Question 1

Are forecasts of economic activity accurate enough to permit "fine-tuning" of the economy?

Accepted Answer

A) No, forecasting is so inaccurate that it should be abandoned. 
B) No, forecasts are not accurate enough for this. 
C) Yes, forecasts are accurate and reliable enough for this. 
D) Yes, at least most of the time. 
A) No, forecasting is so inaccurate that it should be abandoned. 
B) No, forecasts are not accurate enough for this. 
C) Yes, forecasts are accurate and reliable enough for this. 
D) Yes, at least most of the time.

Question 2

After September 11, 2001, a small group of economists argued that the economy's self-correcting mechanism would work to counteract the recessionary effects of the attack.

Accepted Answer

A) True 
 B)False

Question 3

During normal times, Fed pushes the federal funds down when it wants to give the economy a boost and

Accepted Answer

A) pushes it up when it wants to restrain the economy. 
B) pushes it down when it wants to restrain the economy. 
C) does not tamper with the federal funds when it wants to restrain the economy. 
D) None of the above is correct. 
A) pushes it up when it wants to restrain the economy. 
B) pushes it down when it wants to restrain the economy. 
C) does not tamper with the federal funds when it wants to restrain the economy. 
D) None of the above is correct.

Question 4

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 5

How do critics of discretionary stabilization policy view frequent changes in spending and tax policy?

Accepted Answer

A) The changes make the economy smoother, although it may not look that way to individual firms. 
B) The changes make life more difficult and hectic for Congress and the Fed. 
C) The changes smooth out the business cycle, making planning easier. 
D) The changes cause more instability in the economy and make planning more difficult. 
A) The changes make the economy smoother, although it may not look that way to individual firms. 
B) The changes make life more difficult and hectic for Congress and the Fed. 
C) The changes smooth out the business cycle, making planning easier. 
D) The changes cause more instability in the economy and make planning more difficult.

Question 6

The monetarist and the Keynesian approaches are two competing theories of aggregate demand.

Accepted Answer

A) True 
 B)False

Question 7

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 8

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 these responses are correct. 
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 these responses are correct.

Question 9

If you assume that the equation of exchange is a dependable economic model, then the Fed can control

Accepted Answer

A) real GDP. 
B) aggregate supply. 
C) nominal GDP. 
D) economic growth. 
A) real GDP. 
B) aggregate supply. 
C) nominal GDP. 
D) economic growth.

Question 10

In 1996, if nominal GDP was about $8.5 thousand billion.The stock of money was

Accepted Answer

A) about the same as this. 
B) much less than this. 
C) much more than this. 
D) unrelated to this number. 
A) about the same as this. 
B) much less than this. 
C) much more than this. 
D) unrelated to this number.

Question 11

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 runs. 
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 runs. 
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 runs. 
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 runs. 
D) AS is relatively steep in the short run but flatter in the long run.

Question 12

In a typical year, how accurate are forecasts of inflation and real GDP?

Accepted Answer

A) Within 8-10 percentage points 
B) Within 2-3 percentage points 
C) Within 3/4 of 1 percentage point 
D) Within 1/4 of 1 percentage point 
A) Within 8-10 percentage points 
B) Within 2-3 percentage points 
C) Within 3/4 of 1 percentage point 
D) Within 1/4 of 1 percentage point

Question 13

Velocity is not a constant, and it normally increases when interest rates rise.

Accepted Answer

A) True 
 B)False

Question 14

The relationship between money growth rates and inflation between 1982 and 2010 helps explain why, by the 1990s, most economists had

Accepted Answer

A) adopted the monetarist explanation of inflation. 
B) adopted a rules-only approach to monetary policy. 
C) become more convinced of the monetary causes of inflation. 
D) abandoned monetarism as the primary explanation of inflation. 
A) adopted the monetarist explanation of inflation. 
B) adopted a rules-only approach to monetary policy. 
C) become more convinced of the monetary causes of inflation. 
D) abandoned monetarism as the primary explanation of inflation.

Question 15

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 16

When comparing the Keynesian approach and the monetarist approach, the only substantive difference is that

Accepted Answer

A) the Keynesian equation leads to a prediction of real GDP, while the monetarist equation leads to a prediction of nominal GDP. 
B) Keynesians concentrate on aggregate demand and monetarists concentrate on aggregate supply. 
C) Keynesians approach aggregate demand by multiplying the money supply by velocity, while monetarists use the equilibrium conditions of the expenditure schedule. 
D) Keynesian analysis suggests that money affects consumption first, while monetarist analysis suggests that money affects investment spending first. 
A) the Keynesian equation leads to a prediction of real GDP, while the monetarist equation leads to a prediction of nominal GDP. 
B) Keynesians concentrate on aggregate demand and monetarists concentrate on aggregate supply. 
C) Keynesians approach aggregate demand by multiplying the money supply by velocity, while monetarists use the equilibrium conditions of the expenditure schedule. 
D) Keynesian analysis suggests that money affects consumption first, while monetarist analysis suggests that money affects investment spending first.

Question 17

The primary goal of central bankers is to mitigate the consequences of bubbles, not to prevent bubbles.

Accepted Answer

A) True 
 B)False

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

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 these responses 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 these responses are correct.

Question 20

The objective of the Fed and the government is to

Accepted Answer

A) prevent asset bubbles by recognizing them in real time. 
B) mitigate the consequences of asset bubbles by recognizing them in real time. 
C) prevent asset bubbles by recognizing bad lending practices. 
D) mitigate the consequences of asset bubbles by recognizing bad lending practices. 
A) prevent asset bubbles by recognizing them in real time. 
B) mitigate the consequences of asset bubbles by recognizing them in real time. 
C) prevent asset bubbles by recognizing bad lending practices. 
D) mitigate the consequences of asset bubbles by recognizing bad lending practices.

Exam 31: The Debate Over Monetary and Fiscal Policy

Are forecasts of economic activity accurate enough to permit "fine-tuning" of the economy?

After September 11, 2001, a small group of economists argued that the economy's self-correcting mechanism would work to counteract the recessionary effects of the attack.

During normal times, Fed pushes the federal funds down when it wants to give the economy a boost and

Since the 1970s, the velocity of money has

How do critics of discretionary stabilization policy view frequent changes in spending and tax policy?

The monetarist and the Keynesian approaches are two competing theories of aggregate demand.

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

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

If you assume that the equation of exchange is a dependable economic model, then the Fed can control

In 1996, if nominal GDP was about $8.5 thousand billion.The stock of money was

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

In a typical year, how accurate are forecasts of inflation and real GDP?

Velocity is not a constant, and it normally increases when interest rates rise.

The relationship between money growth rates and inflation between 1982 and 2010 helps explain why, by the 1990s, most economists had

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

When comparing the Keynesian approach and the monetarist approach, the only substantive difference is that

The primary goal of central bankers is to mitigate the consequences of bubbles, not to prevent bubbles.

Monetarism resembles Keynesian thinking in that they both

Monetarists maintain that

The objective of the Fed and the government is to

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

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