Question 1

A factor increasing the popularity of monetarism in the late 1970s was the

Accepted Answer

A)  ease with which the Fed controlled the money supply. 
B)  excellent performance of the economy in the 1970s. 
C)  fear of budget deficits and growing federal debt. 
D)  predictable behavior of velocity until about 1980. 
A)  ease with which the Fed controlled the money supply. 
B)  excellent performance of the economy in the 1970s. 
C)  fear of budget deficits and growing federal debt. 
D)  predictable behavior of velocity until about 1980.

Question 2

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 3

Which of the following will tend to increase velocity?

Accepted Answer

A)  A decrease in the number of payments 
B)  A decrease in inflation 
C)  An increase in interest rates 
D)  An increase in the money supply 
E)  All of these responses are correct. 
A)  A decrease in the number of payments 
B)  A decrease in inflation 
C)  An increase in interest rates 
D)  An increase in the money supply 
E)  All of these responses are correct.

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

The relationship between money growth rates and inflation between 1982 and 2010 helps explain why, by the 1990s, most economists had

Accepted Answer

A)  adopted the monetarist explanation of inflation. 
B)  adopted a rules-only approach to monetary policy. 
C)  become more convinced of the monetary causes of inflation. 
D)  abandoned monetarism as the primary explanation of inflation. 
A)  adopted the monetarist explanation of inflation. 
B)  adopted a rules-only approach to monetary policy. 
C)  become more convinced of the monetary causes of inflation. 
D)  abandoned monetarism as the primary explanation of inflation.

Question 6

In what year did the technology stock bubble burst?

Accepted Answer

A)  2000 
B)  2006 
C)  2007 
D)  2008 
A)  2000 
B)  2006 
C)  2007 
D)  2008

Question 7

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

Accepted Answer

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

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

Velocity is not a constant, and it normally increases when interest rates rise.

Accepted Answer

A) True 
 B)False

Question 10

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 11

The reason that velocity increases when interest rates rise is

Accepted Answer

A)  the Fed encourages banks to turn money in faster for recycling, which causes money to move faster. 
B)  the opportunity cost of saving increases, so people hold smaller cash balances. 
C)  home mortgage payments increase, so people write larger checks that reduces their checking account balances. 
D)  the opportunity cost of holding money increases, so average money balances decrease. 
A)  the Fed encourages banks to turn money in faster for recycling, which causes money to move faster. 
B)  the opportunity cost of saving increases, so people hold smaller cash balances. 
C)  home mortgage payments increase, so people write larger checks that reduces their checking account balances. 
D)  the opportunity cost of holding money increases, so average money balances decrease.

Question 12

The expenditure lags between fiscal actions and their effects on aggregate demand are probably fairly short.

Accepted Answer

A) True 
 B)False

Question 13

If economists say that a 7 percent growth in the money supply will increase aggregate demand by 7 percent, they are assuming that velocity

Accepted Answer

A)  will decrease. 
B)  is constant. 
C)  will increase. 
D)  is unpredictable. 
A)  will decrease. 
B)  is constant. 
C)  will increase. 
D)  is unpredictable.

Question 14

If the aggregate supply curve is steep,

Accepted Answer

A)  increased aggregate demand will not lead to higher prices. 
B)  greater demand for labor will not cause significant wage increases. 
C)  business firms are probably producing near capacity. 
D)  All of these responses are correct. 
A)  increased aggregate demand will not lead to higher prices. 
B)  greater demand for labor will not cause significant wage increases. 
C)  business firms are probably producing near capacity. 
D)  All of these responses are correct.

Question 15

A scatter diagram of money growth rates and inflation rates from 1982 to 2010 indicates

Accepted Answer

A)  a clear direct relationship between money growth and inflation. 
B)  a clear indirect relationship between money growth and inflation. 
C)  no clear relationship between money growth rates and inflation. 
D)  that inflation is always and everywhere a monetary phenomenon. 
A)  a clear direct relationship between money growth and inflation. 
B)  a clear indirect relationship between money growth and inflation. 
C)  no clear relationship between money growth rates and inflation. 
D)  that inflation is always and everywhere a monetary phenomenon.

Question 16

The monetarist and the Keynesian approaches are two competing theories of aggregate demand.

Accepted Answer

A) True 
 B)False

Question 17

An important determinant of velocity is the rate of interest.

Accepted Answer

A) True 
 B)False

Question 18

When something happens to the economy, monetarists ask two questions:

Accepted Answer

A)  What does this do to government spending, and what does it do to tax revenues? 
B)  What does this do to real GDP, and what does it do to the price level? 
C)  What does this do to investment spending, and what does it do to net exports? 
D)  What does this do to the money supply, and what does it do to velocity? 
A)  What does this do to government spending, and what does it do to tax revenues? 
B)  What does this do to real GDP, and what does it do to the price level? 
C)  What does this do to investment spending, and what does it do to net exports? 
D)  What does this do to the money supply, and what does it do to velocity?

Question 19

What do most economists think is the most accurate statement about velocity?

Accepted Answer

A)  Velocity is fairly constant in the short run but varies considerably in the long run, complicating predictions about nominal GDP. 
B)  M1 velocity is more stable in the short run than M2 velocity, and it has been a superior tool in predicting changes in nominal GDP. 
C)  Velocity is not constant in the short run, and predictions about nominal GDP have not fared well. 
D)  M2 velocity has been less stable than M1 velocity, but both are reliable enough to make accurate predictions about changes in nominal GDP. 
A)  Velocity is fairly constant in the short run but varies considerably in the long run, complicating predictions about nominal GDP. 
B)  M1 velocity is more stable in the short run than M2 velocity, and it has been a superior tool in predicting changes in nominal GDP. 
C)  Velocity is not constant in the short run, and predictions about nominal GDP have not fared well. 
D)  M2 velocity has been less stable than M1 velocity, but both are reliable enough to make accurate predictions about changes in nominal GDP.

Question 20

If you assume that the equation of exchange is a dependable economic model, then the Fed can control

Accepted Answer

A)  real GDP. 
B)  aggregate supply. 
C)  nominal GDP. 
D)  economic growth. 
A)  real GDP. 
B)  aggregate supply. 
C)  nominal GDP. 
D)  economic growth.

Exam 31: The Debate Over Monetary and Fiscal Policy

A factor increasing the popularity of monetarism in the late 1970s was the

If the aggregate supply curve is flat,

Which of the following will tend to increase velocity?

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

The relationship between money growth rates and inflation between 1982 and 2010 helps explain why, by the 1990s, most economists had

In what year did the technology stock bubble burst?

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

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

Velocity is not a constant, and it normally increases when interest rates rise.

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

The reason that velocity increases when interest rates rise is

The expenditure lags between fiscal actions and their effects on aggregate demand are probably fairly short.

If economists say that a 7 percent growth in the money supply will increase aggregate demand by 7 percent, they are assuming that velocity

If the aggregate supply curve is steep,

A scatter diagram of money growth rates and inflation rates from 1982 to 2010 indicates

The monetarist and the Keynesian approaches are two competing theories of aggregate demand.

An important determinant of velocity is the rate of interest.

When something happens to the economy, monetarists ask two questions:

What do most economists think is the most accurate statement about velocity?

If you assume that the equation of exchange is a dependable economic model, then the Fed can control

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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