Question 1

Monetarists use the equation of exchange to predict the effects of changes in M on

Accepted Answer

A)  velocity. 
B)  nominal GDP. 
C)  real GDP. 
D)  the price level. 
A)  velocity. 
B)  nominal GDP. 
C)  real GDP. 
D)  the price level.

Question 2

The velocity of circulation is the number of times per year a dollar is spent.

Accepted Answer

A) True 
 B)False

Question 3

In utilizing unconventional monetary policy in 2010, 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 4

What are the important factors which determine the velocity of money?

Accepted Answer

The main determinants of velocity are:
(

Question 5

Believers in fixed rules maintain that

Accepted Answer

A)  with accurate forecasts, we can see inflation coming at least one year ahead of time. 
B)  the length of stabilization lags is not important because fiscal policy actions are taken quickly and the economy feels the effect on aggregate demand quickly. 
C)  we should forget about discretionary policy and put the economy on autopilot, relying instead on automatic stabilizers and the economy's self-correcting mechanism. 
D)  the economy's self-correcting mechanism is slow and not very reliable, even with automatic stabilizers. 
A)  with accurate forecasts, we can see inflation coming at least one year ahead of time. 
B)  the length of stabilization lags is not important because fiscal policy actions are taken quickly and the economy feels the effect on aggregate demand quickly. 
C)  we should forget about discretionary policy and put the economy on autopilot, relying instead on automatic stabilizers and the economy's self-correcting mechanism. 
D)  the economy's self-correcting mechanism is slow and not very reliable, even with automatic stabilizers.

Question 6

As a result of the Fed's unconventional purchase of over $1 trillion of mortgage-backed securities in 2009, interest rates on both mortgage-backed securities and home mortgages increased.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following will tend to increase velocity?

Accepted Answer

A)  a decrease in the number of payments 
B)  a decrease in inflation 
C)  an increase in interest rates 
D)  an increase in the money supply 
E)  All of the above. 
A)  a decrease in the number of payments 
B)  a decrease in inflation 
C)  an increase in interest rates 
D)  an increase in the money supply 
E)  All of the above.

Question 8

How does the shape of the aggregate supply curve affect macroeconomic analysis and policy making? Illustrate your answer with the appropriate graphs.

Accepted Answer

If the aggregate supply curve is relativ

Question 9

The principal factor determining velocity is the

Accepted Answer

A)  level of income. 
B)  frequency with which paychecks are distributed. 
C)  frequency with which taxes are paid. 
D)  growth rate of real output. 
A)  level of income. 
B)  frequency with which paychecks are distributed. 
C)  frequency with which taxes are paid. 
D)  growth rate of real output.

Question 10

In 2009, nominal GDP was $14,050 billion and M₁ was $1,587 billion.Velocity was

Accepted Answer

A)  0.11. 
B)  8.85. 
C)  11.30. 
D)  14.25. 
A)  0.11. 
B)  8.85. 
C)  11.30. 
D)  14.25.

Question 11

As the interest rate increases, the velocity of money will increase as well.

Accepted Answer

A) True 
 B)False

Question 12

The quantity theory of money assumes that

Accepted Answer

A)  velocity varies inversely with interest rates. 
B)  if velocity equals six, the Fed can increase nominal GDP by 30 percent if it increases the money supply by 5 percent. 
C)  changes in the money supply affect output but not prices. 
D)  changes in velocity are so small that velocity can be considered constant. 
A)  velocity varies inversely with interest rates. 
B)  if velocity equals six, the Fed can increase nominal GDP by 30 percent if it increases the money supply by 5 percent. 
C)  changes in the money supply affect output but not prices. 
D)  changes in velocity are so small that velocity can be considered constant.

Question 13

Which of the following is an example of unconventional monetary policy?

Accepted Answer

A)  the Federal Reserve selling T-bills 
B)  the Federal Reserve decreasing the discount rate 
C)  the Federal Reserve purchasing mortgage-backed securities 
D)  none of the above 
A)  the Federal Reserve selling T-bills 
B)  the Federal Reserve decreasing the discount rate 
C)  the Federal Reserve purchasing mortgage-backed securities 
D)  none of the above

Question 14

Since the 1970s, the velocity of money has

Accepted Answer

A)  behaved in a predictable fashion. 
B)  behaved in an erratic fashion. 
C)  decreased in value. 
D)  increased in a stable and predictable fashion. 
A)  behaved in a predictable fashion. 
B)  behaved in an erratic fashion. 
C)  decreased in value. 
D)  increased in a stable and predictable fashion.

Question 15

When will stabilization policy be most effective in combating inflation?

Accepted Answer

A)  when AS is flat 
B)  when AS is very steep 
C)  when AS has a moderately upward slope 
D)  when AS has a moderately downward slope 
A)  when AS is flat 
B)  when AS is very steep 
C)  when AS has a moderately upward slope 
D)  when AS has a moderately downward slope

Question 16

The historical data on velocity shows that velocity for

Accepted Answer

A)  M₁ has fallen since 1929 and has become more stable since 1981. 
B)  M₁ has risen since 1949 and has become more volatile since 1981. 
C)  both M₁ and M2 have increased since 1949 but have become more stable since 1979. 
D)  both M₁ and M2 have declined since 1949. 
A)  M₁ has fallen since 1929 and has become more stable since 1981. 
B)  M₁ has risen since 1949 and has become more volatile since 1981. 
C)  both M₁ and M2 have increased since 1949 but have become more stable since 1979. 
D)  both M₁ and M2 have declined since 1949.

Question 17

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 policies cannot be targeted at only one sector of the economy. 
B)  Price changes for one asset or one industry cannot have a substantial impact on the entire economy. 
C)  The FDIC rather than the Fed is responsible for recognizing bad lending practices. 
D)  all of the above 
A)  The Fed's policies cannot be targeted at only one sector of the economy. 
B)  Price changes for one asset or one industry cannot have a substantial impact on the entire economy. 
C)  The FDIC rather than the Fed is responsible for recognizing bad lending practices. 
D)  all of the above

Question 18

Monetarism resembles Keynesian thinking in that they both

Accepted Answer

A)  emphasize supply and ignore demand. 
B)  integrate supply-side analysis into their models. 
C)  emphasize demand side effects. 
D)  emphasize the importance of fiscal policy. 
A)  emphasize supply and ignore demand. 
B)  integrate supply-side analysis into their models. 
C)  emphasize demand side effects. 
D)  emphasize the importance of fiscal policy.

Question 19

A factor increasing the popularity of monetarism in the late 1970s was the

Accepted Answer

A)  ease with which the Fed controlled the money supply. 
B)  excellent performance of the economy in the 1970s. 
C)  the fear of budget deficits and growing federal debt. 
D)  the predictable behavior of velocity until about 1980. 
A)  ease with which the Fed controlled the money supply. 
B)  excellent performance of the economy in the 1970s. 
C)  the fear of budget deficits and growing federal debt. 
D)  the predictable behavior of velocity until about 1980.

Question 20

Treasury securities have ____ risk of default and mortgage-backed securities have ____ risk of default.

Accepted Answer

A)  no; no 
B)  no; some 
C)  some; no 
D)  some; some 
A)  no; no 
B)  no; some 
C)  some; no 
D)  some; some

Exam 32: The Debate over Monetary and Fiscal Policy

Monetarists use the equation of exchange to predict the effects of changes in M on

The velocity of circulation is the number of times per year a dollar is spent.

In utilizing unconventional monetary policy in 2010, the Federal Reserve purchased

What are the important factors which determine the velocity of money?

Believers in fixed rules maintain that

As a result of the Fed's unconventional purchase of over $1 trillion of mortgage-backed securities in 2009, interest rates on both mortgage-backed securities and home mortgages increased.

Which of the following will tend to increase velocity?

How does the shape of the aggregate supply curve affect macroeconomic analysis and policy making? Illustrate your answer with the appropriate graphs.

The principal factor determining velocity is the

In 2009, nominal GDP was $14,050 billion and M₁ was $1,587 billion.Velocity was

As the interest rate increases, the velocity of money will increase as well.

The quantity theory of money assumes that

Which of the following is an example of unconventional monetary policy?

Since the 1970s, the velocity of money has

When will stabilization policy be most effective in combating inflation?

The historical data on velocity shows that velocity for

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

Monetarism resembles Keynesian thinking in that they both

A factor increasing the popularity of monetarism in the late 1970s was the

Treasury securities have ____ risk of default and mortgage-backed securities have ____ risk of default.

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

Treasury securities have risk of default and mortgage-backed securities have risk of default.