Question 1

The efficiency of the payments' mechanism affects

Accepted Answer

A)  the speed with which money can be exchanged for other assets. 
B)  how quickly individual loan applications will be approved. 
C)  how slowly individuals deplete their cash balances. 
D)  the speed with which financial institutions can process checks and other funds. 
A)  the speed with which money can be exchanged for other assets. 
B)  how quickly individual loan applications will be approved. 
C)  how slowly individuals deplete their cash balances. 
D)  the speed with which financial institutions can process checks and other funds.

Question 2

Monetarists maintain that

Accepted Answer

A)  the best way to study the economy is with the expenditure schedule. 
B)  control over the money supply implies control over real GDP. 
C)  velocity is not constant, but is fairly predictable. 
D)  All of the above are correct. 
A)  the best way to study the economy is with the expenditure schedule. 
B)  control over the money supply implies control over real GDP. 
C)  velocity is not constant, but is fairly predictable. 
D)  All of the above are correct.

Question 3

When the Fed decreases the money supply, interest rates

Accepted Answer

A)  rise, causing velocity to fall. 
B)  fall, causing velocity to fall. 
C)  rise, causing velocity to rise. 
D)  fall, causing velocity to rise. 
A)  rise, causing velocity to fall. 
B)  fall, causing velocity to fall. 
C)  rise, causing velocity to rise. 
D)  fall, causing velocity to rise.

Question 4

Advocates of fixed rules believe that politicians focus more on re-election than on sound policy.

Accepted Answer

A) True 
 B)False

Question 5

In order to consider the equation of exchange an economic model, what must we assume?

Accepted Answer

A)  Real GDP is a constant value. 
B)  Changes in GDP cause changes in the money supply. 
C)  The money supply is constant. 
D)  Changes in velocity are small and predictable. 
A)  Real GDP is a constant value. 
B)  Changes in GDP cause changes in the money supply. 
C)  The money supply is constant. 
D)  Changes in velocity are small and predictable.

Question 6

The alternatives of the active versus passive view of stabilization policy are usually expressed as

Accepted Answer

A)  fiscal versus monetary policy. 
B)  internal versus external. 
C)  present value versus future value. 
D)  discretion versus rules. 
A)  fiscal versus monetary policy. 
B)  internal versus external. 
C)  present value versus future value. 
D)  discretion versus rules.

Question 7

When salaries are paid more frequently, the velocity of money speeds up because individuals hold more cash.

Accepted Answer

A) True 
 B)False

Question 8

A look at the historical data indicates that velocity for M₁

Accepted Answer

A)  has been more variable than the velocity for M2, but both have been fairly constant for the past 65 years. 
B)  and M2 have both trended downward, but velocity for M2 has been more erratic than velocity for M₁1. 
C)  has been fairly constant for the past 65 years, but velocity for M2 has trended downward. 
D)  has trended upward in the past 65 years, but velocity for M2 has been more constant. 
A)  has been more variable than the velocity for M2, but both have been fairly constant for the past 65 years. 
B)  and M2 have both trended downward, but velocity for M2 has been more erratic than velocity for M₁1. 
C)  has been fairly constant for the past 65 years, but velocity for M2 has trended downward. 
D)  has trended upward in the past 65 years, but velocity for M2 has been more constant.

Question 9

If the Fed's monetary policy causes a substantial decrease in interest rates, what is the most likely impact on velocity?

Accepted Answer

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

Question 10

It is often reported by financial news reports that higher interest rates reduce automobile sales.If this is true, we can expect

Accepted Answer

A)  fiscal policy to be more effective. 
B)  both fiscal and monetary policy to be more effective. 
C)  monetary policy to be more effective. 
D)  neither fiscal nor monetary policy to be more effective. 
A)  fiscal policy to be more effective. 
B)  both fiscal and monetary policy to be more effective. 
C)  monetary policy to be more effective. 
D)  neither fiscal nor monetary policy to be more effective.

Question 11

The equation of exchange can be written as

Accepted Answer

A)  Velocity × Nominal GDP = Price Index 
B)  Real GDP × Price Index = Money supply 
C)  Money supply × Price Index = Real GDP 
D)  Money supply × Velocity = Nominal GDP 
A)  Velocity × Nominal GDP = Price Index 
B)  Real GDP × Price Index = Money supply 
C)  Money supply × Price Index = Real GDP 
D)  Money supply × Velocity = Nominal GDP

Question 12

The rapid speed with which the stimulus bill passed through both houses of Congress and was signed by the President 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 13

A scatter diagram of money growth rates and inflation rates from 1982 to 2010 indicates

Accepted Answer

A)  a clear direct relationship between money growth and inflation. 
B)  a clear indirect relationship between money growth and inflation. 
C)  no clear relationship between money growth rates and inflation. 
D)  that inflation is always and everywhere a monetary phenomenon. 
A)  a clear direct relationship between money growth and inflation. 
B)  a clear indirect relationship between money growth and inflation. 
C)  no clear relationship between money growth rates and inflation. 
D)  that inflation is always and everywhere a monetary phenomenon.

Question 14

The equation of exchange is an accounting identity, not an economic theory.

Accepted Answer

A) True 
 B)False

Question 15

What is the shape of the AS in the short run and the long run?

Accepted Answer

A)  AS is relatively flat in both the short and long run. 
B)  AS is relatively flat in the short run, but steeper in the long run. 
C)  AS is relatively steep in both the short and long run. 
D)  AS is relatively steep in the short run, but flatter in the long run. 
A)  AS is relatively flat in both the short and long run. 
B)  AS is relatively flat in the short run, but steeper in the long run. 
C)  AS is relatively steep in both the short and long run. 
D)  AS is relatively steep in the short run, but flatter in the long run.

Question 16

In what year did the technology stock bubble burst?

Accepted Answer

A)  2000 
B)  2006 
C)  2007 
D)  2008 
A)  2000 
B)  2006 
C)  2007 
D)  2008

Question 17

List the reasons why the actual multiplier, which is estimated to be less than 2 for the U.S.economy, is much less than what the oversimplified formula suggests.

Accepted Answer

The oversimplified formula:
1.ignores va

Question 18

If the public decides to hold smaller cash balances, this will cause a(n)

Accepted Answer

A)  increase in interest rates. 
B)  decrease in average paychecks. 
C)  increase in nominal GDP. 
D)  increase in velocity. 
A)  increase in interest rates. 
B)  decrease in average paychecks. 
C)  increase in nominal GDP. 
D)  increase in velocity.

Question 19

Which of the following is the order of fastest to slowest acting policy, once enacted, in affecting aggregate demand?

Accepted Answer

A)  taxes, money, government spending 
B)  taxes, government spending, money 
C)  government spending, taxes, money 
D)  government spending, money, taxes 
A)  taxes, money, government spending 
B)  taxes, government spending, money 
C)  government spending, taxes, money 
D)  government spending, money, taxes

Question 20

The inflation rate in January of 2009 as measured by the CPI was zero.If inflation were to remain at zero for a long period, what would be the effect on velocity?

Accepted Answer

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

Exam 32: The Debate over Monetary and Fiscal Policy

The efficiency of the payments' mechanism affects

Monetarists maintain that

When the Fed decreases the money supply, interest rates

Advocates of fixed rules believe that politicians focus more on re-election than on sound policy.

In order to consider the equation of exchange an economic model, what must we assume?

The alternatives of the active versus passive view of stabilization policy are usually expressed as

When salaries are paid more frequently, the velocity of money speeds up because individuals hold more cash.

A look at the historical data indicates that velocity for M₁

If the Fed's monetary policy causes a substantial decrease in interest rates, what is the most likely impact on velocity?

It is often reported by financial news reports that higher interest rates reduce automobile sales.If this is true, we can expect

The equation of exchange can be written as

The rapid speed with which the stimulus bill passed through both houses of Congress and was signed by the President could be used as an argument for

A scatter diagram of money growth rates and inflation rates from 1982 to 2010 indicates

The equation of exchange is an accounting identity, not an economic theory.

What is the shape of the AS in the short run and the long run?

In what year did the technology stock bubble burst?

List the reasons why the actual multiplier, which is estimated to be less than 2 for the U.S.economy, is much less than what the oversimplified formula suggests.

If the public decides to hold smaller cash balances, this will cause a(n)

Which of the following is the order of fastest to slowest acting policy, once enacted, in affecting aggregate demand?

The inflation rate in January of 2009 as measured by the CPI was zero.If inflation were to remain at zero for a long period, what would be the effect on velocity?

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

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