theory of money assumes that velocity is virtually constant.

Exam 32: The Debate over Monetary and Fiscal Policy

Which of the following was an argument for using fiscal policy in situations like the Great Recession?

The equation of exchange is M × Y = P × V.

Following an anticapitalist coup, Freedonia forces all citizens to turn in and stop using all credit cards.What is the most likely effect of this on velocity?

The inability of Congress to pass a stimulus package after September 11, 2001, could be used as an argument for

Which of the following lags makes stabilization policy more problematic?

The differences between monetarist and Keynesian theories are more apparent than real.

What is inflation targeting?

Most economists think that it is impossible to prevent asset price bubbles.

How do critics of discretionary stabilization policy view frequent changes in spending and tax policy?

If you assume that the equation of exchange is a dependable economic model, then the Fed can control

Which of the following was not a criticism of the unconventional monetary policy used by the Fed in 2009 and 2010?

Believers in a fixed-rule approach to stabilization policy propose that

If the aggregate supply curve is steep,

If the aggregate supply curve is flat,

The quantity theory of money builds on the equation of exchange.What specific assumptions are made that turn the equation of exchange from an accounting identity into an economic theory?

The Fed's quick response to the threat to the economy after September 11, 2001, makes a strong case for

Critics of the Fed's unconventional policies in 2009 and 2010 argued that determining which financial institutions would be bailed out and which would be allowed to fail was a political decision that rightfully belonged to Congress.

How rapidly does the economy's self-correcting mechanism work? Most economists agree that it

The fiscal stimulus bills of 2001, 2008, and 2009 were unusual examples of rapid implementation of fiscal policy.

The difference between the equation of exchange and the quantity theory of money is that the

What Is Economics?

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: An Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: The Importance of Marginal Analysis

Securities: Business Finance, and the Economy: The Tail that Wags the Dog?

The Firm and the Industry under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets I: The Price System

The Shortcomings of Free Markets

The Market's Prime Achievement: Innovation and Growth

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: The Human Inputs

Poverty, Inequality, and Discrimination

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation?

Bringing in the Supply Side: Unemployment and Inflation?

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

The Financial Crisis and the Great Recession

Budget Deficits in the Short and Long Run

The Trade-Off between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder?

Exchange Rates and the Macroeconomy

Filters