Question 1

Many economists believe that stabilization policy should be limited in scope until

Accepted Answer

A)  Keynesians and monetarists agree on policy. 
B)  inflation is brought under control. 
C)  the economy is operating near capacity. 
D)  forecasting becomes more reliable. 
A)  Keynesians and monetarists agree on policy. 
B)  inflation is brought under control. 
C)  the economy is operating near capacity. 
D)  forecasting becomes more reliable.

Question 2

Economists who believe that the economy has a strong self-correcting mechanism argued that, after September 11, 2001, the economy needed

Accepted Answer

A)  a quick and expansionary fiscal policy stimulus. 
B)  a quick and expansionary monetary stimulus. 
C)  only a short time to return to equilibrium full employment. 
D)  President Bush to propose a large budget stimulus package. 
A)  a quick and expansionary fiscal policy stimulus. 
B)  a quick and expansionary monetary stimulus. 
C)  only a short time to return to equilibrium full employment. 
D)  President Bush to propose a large budget stimulus package.

Question 3

If nominal GDP is 8,100 billion florins and the money supply is 900 billion florins, the velocity of circulation is

Accepted Answer

A)  900.0. 
B)  90.0. 
C)  81.0. 
D)  9.0. 
E)  8.1. 
A)  900.0. 
B)  90.0. 
C)  81.0. 
D)  9.0. 
E)  8.1.

Question 4

How does government expenditure discourage some private investment?

Accepted Answer

Government often borrows money from the

Question 5

What is the effect on velocity if payments are made more often?

Accepted Answer

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

Question 6

If you believe that velocity is constant and that the aggregate supply curve is vertical, then the quantity theory of money would predict that a doubling of the money supply would cause a doubling of

Accepted Answer

A)  nominal output and real output. 
B)  nominal output and no change in real output. 
C)  real output and no change in nominal output. 
D)  the price level and real output. 
A)  nominal output and real output. 
B)  nominal output and no change in real output. 
C)  real output and no change in nominal output. 
D)  the price level and real output.

Question 7

By purchasing large amounts of mortgage-backed securities (MBS) in 2009, the Federal Reserve's goal was to

Accepted Answer

A)  raise the price of MBS and raise their yields. 
B)  raise the price of MBS and lower their yields. 
C)  lower the price of MBS and raise their yields. 
D)  lower the price of MBS and lower their yields. 
A)  raise the price of MBS and raise their yields. 
B)  raise the price of MBS and lower their yields. 
C)  lower the price of MBS and raise their yields. 
D)  lower the price of MBS and lower their yields.

Question 8

If velocity is a constant, then the equation of exchange is an economic model.

Accepted Answer

A) True 
 B)False

Question 9

Contractionary fiscal policy would be most effective in decreasing inflation when

Accepted Answer

A)  the marginal propensity to consume low. 
B)  investment spending is insensitive to interest rates. 
C)  the economy has a high marginal tax rate. 
D)  investment spending is sensitive to interest rates. 
A)  the marginal propensity to consume low. 
B)  investment spending is insensitive to interest rates. 
C)  the economy has a high marginal tax rate. 
D)  investment spending is sensitive to interest rates.

Question 10

Monetarists have received this label because they emphasize the role of

Accepted Answer

A)  money supply in determining aggregate supply. 
B)  the money supply in determining nominal GDP. 
C)  the Fed in making monetary policy. 
D)  the money supply in determining interest rates and investment. 
A)  money supply in determining aggregate supply. 
B)  the money supply in determining nominal GDP. 
C)  the Fed in making monetary policy. 
D)  the money supply in determining interest rates and investment.

Question 11

When recessions occur, advocates of small government should recommend

Accepted Answer

A)  reductions in the number of federal employees. 
B)  reductions in transfer payments. 
C)  reductions in taxes. 
D)  increases in transfer payments and government spending. 
A)  reductions in the number of federal employees. 
B)  reductions in transfer payments. 
C)  reductions in taxes. 
D)  increases in transfer payments and government spending.

Question 12

Which of the following is correct?

Accepted Answer

A)  Policy lags are normally much shorter for fiscal policy than for monetary policy. 
B)  Congress usually makes major fiscal policy changes in a fairly short period of time. 
C)  Expenditure lags are much longer for investment, the main way in which monetary policy affects aggregate demand. 
D)  Monetary policy affects aggregate demand more quickly than fiscal policy, such as tax or government spending changes. 
A)  Policy lags are normally much shorter for fiscal policy than for monetary policy. 
B)  Congress usually makes major fiscal policy changes in a fairly short period of time. 
C)  Expenditure lags are much longer for investment, the main way in which monetary policy affects aggregate demand. 
D)  Monetary policy affects aggregate demand more quickly than fiscal policy, such as tax or government spending changes.

Question 13

Policy lags are typically much shorter for monetary policy than for fiscal policy.

Accepted Answer

A) True 
 B)False

Question 14

The equation of exchange states that the money value of GDP must be equal to the product of the money stock times its velocity.

Accepted Answer

A) True 
 B)False

Question 15

The speed with which money circulates through the economy is called the

Accepted Answer

A)  oversimplified multiplier. 
B)  velocity of circulation. 
C)  exchange rate. 
D)  money multiplier. 
A)  oversimplified multiplier. 
B)  velocity of circulation. 
C)  exchange rate. 
D)  money multiplier.

Question 16

Which of the following will reduce the velocity of circulation of the money stock?

Accepted Answer

A)  The inflation rate increases. 
B)  The interest rate falls. 
C)  Credit cards are used more frequently. 
D)  More employees are paid once a week instead of once a month. 
A)  The inflation rate increases. 
B)  The interest rate falls. 
C)  Credit cards are used more frequently. 
D)  More employees are paid once a week instead of once a month.

Question 17

Define the following terms and explain their importance to the study of macroeconomics:
a.velocity
b.equation of exchange
c.monetarism
d.
automatic stabilizer

Accepted Answer

a.Velocity is the number of times per ye

Question 18

When the Fed increases 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 19

In the short run, an increase in the quantity of money normally

Accepted Answer

A)  has no effect; in the long run, V will increase. 
B)  has no effect; in the long run, V will decrease. 
C)  results in an increase in velocity. 
D)  results in a decrease in velocity. 
A)  has no effect; in the long run, V will increase. 
B)  has no effect; in the long run, V will decrease. 
C)  results in an increase in velocity. 
D)  results in a decrease in velocity.

Question 20

Economists observed the following growth rates in the fourth quarter of 1995: real GDP = 2.8 percent; M₁ = 7.8 percent; GDP Deflator = 2.2 percent.Given this data, the growth of velocity was approximately

Accepted Answer

A)  -7.8 percent. 
B)  -5.0 percent. 
C)  -2.8 percent. 
D)  -2.2 percent. 
E)  -2.0 percent. 
A)  -7.8 percent. 
B)  -5.0 percent. 
C)  -2.8 percent. 
D)  -2.2 percent. 
E)  -2.0 percent.

Exam 32: The Debate over Monetary and Fiscal Policy

Many economists believe that stabilization policy should be limited in scope until

Economists who believe that the economy has a strong self-correcting mechanism argued that, after September 11, 2001, the economy needed

If nominal GDP is 8,100 billion florins and the money supply is 900 billion florins, the velocity of circulation is

How does government expenditure discourage some private investment?

What is the effect on velocity if payments are made more often?

If you believe that velocity is constant and that the aggregate supply curve is vertical, then the quantity theory of money would predict that a doubling of the money supply would cause a doubling of

By purchasing large amounts of mortgage-backed securities (MBS) in 2009, the Federal Reserve's goal was to

If velocity is a constant, then the equation of exchange is an economic model.

Contractionary fiscal policy would be most effective in decreasing inflation when

Monetarists have received this label because they emphasize the role of

When recessions occur, advocates of small government should recommend

Which of the following is correct?

Policy lags are typically much shorter for monetary policy than for fiscal policy.

The equation of exchange states that the money value of GDP must be equal to the product of the money stock times its velocity.

The speed with which money circulates through the economy is called the

Which of the following will reduce the velocity of circulation of the money stock?

Define the following terms and explain their importance to the study of macroeconomics: a.velocity b.equation of exchange c.monetarism d. automatic stabilizer

When the Fed increases the money supply, interest rates

In the short run, an increase in the quantity of money normally

Economists observed the following growth rates in the fourth quarter of 1995: real GDP = 2.8 percent; M₁ = 7.8 percent; GDP Deflator = 2.2 percent.Given this data, the growth of velocity was approximately

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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