Question 1

Which of the following characterizes the Monetarist viewpoint?

Accepted Answer

A)  They believe that money can never affect investment. 
B)  They believe that monetary policy is transmitted to the economy only through its effects on the interest rate and investment. 
C)  Both a and b are part of the debate. 
D)  Neither a nor b are part of the debate. 
A)  They believe that money can never affect investment. 
B)  They believe that monetary policy is transmitted to the economy only through its effects on the interest rate and investment. 
C)  Both a and b are part of the debate. 
D)  Neither a nor b are part of the debate.

Question 2

Classical economists believe that an increase in the money supply will lead to:

Accepted Answer

A)  only c and d. 
B)  all of the following. 
C)  an increase in the price level. 
D)  an increase in nominal GDP. 
E)  an increase in real GDP. 
A)  only c and d. 
B)  all of the following. 
C)  an increase in the price level. 
D)  an increase in nominal GDP. 
E)  an increase in real GDP.

Question 3

Other things being equal, the quantity of money that people wish to hold in currency and their checking accounts can be expected to:

Accepted Answer

A)  increase as the interest rate increases. 
B)  decrease as the interest rate increases. 
C)  decrease as real GDP increases. 
D)  none of the above. 
A)  increase as the interest rate increases. 
B)  decrease as the interest rate increases. 
C)  decrease as real GDP increases. 
D)  none of the above.

Question 4

According to the quantity theory of money, if an economy produces 5,000 units of output, its money supply equals $40,000 and the velocity of money equals one, then the price level will equal:

Accepted Answer

A)  $0.13. 
B)  $1.25. 
C)  $8. 
D)  $200. 
E)  $8,000. 
A)  $0.13. 
B)  $1.25. 
C)  $8. 
D)  $200. 
E)  $8,000.

Question 5

Exhibit 20-5  Money, Investment and product markets   In Exhibit 20-5, if the interest rate falls from i1 to i2, investment spending will:

Accepted Answer

A)  increase, and aggregate demand will shift from AD1 to AD2. 
B)  decrease, and aggregate demand will shift from AD2 to AD1. 
C)  remain the same, and aggregate demand will shift from AD2 to AD3. 
D)  increase, and aggregate demand will shift from AD2 to AD1. 
E)  decrease, and aggregate demand will shift from AD1 to AD2. 
A)  increase, and aggregate demand will shift from AD1 to AD2. 
B)  decrease, and aggregate demand will shift from AD2 to AD1. 
C)  remain the same, and aggregate demand will shift from AD2 to AD3. 
D)  increase, and aggregate demand will shift from AD2 to AD1. 
E)  decrease, and aggregate demand will shift from AD1 to AD2.

Question 6

Exhibit 20-1  Money market demand and supply curves   As shown in Exhibit 20-1, assume the money supply curve shifts leftward from MS1 to MS2 and the economy is operating along the intermediate segment of the aggregate supply curve. The result will be a:

Accepted Answer

A)  higher investment, lower real GDP, and lower price level. 
B)  lower investment, lower real GDP, and lower price level. 
C)  higher investment, higher real GDP, and higher price level. 
D)  higher interest rate and no effect on real GDP or the price level. 
A)  higher investment, lower real GDP, and lower price level. 
B)  lower investment, lower real GDP, and lower price level. 
C)  higher investment, higher real GDP, and higher price level. 
D)  higher interest rate and no effect on real GDP or the price level.

Question 7

Since classical economists and monetarists believe that the economy operates at full employment, real GDP, that is, along the vertical segment of aggregate supply:

Accepted Answer

A)  any increase in the money supply can only end up raising the price level. 
B)  any increase in the money supply can only end up lowering the price level. 
C)  any decrease in the money supply can only end up raising the price level. 
D)  changes in the money supply will not affect the price level. 
E)  any increase in the money supply will cause both nominal and real GDP to increase. 
A)  any increase in the money supply can only end up raising the price level. 
B)  any increase in the money supply can only end up lowering the price level. 
C)  any decrease in the money supply can only end up raising the price level. 
D)  changes in the money supply will not affect the price level. 
E)  any increase in the money supply will cause both nominal and real GDP to increase.

Question 8

Assuming the economy is experiencing a recessionary gap, classical economists predict that:

Accepted Answer

A)  wages will remain fixed. 
B)  monetary policy will sell government securities. 
C)  higher wages will shift the short-run aggregate supply curve leftward. 
D)  lower wages will shift the short-run aggregate supply curve rightward. 
E)  none of the above. 
A)  wages will remain fixed. 
B)  monetary policy will sell government securities. 
C)  higher wages will shift the short-run aggregate supply curve leftward. 
D)  lower wages will shift the short-run aggregate supply curve rightward. 
E)  none of the above.

Question 9

Classical economists believe that:

Accepted Answer

A)  velocity is not constant. 
B)  changes in the money supply affect real GDP. 
C)  the quantity of money explains prices.. 
D)  the money supply affects velocity. 
A)  velocity is not constant. 
B)  changes in the money supply affect real GDP. 
C)  the quantity of money explains prices.. 
D)  the money supply affects velocity.

Question 10

Exhibit 20-6  Money, investment and product markets   In Exhibit 20-6, an increase in the money supply from MS1 to MS2 causes:

Accepted Answer

A)  interest rates to fall from i1 to i2 and the quantity demanded of investment to decrease from I2 to I1. 
B)  interest rates to fall from i1 to i2 and aggregate demand to shift from AD2 to AD1. 
C)  interest rates to fall from i1 to i2 and the quantity demanded of investment to increase from I1 to I2. 
D)  interest rates to rise from i2 to i1 and the quantity demanded of investment to remain the same. 
E)  interest rates to rise from i2 to i1 and aggregate demand to shift from AD1 to AD2. 
A)  interest rates to fall from i1 to i2 and the quantity demanded of investment to decrease from I2 to I1. 
B)  interest rates to fall from i1 to i2 and aggregate demand to shift from AD2 to AD1. 
C)  interest rates to fall from i1 to i2 and the quantity demanded of investment to increase from I1 to I2. 
D)  interest rates to rise from i2 to i1 and the quantity demanded of investment to remain the same. 
E)  interest rates to rise from i2 to i1 and aggregate demand to shift from AD1 to AD2.

Question 11

Exhibit 20-5  Money, Investment and product markets   In Exhibit 20-5, a shift in aggregate demand from AD1 to AD2:

Accepted Answer

A)  cannot raise real GDP because the economy is at full employment. 
B)  cannot raise real GDP because the aggregate supply curve is upward sloping at GDP2. 
C)  will raise real GDP because the economy is operating below the full-employment level. 
D)  will cause the interest rate to increase from i2 to i1. 
E)  will raise real GDP but will also significantly raise the price level. 
A)  cannot raise real GDP because the economy is at full employment. 
B)  cannot raise real GDP because the aggregate supply curve is upward sloping at GDP2. 
C)  will raise real GDP because the economy is operating below the full-employment level. 
D)  will cause the interest rate to increase from i2 to i1. 
E)  will raise real GDP but will also significantly raise the price level.

Question 12

Which of the following statements is true ?

Accepted Answer

A)  The speculative demand for money at possible interest rates gives the demand for money curve its upward slope. 
B)  There is an inverse relationship between the quantity of money demanded and the interest rate. 
C)  According to the quantity theory of money, any change in the money supply will have no effect on the price level. 
D)  All of the above are true. 
A)  The speculative demand for money at possible interest rates gives the demand for money curve its upward slope. 
B)  There is an inverse relationship between the quantity of money demanded and the interest rate. 
C)  According to the quantity theory of money, any change in the money supply will have no effect on the price level. 
D)  All of the above are true.

Question 13

Contrast the Keynesian and Monetarist views on the effectiveness of fiscal policy?

Accepted Answer

Keynesians believe the aggregate supply

Question 14

Keynesians identify three principal motives for demanding money. They are the:

Accepted Answer

A)  transactions demand, precautionary demand, and liquidity motive. 
B)  transactions demand, precautionary demand, and convertibility motive. 
C)  transactions demand, speculative demand, and volatility motive. 
D)  transactions demand, speculative demand, and liquidity motive. 
E)  transactions demand, speculative demand, and precautionary demand. 
A)  transactions demand, precautionary demand, and liquidity motive. 
B)  transactions demand, precautionary demand, and convertibility motive. 
C)  transactions demand, speculative demand, and volatility motive. 
D)  transactions demand, speculative demand, and liquidity motive. 
E)  transactions demand, speculative demand, and precautionary demand.

Question 15

If the Fed reduces the discount rate, which of the following are most likely to result?

Accepted Answer

A)  The money supply curve shifts rightward, and the equilibrium interest rate falls in the money market. 
B)  Investment declines, causing the aggregate demand curve to shift leftward, reducing equilibrium real GDP and thus slowing the economy. 
C)  Investment rises, causing the aggregate demand curve to shift rightward, increasing equilibrium real GDP and thus accelerating the economy. 
D)  Both a. and b. above are correct. 
E)  Both a. and c. above are correct. 
A)  The money supply curve shifts rightward, and the equilibrium interest rate falls in the money market. 
B)  Investment declines, causing the aggregate demand curve to shift leftward, reducing equilibrium real GDP and thus slowing the economy. 
C)  Investment rises, causing the aggregate demand curve to shift rightward, increasing equilibrium real GDP and thus accelerating the economy. 
D)  Both a. and b. above are correct. 
E)  Both a. and c. above are correct.

Question 16

According to the quantity theory of money, a 10 percent increase in the money supply leads to a 10 percent increase in:

Accepted Answer

A)  velocity. 
B)  unemployment. 
C)  the price level. 
D)  real GDP. 
A)  velocity. 
B)  unemployment. 
C)  the price level. 
D)  real GDP.

Question 17

Exhibit 20A-2  Macro AD/AS Models   In Panel (a) of Exhibit 20A-2, the economy is initially in short-run equilibrium at real GDP level Y1 and price level P2. If the federal government or Fed decides to intervene, it would most likely:

Accepted Answer

A)  increase taxes. 
B)  decrease the money supply. 
C)  increase the level of government spending for goods and services. 
D)  decrease the level of government spending for goods and services. 
A)  increase taxes. 
B)  decrease the money supply. 
C)  increase the level of government spending for goods and services. 
D)  decrease the level of government spending for goods and services.

Question 18

The equation specifying a direct relationship between the money supply and prices is the quantity theory of:

Accepted Answer

A)  money. 
B)  prices. 
C)  exchange. 
D)  spending. 
E)  dollars. 
A)  money. 
B)  prices. 
C)  exchange. 
D)  spending. 
E)  dollars.

Question 19

An increase in the money supply is represented by a(n):

Accepted Answer

A)  rightward shift of the downward-sloping money supply curve. 
B)  upward shift of the money supply curve. 
C)  rightward shift of the money supply curve. 
D)  increase in the rate of interest. 
A)  rightward shift of the downward-sloping money supply curve. 
B)  upward shift of the money supply curve. 
C)  rightward shift of the money supply curve. 
D)  increase in the rate of interest.

Question 20

Contrast the Keynesian and Monetarist views on how a change in the money supply impacts the economy?

Accepted Answer

According to Keynesian economists, an in

Exam 20: Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

Which of the following characterizes the Monetarist viewpoint?

Classical economists believe that an increase in the money supply will lead to:

Other things being equal, the quantity of money that people wish to hold in currency and their checking accounts can be expected to:

According to the quantity theory of money, if an economy produces 5,000 units of output, its money supply equals $40,000 and the velocity of money equals one, then the price level will equal:

Exhibit 20-5 Money, Investment and product markets In Exhibit 20-5, if the interest rate falls from i1 to i2, investment spending will:

Exhibit 20-1 Money market demand and supply curves As shown in Exhibit 20-1, assume the money supply curve shifts leftward from MS1 to MS2 and the economy is operating along the intermediate segment of the aggregate supply curve. The result will be a:

Since classical economists and monetarists believe that the economy operates at full employment, real GDP, that is, along the vertical segment of aggregate supply:

Assuming the economy is experiencing a recessionary gap, classical economists predict that:

Classical economists believe that:

Exhibit 20-6 Money, investment and product markets In Exhibit 20-6, an increase in the money supply from MS1 to MS2 causes:

Exhibit 20-5 Money, Investment and product markets In Exhibit 20-5, a shift in aggregate demand from AD1 to AD2:

Which of the following statements is true ?

Contrast the Keynesian and Monetarist views on the effectiveness of fiscal policy?

Keynesians identify three principal motives for demanding money. They are the:

If the Fed reduces the discount rate, which of the following are most likely to result?

According to the quantity theory of money, a 10 percent increase in the money supply leads to a 10 percent increase in:

Exhibit 20A-2 Macro AD/AS Models In Panel (a) of Exhibit 20A-2, the economy is initially in short-run equilibrium at real GDP level Y1 and price level P2. If the federal government or Fed decides to intervene, it would most likely:

The equation specifying a direct relationship between the money supply and prices is the quantity theory of:

An increase in the money supply is represented by a(n):

Contrast the Keynesian and Monetarist views on how a change in the money supply impacts the economy?

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets and Income Distribution

Gross Domestic Product

Business Cycles and Unemployment

Inflation

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits, Surpluses, and the National Debt

Money and the Federal Reserve System

Money Creation

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

Filters

Exhibit 20-5 Money, Investment and product markets In Exhibit 20-5, if the interest rate falls from i₁ to i₂, investment spending will:

Exhibit 20-1 Money market demand and supply curves As shown in Exhibit 20-1, assume the money supply curve shifts leftward from MS₁ to MS₂ and the economy is operating along the intermediate segment of the aggregate supply curve. The result will be a:

Exhibit 20-6 Money, investment and product markets In Exhibit 20-6, an increase in the money supply from MS₁ to MS₂ causes:

Exhibit 20-5 Money, Investment and product markets In Exhibit 20-5, a shift in aggregate demand from AD₁ to AD₂:

Exhibit 20A-2 Macro AD/AS Models In Panel (a) of Exhibit 20A-2, the economy is initially in short-run equilibrium at real GDP level Y₁ and price level P₂. If the federal government or Fed decides to intervene, it would most likely: