Question 1

If the aggregate supply curve is flat,

Accepted Answer

A) expansionary fiscal or monetary policy will cause a good deal of inflation with little increase in real output. 
B) expansionary fiscal or monetary policy will buy large gains in real output at low cost in terms of inflation. 
C) a contractionary stabilization policy is an effective way to reduce inflation. 
D) decreasing the income tax will not shift aggregate demand. 
A) expansionary fiscal or monetary policy will cause a good deal of inflation with little increase in real output. 
B) expansionary fiscal or monetary policy will buy large gains in real output at low cost in terms of inflation. 
C) a contractionary stabilization policy is an effective way to reduce inflation. 
D) decreasing the income tax will not shift aggregate demand.

Question 2

During the financial crisis of 2007-2009, the interest rate on mortgage-backed securities had

Accepted Answer

A) increased and the Treasury interest rate had risen. 
B) increased and the Treasury interest rate had fallen. 
C) decreased and the Treasury interest rate had risen. 
D) decreased and the Treasury interest rate had fallen. 
A) increased and the Treasury interest rate had risen. 
B) increased and the Treasury interest rate had fallen. 
C) decreased and the Treasury interest rate had risen. 
D) decreased and the Treasury interest rate had fallen.

Question 3

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

Accepted Answer

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

Question 4

The equation of exchange is written as

Accepted Answer

A) M × V = P × Y. 
B) M × P = V × Y. 
C) M × Y = P × V. 
D) M × Y = Y × P. 
A) M × V = P × Y. 
B) M × P = V × Y. 
C) M × Y = P × V. 
D) M × Y = Y × P.

Question 5

According to Baumol and Blinder, the lag between the time a policy is implemented and the time it affects aggregate demand is

Accepted Answer

A) longer for fiscal policy than monetary policy. 
B) longer for monetary policy than fiscal policy. 
C) approximately equal for both. 
D) influenced mainly by the size of the multiplier. 
A) longer for fiscal policy than monetary policy. 
B) longer for monetary policy than fiscal policy. 
C) approximately equal for both. 
D) influenced mainly by the size of the multiplier.

Question 6

The quantity theory of money builds on the equation of exchange.What specific assumptions are made that turn the equation of exchange from an accounting identity into an economic theory?

Accepted Answer

The principal assumption is that velocit

Question 7

In what year did the housing bubble burst?

Accepted Answer

A) 2000 
B) 2006 
C) 2008 
D) There was no such event. 
A) 2000 
B) 2006 
C) 2008 
D) There was no such event.

Question 8

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 9

Monetarism is a mode of analysis that uses the equation of exchange to organize and analyze economic data.

Accepted Answer

A) True 
 B)False

Question 10

An important determinant of velocity is the rate of interest.

Accepted Answer

A) True 
 B)False

Question 11

Monetarists have received this label because they emphasize the role of the

Accepted Answer

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

Question 12

Monetary policy operates mainly on investment, which responds slowly to changes in interest rates.

Accepted Answer

A) True 
 B)False

Question 13

The current debate about fiscal and monetary policy tends to focus on

Accepted Answer

A) which policy is less destabilizing. 
B) which policy is more effective. 
C) whether the Fed can control the money supply. 
D) which policy works more quickly. 
A) which policy is less destabilizing. 
B) which policy is more effective. 
C) whether the Fed can control the money supply. 
D) which policy works more quickly.

Question 14

In utilizing unconventional monetary policy in 2009, 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 15

The monetary stimulus post-September 11, 2001, achieved some desired effects within the year.

Accepted Answer

A) True 
 B)False

Question 16

The rapid speed with which the stimulus bill passed through both houses of Congress and was signed by the President could be used as an argument for

Accepted Answer

A) activist fiscal policy. 
B) activist monetary policy. 
C) expansionary fiscal policy. 
D) contractionary monetary policy. 
A) activist fiscal policy. 
B) activist monetary policy. 
C) expansionary fiscal policy. 
D) contractionary monetary policy.

Question 17

Which of the following was the result of the Federal Reserve's purchase of mortgage-backed securities in 2009?

Accepted Answer

A) MBS interest rates declined, home mortgage rates declined, and the Fed turned a profit on these operations. 
B) MBS interest rates declined, home mortgage rates declined, but the Fed had a loss on these operations. 
C) MBS interest rates increased, home mortgage rates declined, and the Fed turned a profit on these operations. 
D) MBS interest rates increased, home mortgage rates increased, but the Fed had a loss on these operations. 
A) MBS interest rates declined, home mortgage rates declined, and the Fed turned a profit on these operations. 
B) MBS interest rates declined, home mortgage rates declined, but the Fed had a loss on these operations. 
C) MBS interest rates increased, home mortgage rates declined, and the Fed turned a profit on these operations. 
D) MBS interest rates increased, home mortgage rates increased, but the Fed had a loss on these operations.

Question 18

The equation of exchange is an accounting identity, not an economic theory.

Accepted Answer

A) True 
 B)False

Question 19

Expansionary monetary policy increases bank reserves and the money supply, also decreases interest rates.

Accepted Answer

A) True 
 B)False

Question 20

If velocity remains relatively constant, changes in the money supply can have a predictable effect on nominal GDP.

Accepted Answer

A) True 
 B)False

Exam 31: The Debate Over Monetary and Fiscal Policy

If the aggregate supply curve is flat,

During the financial crisis of 2007-2009, the interest rate on mortgage-backed securities had

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

The equation of exchange is written as

According to Baumol and Blinder, the lag between the time a policy is implemented and the time it affects aggregate demand is

The quantity theory of money builds on the equation of exchange.What specific assumptions are made that turn the equation of exchange from an accounting identity into an economic theory?

In what year did the housing bubble burst?

Which of the following is correct?

Monetarism is a mode of analysis that uses the equation of exchange to organize and analyze economic data.

An important determinant of velocity is the rate of interest.

Monetarists have received this label because they emphasize the role of the

Monetary policy operates mainly on investment, which responds slowly to changes in interest rates.

The current debate about fiscal and monetary policy tends to focus on

In utilizing unconventional monetary policy in 2009, the Federal Reserve purchased

The monetary stimulus post-September 11, 2001, achieved some desired effects within the year.

The rapid speed with which the stimulus bill passed through both houses of Congress and was signed by the President could be used as an argument for

Which of the following was the result of the Federal Reserve's purchase of mortgage-backed securities in 2009?

The equation of exchange is an accounting identity, not an economic theory.

Expansionary monetary policy increases bank reserves and the money supply, also decreases interest rates.

If velocity remains relatively constant, changes in the money supply can have a predictable effect on nominal GDP.

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