Question 1

The Fed's quick response to the threat to the economy after September 11, 2001, makes a strong case for

Accepted Answer

A)  a rules-based monetary policy regime. 
B)  a discretionary-based monetary policy regime. 
C)  the superiority of fiscal policy. 
D)  the dominant role of Congress in activist policy. 
A)  a rules-based monetary policy regime. 
B)  a discretionary-based monetary policy regime. 
C)  the superiority of fiscal policy. 
D)  the dominant role of Congress in activist policy.

Question 2

In the monetarist view, the money supply affects the economy

Accepted Answer

A)  through investment spending and government spending. 
B)  indirectly through interest rates. 
C)  directly, apart from interest rates. 
D)  by altering the size of the money multiplier. 
A)  through investment spending and government spending. 
B)  indirectly through interest rates. 
C)  directly, apart from interest rates. 
D)  by altering the size of the money multiplier.

Question 3

Advocates of activist policymaking point to the swift response of the Fed after September 11, 2001, as an example of effective policymaking.

Accepted Answer

A) True 
 B)False

Question 4

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 5

Which of the following was not a criticism of the unconventional monetary policy used by the Fed in 2009 and 2010?

Accepted Answer

A)  Tendency toward higher unemployment 
B)  Tendency toward higher inflation 
C)  Usurping authority which should be allocated to Congress 
D)  Determining which banks would be allowed to fail 
A)  Tendency toward higher unemployment 
B)  Tendency toward higher inflation 
C)  Usurping authority which should be allocated to Congress 
D)  Determining which banks would be allowed to fail

Question 6

Which of the following would tend to decrease velocity?

Accepted Answer

A)  An increase in interest rates 
B)  More frequent paychecks 
C)  Expected decreases in inflation 
D)  More efficient payment systems 
A)  An increase in interest rates 
B)  More frequent paychecks 
C)  Expected decreases in inflation 
D)  More efficient payment systems

Question 7

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 8

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 9

Critics of the Fed's unconventional policies in 2009 and 2010 argued that determining which financial institutions would be bailed out and which would be allowed to fail was a political decision that rightfully belonged to Congress.

Accepted Answer

A) True 
 B)False

Question 10

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 11

Advocates of stabilization policy prefer quick medicine for economic ills. This leads some observers to favor fiscal policy while others endorse monetary policy. Describe the positions of each side in the debate and what seems to be the current consensus.

Accepted Answer

Fiscal policy advocates argue that fisca

Question 12

In the equation of exchange, velocity of money increases when

Accepted Answer

A)  Y increases without any changes in P and M . 
B)  Y falls without any changes in P . 
C)  M increases without any changes in P and Y . 
D)  P falls without any changes in Y and M . 
A)  Y increases without any changes in P and M . 
B)  Y falls without any changes in P . 
C)  M increases without any changes in P and Y . 
D)  P falls without any changes in Y and M .

Question 13

Historically, the most harmful bubbles are those financed by heavy borrowing and extensive use of leverage.

Accepted Answer

A) True 
 B)False

Question 14

Many economists believe that stabilization policy should be limited in scope until

Accepted Answer

A)  Keynesians and monetarists agree on policy. 
B)  inflation is brought under control. 
C)  the economy is operating near capacity. 
D)  forecasting becomes more reliable. 
A)  Keynesians and monetarists agree on policy. 
B)  inflation is brought under control. 
C)  the economy is operating near capacity. 
D)  forecasting becomes more reliable.

Question 15

In 2005-2006, the Fed increased interest rates in an attempt to halt inflation. What was the most likely effect of raising interest rates on velocity?

Accepted Answer

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

Question 16

The principal factor determining velocity is the

Accepted Answer

A)  level of income. 
B)  frequency with which paychecks are distributed. 
C)  frequency with which taxes are paid. 
D)  growth rate of real output. 
A)  level of income. 
B)  frequency with which paychecks are distributed. 
C)  frequency with which taxes are paid. 
D)  growth rate of real output.

Question 17

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

Question 18

How do critics of stabilization policy view the "political business cycle"?

Accepted Answer

A)  They suggest shorter election cycles would improve stabilization. 
B)  They believe that politicians cause economic instability, due mainly to the election schedule. 
C)  They believe that the Fed can resist political pressure and stabilize the economy. 
D)  They believe that politicians do not know enough economics in order to stabilize the economy. 
A)  They suggest shorter election cycles would improve stabilization. 
B)  They believe that politicians cause economic instability, due mainly to the election schedule. 
C)  They believe that the Fed can resist political pressure and stabilize the economy. 
D)  They believe that politicians do not know enough economics in order to stabilize the economy.

Question 19

The quantity theory of money assumes that

Accepted Answer

A)  velocity varies inversely with interest rates. 
B)  if velocity equals six, the Fed can increase nominal GDP by 30 percent if it increases the money supply by 5 percent. 
C)  changes in the money supply affect output but not prices. 
D)  changes in velocity are so small that velocity can be considered constant. 
A)  velocity varies inversely with interest rates. 
B)  if velocity equals six, the Fed can increase nominal GDP by 30 percent if it increases the money supply by 5 percent. 
C)  changes in the money supply affect output but not prices. 
D)  changes in velocity are so small that velocity can be considered constant.

Question 20

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.

Exam 31: The Debate Over Monetary and Fiscal Policy

The Fed's quick response to the threat to the economy after September 11, 2001, makes a strong case for

In the monetarist view, the money supply affects the economy

Advocates of activist policymaking point to the swift response of the Fed after September 11, 2001, as an example of effective policymaking.

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

Which of the following was not a criticism of the unconventional monetary policy used by the Fed in 2009 and 2010?

Which of the following would tend to decrease velocity?

The equation of exchange is written as

The contemporary consensus with regard to stabilization policy is that

Critics of the Fed's unconventional policies in 2009 and 2010 argued that determining which financial institutions would be bailed out and which would be allowed to fail was a political decision that rightfully belonged to Congress.

One of the strongest arguments against active stabilization policy is

Advocates of stabilization policy prefer quick medicine for economic ills. This leads some observers to favor fiscal policy while others endorse monetary policy. Describe the positions of each side in the debate and what seems to be the current consensus.

In the equation of exchange, velocity of money increases when

Historically, the most harmful bubbles are those financed by heavy borrowing and extensive use of leverage.

Many economists believe that stabilization policy should be limited in scope until

In 2005-2006, the Fed increased interest rates in an attempt to halt inflation. What was the most likely effect of raising interest rates on velocity?

The principal factor determining velocity is the

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.

How do critics of stabilization policy view the "political business cycle"?

The quantity theory of money assumes that

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

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