Question 1

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 2

The inability of Congress to pass a stimulus package after September 11, 2001, 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 3

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

Accepted Answer

A) True 
 B)False

Question 4

How rapidly does the economy's self-correcting mechanism work? Most economists agree that it

Accepted Answer

A)  works quickly and reliably. 
B)  works slowly and not very reliably. 
C)  works reliably, but not very quickly. 
D)  does not work at all. 
A)  works quickly and reliably. 
B)  works slowly and not very reliably. 
C)  works reliably, but not very quickly. 
D)  does not work at all.

Question 5

For both Keynesians and monetarists to predict accurately the effects of a change in the money supply on the price level, they need to add ____ to their analysis.

Accepted Answer

A)  aggregate demand 
B)  nominal GDP 
C)  real GDP 
D)  aggregate supply 
E)  government spending 
A)  aggregate demand 
B)  nominal GDP 
C)  real GDP 
D)  aggregate supply 
E)  government spending

Question 6

The steepness of the aggregate supply curve schedule depends on the time frame.

Accepted Answer

A) True 
 B)False

Question 7

According to the quantity theory of money currently used by monetarists, assuming velocity is constant (at a value of 5), a 10 percent increase in the money supply will raise

Accepted Answer

A)  nominal GDP by 50 percent. 
B)  real GDP by 10 percent. 
C)  nominal GDP by 10 percent. 
D)  real GDP by 50 percent. 
A)  nominal GDP by 50 percent. 
B)  real GDP by 10 percent. 
C)  nominal GDP by 10 percent. 
D)  real GDP by 50 percent.

Question 8

If velocity is a constant, then the equation of exchange is an economic model.

Accepted Answer

A) True 
 B)False

Question 9

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.

Question 10

The subprime mortgage bubble featured ____ leverage, and the technology stock bubble featured ____ leverage.

Accepted Answer

A)  significant; significant 
B)  significant; limited 
C)  limited; significant 
D)  limited; limited 
A)  significant; significant 
B)  significant; limited 
C)  limited; significant 
D)  limited; limited

Question 11

Which of the following policies would a Keynesian expect to produce the largest increase in income?

Accepted Answer

A)  A reduction in government spending of $100 billion 
B)  An increase in transfer payments of $100 billion 
C)  An increase in government spending of $100 billion 
D)  A tax cut of $100 billion 
A)  A reduction in government spending of $100 billion 
B)  An increase in transfer payments of $100 billion 
C)  An increase in government spending of $100 billion 
D)  A tax cut of $100 billion

Question 12

Critics of unconventional monetary policies argue that such operations take the Fed beyond its proper powers, may politicize it, and can unleash future inflation.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is the formula for velocity?

Accepted Answer

A)  Velocity = nominal GDP / real GDP 
B)  Velocity = real GDP / M 
C)  Velocity = ( P × Y ) / ( M × V ) 
D)  Velocity = nominal GDP / M 
A)  Velocity = nominal GDP / real GDP 
B)  Velocity = real GDP / M 
C)  Velocity = ( P × Y ) / ( M × V ) 
D)  Velocity = nominal GDP / M

Question 14

If financial news broadcasts reported that inflation was likely to rise significantly next year, what would most likely happen to the velocity of circulation?

Accepted Answer

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

Question 15

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 is correct. 
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 is correct.

Question 16

Which of the following was not a reason that the Federal Reserve took on additional risks associated with unconventional policy during the recession of 2007-2009?

Accepted Answer

A)  The large budget deficit constrained fiscal policy. 
B)  The inflated price of Treasury bills made them too expensive to purchase in open market operations. 
C)  Only the Federal Reserve acting as the central bank can serve as the lender of last resort. 
D)  The Fed was able to act more quickly than Congress. 
A)  The large budget deficit constrained fiscal policy. 
B)  The inflated price of Treasury bills made them too expensive to purchase in open market operations. 
C)  Only the Federal Reserve acting as the central bank can serve as the lender of last resort. 
D)  The Fed was able to act more quickly than Congress.

Question 17

Attempts to keep the economy always within a hair's breadth of full employment is called

Accepted Answer

A)  shock absorption. 
B)  lagging. 
C)  fine tuning. 
D)  crowding out. 
A)  shock absorption. 
B)  lagging. 
C)  fine tuning. 
D)  crowding out.

Question 18

It is often reported by financial news reports that higher interest rates reduce automobile sales. If this is true, we can expect

Accepted Answer

A)  fiscal policy to be more effective. 
B)  both fiscal and monetary policy to be more effective. 
C)  monetary policy to be more effective. 
D)  neither fiscal nor monetary policy to be more effective. 
A)  fiscal policy to be more effective. 
B)  both fiscal and monetary policy to be more effective. 
C)  monetary policy to be more effective. 
D)  neither fiscal nor monetary policy to be more effective.

Question 19

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 20

If nominal GDP is $7,700 billion and M1 is $1,000 billion, then velocity is

Accepted Answer

A)  10.7. 
B)  7.7. 
C)  7.1. 
D)  7.0. 
A)  10.7. 
B)  7.7. 
C)  7.1. 
D)  7.0.

Exam 31: The Debate Over Monetary and Fiscal Policy

Which of the following will increase the velocity of circulation?

The inability of Congress to pass a stimulus package after September 11, 2001, could be used as an argument for

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

How rapidly does the economy's self-correcting mechanism work? Most economists agree that it

For both Keynesians and monetarists to predict accurately the effects of a change in the money supply on the price level, they need to add ____ to their analysis.

The steepness of the aggregate supply curve schedule depends on the time frame.

According to the quantity theory of money currently used by monetarists, assuming velocity is constant (at a value of 5), a 10 percent increase in the money supply will raise

If velocity is a constant, then the equation of exchange is an economic model.

The objective of the Fed and the government is to

The subprime mortgage bubble featured ____ leverage, and the technology stock bubble featured ____ leverage.

Which of the following policies would a Keynesian expect to produce the largest increase in income?

Critics of unconventional monetary policies argue that such operations take the Fed beyond its proper powers, may politicize it, and can unleash future inflation.

Which of the following is the formula for velocity?

If financial news broadcasts reported that inflation was likely to rise significantly next year, what would most likely happen to the velocity of circulation?

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

Which of the following was not a reason that the Federal Reserve took on additional risks associated with unconventional policy during the recession of 2007-2009?

Attempts to keep the economy always within a hair's breadth of full employment is called

It is often reported by financial news reports that higher interest rates reduce automobile sales. If this is true, we can expect

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

If nominal GDP is $7,700 billion and M1 is $1,000 billion, then velocity is

What Is Economics

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

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 Us Economy

Filters

The subprime mortgage bubble featured leverage, and the technology stock bubble featured leverage.