Question 1

When will stabilization policy be most effective in combating recessions?

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 2

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 3

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 4

Regarding government intervention in the economy, which of the following statements is not true?

Accepted Answer

A) Liberals tend to favor intervention. 
B) Conservatives are inclined to adhere to fixed rules. 
C) There is no guarantee that government intervention will have the desired effect. 
D) The effect of government actions on interest rates and spending is unknown. 
E) All of these responses are correct. 
A) Liberals tend to favor intervention. 
B) Conservatives are inclined to adhere to fixed rules. 
C) There is no guarantee that government intervention will have the desired effect. 
D) The effect of government actions on interest rates and spending is unknown. 
E) All of these responses are correct.

Question 5

Lags in stabilization policy refer to delays between the time when the need for stabilization policy arises and the time when the policy has its actual effects on the economy.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

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

Question 7

If the demand for money is insensitive to the interest rate, then the most effective expansionary policy would be

Accepted Answer

A) fiscal policy. 
B) monetary policy. 
C) neither fiscal nor monetary policy. 
D) both fiscal and monetary policy. 
A) fiscal policy. 
B) monetary policy. 
C) neither fiscal nor monetary policy. 
D) both fiscal and monetary policy.

Question 8

The velocity of circulation is the

Accepted Answer

A) speed at which the multiplier takes effect. 
B) speed at which money circulates. 
C) speed at which tax cuts get spent. 
D) rate at which money creation takes place. 
A) speed at which the multiplier takes effect. 
B) speed at which money circulates. 
C) speed at which tax cuts get spent. 
D) rate at which money creation takes place.

Question 9

During the financial crisis of 2007-2009, the interest rate spread on mortgage-backed securities over Treasury bills

Accepted Answer

A) increased tremendously. 
B) increased moderately. 
C) decreased moderately. 
D) decreased tremendously. 
A) increased tremendously. 
B) increased moderately. 
C) decreased moderately. 
D) decreased tremendously.

Question 10

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 11

If investment spending is relatively insensitive to changes in the interest rate, then the most effective expansionary policy would be

Accepted Answer

A) a reduction in required reserves. 
B) Fed purchases of government securities. 
C) a personal income tax increase. 
D) a personal income tax cut. 
A) a reduction in required reserves. 
B) Fed purchases of government securities. 
C) a personal income tax increase. 
D) a personal income tax cut.

Question 12

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 13

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 14

Which of the following was a reason that the Federal Reserve took on additional risks associated with unconventional policy during the recession of 2007-2009?

Accepted Answer

A) The inflated price of Treasury bills made them too expensive to purchase in open market operations. 
B) The large budget deficit constrained conventional monetary policy. 
C) The U.S.Treasury was unable to sell Treasury bills in the primary market. 
D) The Fed was able to act more quickly than Congress. 
A) The inflated price of Treasury bills made them too expensive to purchase in open market operations. 
B) The large budget deficit constrained conventional monetary policy. 
C) The U.S.Treasury was unable to sell Treasury bills in the primary market. 
D) The Fed was able to act more quickly than Congress.

Question 15

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 16

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 nominal GDP was approximately

Accepted Answer

A) 12.8 percent. 
B) 10.0 percent. 
C) 5.6 percent. 
D) 5.0 percent. 
E) 0.6 percent. 
A) 12.8 percent. 
B) 10.0 percent. 
C) 5.6 percent. 
D) 5.0 percent. 
E) 0.6 percent.

Question 17

The main policy tool for manipulating consumer spending is personal income tax, but this tool takes time to have an effect.

Accepted Answer

A) True 
 B)False

Question 18

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 19

____ is a school of economic thought that uses equation of exchange to analyze the macroeconomic data.

Accepted Answer

A) Mercantilism 
B) Monetarism 
C) Supply side economics 
D) Keynesianism 
A) Mercantilism 
B) Monetarism 
C) Supply side economics 
D) Keynesianism

Question 20

Which of the following would tend to decrease velocity?

Accepted Answer

A) An increase in interest rates 
B) More frequent paychecks 
C) Expected decreases in inflation 
D) More efficient payment systems 
A) An increase in interest rates 
B) More frequent paychecks 
C) Expected decreases in inflation 
D) More efficient payment systems

Exam 31: The Debate Over Monetary and Fiscal Policy

When will stabilization policy be most effective in combating recessions?

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

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

Regarding government intervention in the economy, which of the following statements is not true?

Lags in stabilization policy refer to delays between the time when the need for stabilization policy arises and the time when the policy has its actual effects on the economy.

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

If the demand for money is insensitive to the interest rate, then the most effective expansionary policy would be

The velocity of circulation is the

During the financial crisis of 2007-2009, the interest rate spread on mortgage-backed securities over Treasury bills

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

If investment spending is relatively insensitive to changes in the interest rate, then the most effective expansionary policy would be

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

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

Which of the following was a reason that the Federal Reserve took on additional risks associated with unconventional policy during the recession of 2007-2009?

What is inflation targeting?

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 nominal GDP was approximately

The main policy tool for manipulating consumer spending is personal income tax, but this tool takes time to have an effect.

In what year did the technology stock bubble burst?

____ is a school of economic thought that uses equation of exchange to analyze the macroeconomic data.

Which of the following would tend to decrease velocity?

What Is Economics

The Economony: 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

The Financial Markets and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

The Case for Free Markets: the Price System

Monopoly

Between Competition and Monopoly

Limiting Market Power: Antitrust and Regulation

The Shortcomings of Free Markets

The Economics of 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

Contemporary Issues in the Useconomy

Filters

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

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 nominal GDP was approximately