Question 1

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 2

The equation now called the ______________ starts with a 2 percent real interest rate, and then instructs the Fed to lower the interest rate in proportion to any recessionary gap and to raise it in proportion to any excess of inflation above 2 percent.

Accepted Answer

A)  Taylor rule 
B)  rule of 70 
C)  Spencer's rule 
D)  None of the above is correct. 
A)  Taylor rule 
B)  rule of 70 
C)  Spencer's rule 
D)  None of the above is correct.

Question 3

In the short run, an increase in the quantity of money normally

Accepted Answer

A)  has no effect; in the long run, V will increase. 
B)  has no effect; in the long run, V will decrease. 
C)  results in an increase in velocity. 
D)  results in a decrease in velocity. 
A)  has no effect; in the long run, V will increase. 
B)  has no effect; in the long run, V will decrease. 
C)  results in an increase in velocity. 
D)  results in a decrease in velocity.

Question 4

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 5

Explain the importance of the shape of supply curve for undertaking stabilization policies.

Accepted Answer

If the aggregate supply curve is flat, e

Question 6

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 7

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 8

The equation of exchange states that the money value of GDP transactions must be equal to the product of the average stock of money and velocity.

Accepted Answer

A) True 
 B)False

Question 9

In order to consider the equation of exchange an economic model, what must we assume?

Accepted Answer

A)  Real GDP is a constant value. 
B)  Changes in GDP cause changes in the money supply. 
C)  The money supply is constant. 
D)  Changes in velocity are small and predictable. 
A)  Real GDP is a constant value. 
B)  Changes in GDP cause changes in the money supply. 
C)  The money supply is constant. 
D)  Changes in velocity are small and predictable.

Question 10

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 11

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 12

The equation of exchange is an accounting identity that

Accepted Answer

A)  relates the money supply to nominal GDP. 
B)  equates the demand for money with the supply of money. 
C)  relates the money supply to real GDP. 
D)  accounts use to balance assets and liabilities. 
A)  relates the money supply to nominal GDP. 
B)  equates the demand for money with the supply of money. 
C)  relates the money supply to real GDP. 
D)  accounts use to balance assets and liabilities.

Question 13

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 14

The speed with which money circulates through the economy is called the

Accepted Answer

A)  oversimplified multiplier. 
B)  velocity of circulation. 
C)  exchange rate. 
D)  money multiplier. 
A)  oversimplified multiplier. 
B)  velocity of circulation. 
C)  exchange rate. 
D)  money multiplier.

Question 15

As market interest rates rise, people want to hold smaller cash balances, which means that the existing stock of money circulates faster and velocity rises.

Accepted Answer

A) True 
 B)False

Question 16

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 17

When the Fed increases the money supply, interest rates

Accepted Answer

A)  rise, causing velocity to fall. 
B)  fall, causing velocity to fall. 
C)  rise, causing velocity to rise. 
D)  fall, causing velocity to rise. 
A)  rise, causing velocity to fall. 
B)  fall, causing velocity to fall. 
C)  rise, causing velocity to rise. 
D)  fall, causing velocity to rise.

Question 18

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 19

The equation of exchange can be written as

Accepted Answer

A)  velocity × nominal GDP = price index. 
B)  real GDP × price index = money supply. 
C)  money supply × price index = real GDP. 
D)  money supply × velocity = nominal GDP. 
A)  velocity × nominal GDP = price index. 
B)  real GDP × price index = money supply. 
C)  money supply × price index = real GDP. 
D)  money supply × velocity = nominal GDP.

Question 20

Which of the following lags makes stabilization policy more problematic?

Accepted Answer

A)  Expenditure lags 
B)  Recognition lags 
C)  Policy lags 
D)  All of these responses are correct. 
A)  Expenditure lags 
B)  Recognition lags 
C)  Policy lags 
D)  All of these responses are correct.

Exam 31: The Debate Over Monetary and Fiscal Policy

The velocity of circulation is the

The equation now called the ______________ starts with a 2 percent real interest rate, and then instructs the Fed to lower the interest rate in proportion to any recessionary gap and to raise it in proportion to any excess of inflation above 2 percent.

In the short run, an increase in the quantity of money normally

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

Explain the importance of the shape of supply curve for undertaking stabilization policies.

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?

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

The equation of exchange states that the money value of GDP transactions must be equal to the product of the average stock of money and velocity.

In order to consider the equation of exchange an economic model, what must we assume?

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.

Which of the following is correct?

The equation of exchange is an accounting identity that

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

The speed with which money circulates through the economy is called the

As market interest rates rise, people want to hold smaller cash balances, which means that the existing stock of money circulates faster and velocity rises.

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

When the Fed increases the money supply, interest rates

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

The equation of exchange can be written as

Which of the following lags makes stabilization policy more problematic?

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

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