Question 1

When analyzing how money affects income, we are analyzing the way in which a

Accepted Answer

A)  stock affects another stock. 
B)  stock affects a flow. 
C)  flow affects another flow. 
D)  flow affects a stock. 
A)  stock affects another stock. 
B)  stock affects a flow. 
C)  flow affects another flow. 
D)  flow affects a stock.

Question 2

The equation of exchange is an accounting identity that

Accepted Answer

A)  relates the money supply to nominal GDP. 
B)  equates the demand for money with the supply of money. 
C)  relates the money supply to real GDP. 
D)  accounts use to balance assets and liabilities. 
A)  relates the money supply to nominal GDP. 
B)  equates the demand for money with the supply of money. 
C)  relates the money supply to real GDP. 
D)  accounts use to balance assets and liabilities.

Question 3

One of the strongest arguments against active stabilization policy is

Accepted Answer

A)  that recognition lags make timely intervention very difficult. 
B)  the economy corrects itself very slowly. 
C)  the inability of economic theory to suggest appropriate policy. 
D)  the difficulty of obtaining agreement on monetary policy. 
A)  that recognition lags make timely intervention very difficult. 
B)  the economy corrects itself very slowly. 
C)  the inability of economic theory to suggest appropriate policy. 
D)  the difficulty of obtaining agreement on monetary policy.

Question 4

The contemporary consensus with regard to stabilization policy is that

Accepted Answer

A)  fiscal policy is, for now, the "only game in town." 
B)  fiscal policy is more effective than monetary policy. 
C)  monetary policy is, for now, the "only game in town." 
D)  monetary policy is slightly more effective than fiscal policy. 
A)  fiscal policy is, for now, the "only game in town." 
B)  fiscal policy is more effective than monetary policy. 
C)  monetary policy is, for now, the "only game in town." 
D)  monetary policy is slightly more effective than fiscal policy.

Question 5

The velocity of circulation has remained constant over long periods of time.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is a reason that the Fed does not traditionally attempt to limit asset price bubbles?

Accepted Answer

A)  The Fed's actions could do more harm than good. 
B)  It is nearly impossible to determine if a bubble exists before it bursts. 
C)  The Fed's policies cannot be targeted at only one sector of the economy. 
D)  all of the above 
A)  The Fed's actions could do more harm than good. 
B)  It is nearly impossible to determine if a bubble exists before it bursts. 
C)  The Fed's policies cannot be targeted at only one sector of the economy. 
D)  all of the above

Question 7

The subprime mortgage bubble featured ____ leverage and the technology stock bubble featured ____ leverage.

Accepted Answer

A)  significant; significant 
B)  significant; limited 
C)  limited; significant 
D)  limited; limited 
A)  significant; significant 
B)  significant; limited 
C)  limited; significant 
D)  limited; limited

Question 8

Is the equation of exchange an economic model?

Accepted Answer

A)  Yes, it is a simple but powerful model. 
B)  No, economic models cannot be equations. 
C)  No, it is merely an arithmetic statement. 
D)  Yes, it is a cause-and-effect model. 
A)  Yes, it is a simple but powerful model. 
B)  No, economic models cannot be equations. 
C)  No, it is merely an arithmetic statement. 
D)  Yes, it is a cause-and-effect model.

Question 9

How do critics of stabilization policy view the "political business cycle"?

Accepted Answer

A)  They suggest shorter election cycles would improve stabilization. 
B)  They believe that politicians cause economic instability, due mainly to the election schedule. 
C)  They believe that the Fed can resist political pressure and stabilize the economy. 
D)  They believe that politicians do not know enough economics in order to stabilize the economy. 
A)  They suggest shorter election cycles would improve stabilization. 
B)  They believe that politicians cause economic instability, due mainly to the election schedule. 
C)  They believe that the Fed can resist political pressure and stabilize the economy. 
D)  They believe that politicians do not know enough economics in order to stabilize the economy.

Question 10

Scatter diagrams of money growth rates and inflation rates between 1982 and 2010 show a clear relationship of cause and effect.

Accepted Answer

A) True 
 B)False

Question 11

In utilizing unconventional monetary policy in 2009, the Federal Reserve purchased

Accepted Answer

A)  real estate worth more than $2 trillion. 
B)  $800 billion in Treasury bills. 
C)  over $1 trillion in mortgage backed securities. 
D)  $600 billion in long-term Treasury bonds. 
A)  real estate worth more than $2 trillion. 
B)  $800 billion in Treasury bills. 
C)  over $1 trillion in mortgage backed securities. 
D)  $600 billion in long-term Treasury bonds.

Question 12

Which of the following was not a reason that the Federal Reserve took on additional risks associated with unconventional policy during the recession of 2007-2009?

Accepted Answer

A)  The large budget deficit constrained fiscal policy. 
B)  The inflated price of Treasury bills made them too expensive to purchase in open market operations. 
C)  Only the Federal Reserve acting as the central bank can serve as the lender of last resort. 
D)  The Fed was able to act more quickly than Congress. 
A)  The large budget deficit constrained fiscal policy. 
B)  The inflated price of Treasury bills made them too expensive to purchase in open market operations. 
C)  Only the Federal Reserve acting as the central bank can serve as the lender of last resort. 
D)  The Fed was able to act more quickly than Congress.

Question 13

Which of the following leads to a fundamental difficulty for stabilization policy?

Accepted Answer

A)  Time lags in policy decisions 
B)  Presence of shock absorbers in the economy 
C)  Absence of data on the effectiveness of policy measures 
D)  Existence of self-correcting mechanism 
A)  Time lags in policy decisions 
B)  Presence of shock absorbers in the economy 
C)  Absence of data on the effectiveness of policy measures 
D)  Existence of self-correcting mechanism

Question 14

Which of the following is an example of active fiscal policy?

Accepted Answer

A)  Income tax revenues rise in an inflationary period. 
B)  Income tax revenues fall in a recession. 
C)  Congress passes a major tax increase in an inflationary period. 
D)  Unemployment benefits increase in a recession. 
A)  Income tax revenues rise in an inflationary period. 
B)  Income tax revenues fall in a recession. 
C)  Congress passes a major tax increase in an inflationary period. 
D)  Unemployment benefits increase in a recession.

Exam 32: The Debate over Monetary and Fiscal Policy

When analyzing how money affects income, we are analyzing the way in which a

The equation of exchange is an accounting identity that

One of the strongest arguments against active stabilization policy is

The contemporary consensus with regard to stabilization policy is that

The velocity of circulation has remained constant over long periods of time.

Which of the following is a reason that the Fed does not traditionally attempt to limit asset price bubbles?

The subprime mortgage bubble featured ____ leverage and the technology stock bubble featured ____ leverage.

Is the equation of exchange an economic model?

How do critics of stabilization policy view the "political business cycle"?

Scatter diagrams of money growth rates and inflation rates between 1982 and 2010 show a clear relationship of cause and effect.

In utilizing unconventional monetary policy in 2009, the Federal Reserve purchased

Which of the following was not a reason that the Federal Reserve took on additional risks associated with unconventional policy during the recession of 2007-2009?

Which of the following leads to a fundamental difficulty for stabilization policy?

Which of the following is an example of active fiscal policy?

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

The subprime mortgage bubble featured leverage and the technology stock bubble featured leverage.