Question 1

Most economists think that it is impossible to prevent asset price bubbles.

Accepted Answer

A) True 
 B)False

Question 2

The optimal time for the implementation of contractionary fiscal policy would be

Accepted Answer

A) before inflation accelerated. 
B) after inflation accelerated. 
C) after unemployment increased. 
D) after the price level had risen significantly. 
A) before inflation accelerated. 
B) after inflation accelerated. 
C) after unemployment increased. 
D) after the price level had risen significantly.

Question 3

Monetarists believe that the aggregate supply curve is relatively steep in the short and long runs.This means they expect

Accepted Answer

A) inflation with no change in output. 
B) increases in output to bring much inflation. 
C) increases in output to bring little inflation. 
D) decreases in output to bring much inflation. 
A) inflation with no change in output. 
B) increases in output to bring much inflation. 
C) increases in output to bring little inflation. 
D) decreases in output to bring much inflation.

Question 4

One of the strongest arguments against active stabilization policy is

Accepted Answer

A) that recognition lags make timely intervention very difficult. 
B) the economy corrects itself very slowly. 
C) the inability of economic theory to suggest appropriate policy. 
D) the difficulty of obtaining agreement on monetary policy. 
A) that recognition lags make timely intervention very difficult. 
B) the economy corrects itself very slowly. 
C) the inability of economic theory to suggest appropriate policy. 
D) the difficulty of obtaining agreement on monetary policy.

Question 5

Which of the following best describes the assumption that monetarists make regarding velocity?

Accepted Answer

A) Velocity is fairly predictable in the short run and certainly in the long run. 
B) It is not possible to predict velocity in the short or long run. 
C) Velocity is variable in the long run but predictable in the short run. 
D) Velocity is constant in the long run but variable in the short run. 
A) Velocity is fairly predictable in the short run and certainly in the long run. 
B) It is not possible to predict velocity in the short or long run. 
C) Velocity is variable in the long run but predictable in the short run. 
D) Velocity is constant in the long run but variable in the short run.

Question 6

Expansionary monetary policy will decrease interest rates and decrease the velocity of money.

Accepted Answer

A) True 
 B)False

Question 7

During the financial crisis of 2007-2009, both fiscal and monetary policy turned more expansionary.

Accepted Answer

A) True 
 B)False

Question 8

Advocates of active stabilization policies, in defense of their views, argue that

Accepted Answer

A) stabilization is less necessary than is commonly advocated by monetarists. 
B) discretionary policy in not necessary because automatic stabilizers are sufficient. 
C) perfect stabilization is not possible, but moderate improvements in economic performance are possible, such as the response to the events of September 11, 2001. 
D) All of these responses are correct. 
A) stabilization is less necessary than is commonly advocated by monetarists. 
B) discretionary policy in not necessary because automatic stabilizers are sufficient. 
C) perfect stabilization is not possible, but moderate improvements in economic performance are possible, such as the response to the events of September 11, 2001. 
D) All of these responses are correct.

Question 9

The contemporary consensus with regard to stabilization policy is that

Accepted Answer

A) fiscal policy is, for now, the "only game in town." 
B) fiscal policy is more effective than monetary policy. 
C) monetary policy is, for now, the "only game in town." 
D) monetary policy is slightly more effective than fiscal policy. 
A) fiscal policy is, for now, the "only game in town." 
B) fiscal policy is more effective than monetary policy. 
C) monetary policy is, for now, the "only game in town." 
D) monetary policy is slightly more effective than fiscal policy.

Question 10

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 policy 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 policy stimulus. 
C) only a short time to return to equilibrium full employment. 
D) President Bush to propose a large budget stimulus package.

Question 11

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 12

The monetary stimulus enacted in the fall of 2001 provides support for those economists who favor

Accepted Answer

A) stable money supply growth. 
B) activist monetary policy. 
C) rules-governed monetary policy. 
D) fixed rates of growth for the money supply. 
A) stable money supply growth. 
B) activist monetary policy. 
C) rules-governed monetary policy. 
D) fixed rates of growth for the money supply.

Question 13

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 M1. 
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 M1. 
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 14

Which of the following will increase the velocity of circulation?

Accepted Answer

A) Interest rates increase. 
B) The inflation rate decreases. 
C) Federal banking legislation abolishes credit cards. 
D) Employers decide to pay employees once a month instead of once a week. 
A) Interest rates increase. 
B) The inflation rate decreases. 
C) Federal banking legislation abolishes credit cards. 
D) Employers decide to pay employees once a month instead of once a week.

Question 15

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 16

It is ____ to identify an asset bubble before it bursts ____ to identify an asset bubble after it bursts.

Accepted Answer

A) simple; and also simple 
B) simple; but difficult 
C) difficult; but simple 
D) difficult; and also difficult 
A) simple; and also simple 
B) simple; but difficult 
C) difficult; but simple 
D) difficult; and also difficult

Question 17

The velocity of money is equal to nominal GDP divided by money stock.

Accepted Answer

A) True 
 B)False

Question 18

Advocates of discretionary policy make which of the following criticisms of the economy's "self-correcting" mechanism?

Accepted Answer

A) It is slow. 
B) It is not very reliable. 
C) It works only when supplemented by automatic stabilizers. 
D) All of these responses are correct. 
E) Options a and b only are correct. 
A) It is slow. 
B) It is not very reliable. 
C) It works only when supplemented by automatic stabilizers. 
D) All of these responses are correct. 
E) Options a and b only are correct.

Question 19

The main policy tool for manipulating consumer spending is

Accepted Answer

A) personal income tax. 
B) corporate income tax. 
C) capital gains tax. 
D) None of the above is correct. 
A) personal income tax. 
B) corporate income tax. 
C) capital gains tax. 
D) None of the above is correct.

Question 20

If the Federal Reserve reduces short-term interest rates to virtually zero, and the economy still needs stimulus, it may want to turn to unconventional monetary policies.

Accepted Answer

A) True 
 B)False

Exam 31: The Debate Over Monetary and Fiscal Policy

Most economists think that it is impossible to prevent asset price bubbles.

The optimal time for the implementation of contractionary fiscal policy would be

Monetarists believe that the aggregate supply curve is relatively steep in the short and long runs.This means they expect

One of the strongest arguments against active stabilization policy is

Which of the following best describes the assumption that monetarists make regarding velocity?

Expansionary monetary policy will decrease interest rates and decrease the velocity of money.

During the financial crisis of 2007-2009, both fiscal and monetary policy turned more expansionary.

Advocates of active stabilization policies, in defense of their views, argue that

The contemporary consensus with regard to stabilization policy is that

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

The efficiency of the payments' mechanism affects

The monetary stimulus enacted in the fall of 2001 provides support for those economists who favor

A look at the historical data indicates that velocity for M1

Which of the following will increase the velocity of circulation?

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

It is ____ to identify an asset bubble before it bursts ____ to identify an asset bubble after it bursts.

The velocity of money is equal to nominal GDP divided by money stock.

Advocates of discretionary policy make which of the following criticisms of the economy's "self-correcting" mechanism?

The main policy tool for manipulating consumer spending is

If the Federal Reserve reduces short-term interest rates to virtually zero, and the economy still needs stimulus, it may want to turn to unconventional monetary policies.

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

A look at the historical data indicates that velocity for M₁

It is to identify an asset bubble before it bursts to identify an asset bubble after it bursts.