Question 1

If the Fed's monetary policy causes a substantial decrease 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 2

During the financial crisis of 2007-2009, the interest rate spread on mortgage-backed securities over Treasury bills

Accepted Answer

A)  increased tremendously. 
B)  increased moderately. 
C)  decreased moderately. 
D)  decreased tremendously. 
A)  increased tremendously. 
B)  increased moderately. 
C)  decreased moderately. 
D)  decreased tremendously.

Question 3

List the reasons why the actual multiplier, which is estimated to be less than 2 for the U.S. economy, is much less than what the oversimplified formula suggests.

Accepted Answer

The oversimplified formula ignores 
1. v

Question 4

Which of the following will reduce the velocity of circulation of the money stock?

Accepted Answer

A)  The inflation rate increases. 
B)  The interest rate falls. 
C)  Credit cards are used more frequently. 
D)  More employees are paid once a week instead of once a month. 
A)  The inflation rate increases. 
B)  The interest rate falls. 
C)  Credit cards are used more frequently. 
D)  More employees are paid once a week instead of once a month.

Question 5

Which of the following is an example of the Fed's use of unconventional monetary policy?

Accepted Answer

A)  Buying assets other than Treasury bills 
B)  Participating in rescue operations for troubled financial institutions 
C)  Lending massive amounts to banks and other financial institutions 
D)  All of these responses are correct. 
A)  Buying assets other than Treasury bills 
B)  Participating in rescue operations for troubled financial institutions 
C)  Lending massive amounts to banks and other financial institutions 
D)  All of these responses are correct.

Question 6

During the financial crisis of 2007-2009, both fiscal and monetary policy turned more expansionary.

Accepted Answer

A) True 
 B)False

Question 7

The "Taylor rule" for monetary policy provides the Fed with a

Accepted Answer

A)  mechanical prescription for monetary policy. 
B)  benchmark to guide policy decisions. 
C)  time frame for discount rate changes. 
D)  rule for changing the M1 money supply. 
A)  mechanical prescription for monetary policy. 
B)  benchmark to guide policy decisions. 
C)  time frame for discount rate changes. 
D)  rule for changing the M1 money supply.

Question 8

The quantity theory of money assumes that velocity is approximately constant resulting in nominal GDP to be proportional to the money stock.

Accepted Answer

A) True 
 B)False

Question 9

Keynesian belief that the aggregate supply curve is relatively flat in the short run means that they expect their policies to cause

Accepted Answer

A)  small increases in output and much inflation. 
B)  small increases in output and little inflation. 
C)  large increases in output and little inflation. 
D)  large increases in output and much inflation. 
A)  small increases in output and much inflation. 
B)  small increases in output and little inflation. 
C)  large increases in output and little inflation. 
D)  large increases in output and much inflation.

Question 10

What is the shape of the AS in the short run and the long run?

Accepted Answer

A)  AS is relatively flat in both the short and long runs. 
B)  AS is relatively flat in the short run but steeper in the long run. 
C)  AS is relatively steep in both the short and long runs. 
D)  AS is relatively steep in the short run but flatter in the long run. 
A)  AS is relatively flat in both the short and long runs. 
B)  AS is relatively flat in the short run but steeper in the long run. 
C)  AS is relatively steep in both the short and long runs. 
D)  AS is relatively steep in the short run but flatter in the long run.

Question 11

One's opinion about the proper size of government should have nothing to do with one's view on stabilization policy.

Accepted Answer

A) True 
 B)False

Question 12

Treasury securities have ____ risk of default and mortgage-backed securities have ____ risk of default.

Accepted Answer

A)  no; no 
B)  no; some 
C)  some; no 
D)  some; some 
A)  no; no 
B)  no; some 
C)  some; no 
D)  some; some

Question 13

Some examples of unconventional monetary policies are massive lending as the lender of last resort and large-scale purchases of atypical assets.

Accepted Answer

A) True 
 B)False

Question 14

Is the equation of exchange an economic model?

Accepted Answer

A)  Yes, it is a simple but powerful model. 
B)  No, economic models cannot be equations. 
C)  No, it is merely an arithmetic statement. 
D)  Yes, it is a cause-and-effect model. 
A)  Yes, it is a simple but powerful model. 
B)  No, economic models cannot be equations. 
C)  No, it is merely an arithmetic statement. 
D)  Yes, it is a cause-and-effect model.

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

How does the shape of the aggregate supply curve affect macroeconomic analysis and policymaking? Illustrate your answer with the appropriate graphs.

Accepted Answer

If the aggregate supply curve is relativ

Question 17

____ is a school of economic thought that uses equation of exchange to analyze the macroeconomic data.

Accepted Answer

A)  Mercantilism 
B)  Monetarism 
C)  Supply side economics 
D)  Keynesianism 
A)  Mercantilism 
B)  Monetarism 
C)  Supply side economics 
D)  Keynesianism

Question 18

Economists who believe that the economy has a strong self-correcting mechanism argued that, after September 11, 2001, the economy needed

Accepted Answer

A)  a quick and expansionary fiscal policy stimulus. 
B)  a quick and expansionary monetary policy stimulus. 
C)  only a short time to return to equilibrium full employment. 
D)  President Bush to propose a large budget stimulus package. 
A)  a quick and expansionary fiscal policy stimulus. 
B)  a quick and expansionary monetary policy stimulus. 
C)  only a short time to return to equilibrium full employment. 
D)  President Bush to propose a large budget stimulus package.

Question 19

If investment spending is relatively insensitive to changes in the interest rate, then the most effective expansionary policy would be

Accepted Answer

A)  a reduction in required reserves. 
B)  Fed purchases of government securities. 
C)  a personal income tax increase. 
D)  a personal income tax cut. 
A)  a reduction in required reserves. 
B)  Fed purchases of government securities. 
C)  a personal income tax increase. 
D)  a personal income tax cut.

Question 20

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.

Exam 31: The Debate Over Monetary and Fiscal Policy

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

During the financial crisis of 2007-2009, the interest rate spread on mortgage-backed securities over Treasury bills

List the reasons why the actual multiplier, which is estimated to be less than 2 for the U.S. economy, is much less than what the oversimplified formula suggests.

Which of the following will reduce the velocity of circulation of the money stock?

Which of the following is an example of the Fed's use of unconventional monetary policy?

During the financial crisis of 2007-2009, both fiscal and monetary policy turned more expansionary.

The "Taylor rule" for monetary policy provides the Fed with a

The quantity theory of money assumes that velocity is approximately constant resulting in nominal GDP to be proportional to the money stock.

Keynesian belief that the aggregate supply curve is relatively flat in the short run means that they expect their policies to cause

What is the shape of the AS in the short run and the long run?

One's opinion about the proper size of government should have nothing to do with one's view on stabilization policy.

Treasury securities have ____ risk of default and mortgage-backed securities have ____ risk of default.

Some examples of unconventional monetary policies are massive lending as the lender of last resort and large-scale purchases of atypical assets.

Is the equation of exchange an economic model?

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

How does the shape of the aggregate supply curve affect macroeconomic analysis and policymaking? Illustrate your answer with the appropriate graphs.

____ is a school of economic thought that uses equation of exchange to analyze the macroeconomic data.

Economists who believe that the economy has a strong self-correcting mechanism argued that, after September 11, 2001, the economy needed

If investment spending is relatively insensitive to changes in the interest rate, then the most effective expansionary policy would be

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

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

Treasury securities have risk of default and mortgage-backed securities have risk of default.