Question 1

An expansionary monetary policy is most likely to produce an inflationary effect with little impact on output when the economy

Accepted Answer

A)  is near full employment and the short-run aggregate supply curve is flat. 
B)  is near full employment and the short-run aggregate supply curve is steep. 
C)  has substantial unemployment and the short-run aggregate supply curve is steep. 
D)  has substantial unemployment and the short-run aggregate supply curve is flat. 
A)  is near full employment and the short-run aggregate supply curve is flat. 
B)  is near full employment and the short-run aggregate supply curve is steep. 
C)  has substantial unemployment and the short-run aggregate supply curve is steep. 
D)  has substantial unemployment and the short-run aggregate supply curve is flat.

Question 2

Figure 14-8   Refer to Figure 14-8. There is excess money demand at an interest rate of

Accepted Answer

A)  2 percent. 
B)  3 percent. 
C)  4 percent. 
D)  None of the above is correct. 
A)  2 percent. 
B)  3 percent. 
C)  4 percent. 
D)  None of the above is correct.

Question 3

If the Fed unexpectedly increases the money supply, real GDP

Accepted Answer

A)  increases because the resulting increase in the interest rate leads to a decrease in investment. 
B)  increases because the resulting decrease in the interest rate leads to an increase in investment. 
C)  decreases because the resulting increase in the interest rate leads to a decrease in investment. 
D)  decreases because the resulting increase in the interest rate leads to an increase in investment. 
E)  decreases because the resulting decrease in the interest rate leads to an increase in investment. 
A)  increases because the resulting increase in the interest rate leads to a decrease in investment. 
B)  increases because the resulting decrease in the interest rate leads to an increase in investment. 
C)  decreases because the resulting increase in the interest rate leads to a decrease in investment. 
D)  decreases because the resulting increase in the interest rate leads to an increase in investment. 
E)  decreases because the resulting decrease in the interest rate leads to an increase in investment.

Question 4

If the Fed decreases the money supply,

Accepted Answer

A)  aggregate demand and aggregate supply both increase. 
B)  aggregate demand increases, which leads to movement along the short-run aggregate supply curve. 
C)  aggregate demand decreases, which leads to movement along the short-run aggregate supply curve. 
D)  aggregate supply increases, which leads to movement along the aggregate demand curve. 
E)  aggregate supply decreases, which leads to movement along the aggregate demand curve. 
A)  aggregate demand and aggregate supply both increase. 
B)  aggregate demand increases, which leads to movement along the short-run aggregate supply curve. 
C)  aggregate demand decreases, which leads to movement along the short-run aggregate supply curve. 
D)  aggregate supply increases, which leads to movement along the aggregate demand curve. 
E)  aggregate supply decreases, which leads to movement along the aggregate demand curve.

Question 5

The highest interest rates in the world are found in countries

Accepted Answer

A)  that have followed a monetary policy that is highly restrictive. 
B)  with governments that have run large budget surpluses. 
C)  with governments that have run sizable budget deficits. 
D)  that have followed an expansionary monetary policy that resulted in high rates of inflation. 
A)  that have followed a monetary policy that is highly restrictive. 
B)  with governments that have run large budget surpluses. 
C)  with governments that have run sizable budget deficits. 
D)  that have followed an expansionary monetary policy that resulted in high rates of inflation.

Question 6

In the short run, which of the following is the most likely effect of an unanticipated move to expansionary monetary policy?

Accepted Answer

A)  an increase in real output 
B)  a decrease in real output 
C)  an improvement in technology, which will stimulate growth in the long run 
D)  an increase in prices proportional to the increase in the money supply 
A)  an increase in real output 
B)  a decrease in real output 
C)  an improvement in technology, which will stimulate growth in the long run 
D)  an increase in prices proportional to the increase in the money supply

Question 7

An analysis of countries experiencing rapid inflation indicates that inflation is generally

Accepted Answer

A)  caused by strong labor unions that push wages up rapidly. 
B)  caused by rapid growth in the money supply. 
C)  the result of restrictive macroeconomic policy, which pushes up interest rates. 
D)  the result of bad weather conditions that reduce the supply of agriculture products. 
A)  caused by strong labor unions that push wages up rapidly. 
B)  caused by rapid growth in the money supply. 
C)  the result of restrictive macroeconomic policy, which pushes up interest rates. 
D)  the result of bad weather conditions that reduce the supply of agriculture products.

Question 8

Demographic changes that increase the number of people in the lending phase (approximately age 50 to 75) and fewer in the borrowing phase (under age 50), would tend to

Accepted Answer

A)  expand the demand for loanable funds and push interest rates upward. 
B)  expand the demand for loanable funds and push interest rates downward. 
C)  expand the supply of loanable funds and push interest rates upward. 
D)  expand the supply of loanable funds and push interest rates downward. 
A)  expand the demand for loanable funds and push interest rates upward. 
B)  expand the demand for loanable funds and push interest rates downward. 
C)  expand the supply of loanable funds and push interest rates upward. 
D)  expand the supply of loanable funds and push interest rates downward.

Question 9

When the Fed conducts expansionary monetary policy, lower short-term interest rates will tend to stimulate the economy. How will the change in the velocity of money affect this result?

Accepted Answer

A)  Velocity will decline, enhancing the stimulus effect. 
B)  Velocity will increase, somewhat dampening the stimulus effect. 
C)  Velocity will increase, enhancing the stimulus effect. 
D)  Velocity will decline, somewhat dampening the stimulus effect. 
A)  Velocity will decline, enhancing the stimulus effect. 
B)  Velocity will increase, somewhat dampening the stimulus effect. 
C)  Velocity will increase, enhancing the stimulus effect. 
D)  Velocity will decline, somewhat dampening the stimulus effect.

Question 10

If the Fed wanted to institute a more expansionary monetary policy, which of the following would it be most likely to do?

Accepted Answer

A)  reduce taxes 
B)  increase government expenditures 
C)  buy government bonds from the public 
D)  raise the discount rate 
A)  reduce taxes 
B)  increase government expenditures 
C)  buy government bonds from the public 
D)  raise the discount rate

Question 11

Use the figure below to answer the following question(s). Figure 14-2
  If the Fed anticipates that the conditions illustrated by AD2 and SRAS in Figure 14-2 will be present in the near future, it should

Accepted Answer

A)  decrease the discount rate. 
B)  reduce reserve requirements. 
C)  sell U.S. treasury bonds on the open market. 
D)  buy U.S. treasury bonds on the open market. 
A)  decrease the discount rate. 
B)  reduce reserve requirements. 
C)  sell U.S. treasury bonds on the open market. 
D)  buy U.S. treasury bonds on the open market.

Question 12

The most likely impact of an unanticipated increase in the money supply is

Accepted Answer

A)  an increase in the real interest rate, which in turn stimulates investment and GDP. 
B)  a decrease in the real interest rate, which in turn stimulates investment and GDP. 
C)  a reduction in the general level of prices, which will increase the disposable income of households. 
D)  an improvement in technology, which will stimulate both output and employment. 
A)  an increase in the real interest rate, which in turn stimulates investment and GDP. 
B)  a decrease in the real interest rate, which in turn stimulates investment and GDP. 
C)  a reduction in the general level of prices, which will increase the disposable income of households. 
D)  an improvement in technology, which will stimulate both output and employment.

Question 13

The demand curve for money

Accepted Answer

A)  shows the amount of money balances that individuals and businesses wish to hold at various levels of private investment. 
B)  reflects the open market operations policy of the Federal Reserve. 
C)  shows the amount of money that households and businesses wish to hold at various rates of interest. 
D)  indicates the amount that consumers wish to borrow at a given interest rate. 
A)  shows the amount of money balances that individuals and businesses wish to hold at various levels of private investment. 
B)  reflects the open market operations policy of the Federal Reserve. 
C)  shows the amount of money that households and businesses wish to hold at various rates of interest. 
D)  indicates the amount that consumers wish to borrow at a given interest rate.

Question 14

"Every major contraction in the U.S. economy has either been created or greatly exacerbated by monetary instability. Every major inflation has been caused by monetary expansion." Which of the following economists made this statement?

Accepted Answer

A)  Adam Smith 
B)  John Maynard Keynes 
C)  Milton Friedman 
D)  Paul Samuelson 
A)  Adam Smith 
B)  John Maynard Keynes 
C)  Milton Friedman 
D)  Paul Samuelson

Question 15

A shift to a more expansionary monetary policy will have its greatest effect on

Accepted Answer

A)  the interest rate on a 30-year fixed-rate mortgage. 
B)  the interest rate on 10-year government bonds. 
C)  short-term interest rates. 
D)  the 15-year corporate bond interest rate. 
A)  the interest rate on a 30-year fixed-rate mortgage. 
B)  the interest rate on 10-year government bonds. 
C)  short-term interest rates. 
D)  the 15-year corporate bond interest rate.

Question 16

The equation of exchange states that

Accepted Answer

A)  money supply multiplied by real output equals velocity. 
B)  velocity multiplied by money supply equals real output times the price level. 
C)  money supply divided by velocity equals nominal GDP. 
D)  money supply divided by velocity equals real GDP. 
A)  money supply multiplied by real output equals velocity. 
B)  velocity multiplied by money supply equals real output times the price level. 
C)  money supply divided by velocity equals nominal GDP. 
D)  money supply divided by velocity equals real GDP.

Question 17

Which of the following contributed to the strong auto sales and soaring housing prices during 2002-2004?

Accepted Answer

A)  The Fed's high-interest rate policy during the period. 
B)  The tightening of loan standards by commercial lenders. 
C)  The increasing popularity of fixed-rate, long-term loans to lock in low interest rates. 
D)  The Fed's low-interest rate policy during the period. 
A)  The Fed's high-interest rate policy during the period. 
B)  The tightening of loan standards by commercial lenders. 
C)  The increasing popularity of fixed-rate, long-term loans to lock in low interest rates. 
D)  The Fed's low-interest rate policy during the period.

Question 18

Beginning from full-employment equilibrium, illustrate graphically how each of the following would impact the economy.
a.the short-run impact of an unanticipated decrease in the money supply
b.the long-run impact of an unanticipated decrease in the money supply

Accepted Answer

a.This is shown by a decrease in aggrega

Question 19

If the U.S. government decided to pay off the national debt by creating money, what would be the most likely effect?

Accepted Answer

A)  a substantial reduction in real GDP 
B)  a deflationary collapse 
C)  rapid inflation 
D)  an increase in the trade surplus 
A)  a substantial reduction in real GDP 
B)  a deflationary collapse 
C)  rapid inflation 
D)  an increase in the trade surplus

Question 20

If the monetary authorities persistently expand the money supply at a rapid rate, the probable result will be

Accepted Answer

A)  inflation. 
B)  high nominal interest rates. 
C)  rapid growth of real GDP. 
D)  both a and b. 
A)  inflation. 
B)  high nominal interest rates. 
C)  rapid growth of real GDP. 
D)  both a and b.

An expansionary monetary policy is most likely to produce an inflationary effect with little impact on output when the economy

Figure 14-8 Refer to Figure 14-8. There is excess money demand at an interest rate of

If the Fed unexpectedly increases the money supply, real GDP

If the Fed decreases the money supply,

The highest interest rates in the world are found in countries

In the short run, which of the following is the most likely effect of an unanticipated move to expansionary monetary policy?

An analysis of countries experiencing rapid inflation indicates that inflation is generally

Demographic changes that increase the number of people in the lending phase (approximately age 50 to 75) and fewer in the borrowing phase (under age 50), would tend to

When the Fed conducts expansionary monetary policy, lower short-term interest rates will tend to stimulate the economy. How will the change in the velocity of money affect this result?

If the Fed wanted to institute a more expansionary monetary policy, which of the following would it be most likely to do?

Use the figure below to answer the following question(s). Figure 14-2 If the Fed anticipates that the conditions illustrated by AD₂ and SRAS in Figure 14-2 will be present in the near future, it should

The most likely impact of an unanticipated increase in the money supply is

The demand curve for money

"Every major contraction in the U.S. economy has either been created or greatly exacerbated by monetary instability. Every major inflation has been caused by monetary expansion." Which of the following economists made this statement?

A shift to a more expansionary monetary policy will have its greatest effect on

The equation of exchange states that

Which of the following contributed to the strong auto sales and soaring housing prices during 2002-2004?

Beginning from full-employment equilibrium, illustrate graphically how each of the following would impact the economy. a.the short-run impact of an unanticipated decrease in the money supply b.the long-run impact of an unanticipated decrease in the money supply

If the U.S. government decided to pay off the national debt by creating money, what would be the most likely effect?

If the monetary authorities persistently expand the money supply at a rapid rate, the probable result will be

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad--As Model

Fiscal Policy: The Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy: Incentives, and Secondary Effects

Money and the Banking System

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Special Topics

Filters

Exam 14: Modern Macroeconomics and Monetary Policy

An expansionary monetary policy is most likely to produce an inflationary effect with little impact on output when the economy

Figure 14-8 Refer to Figure 14-8. There is excess money demand at an interest rate of

If the Fed unexpectedly increases the money supply, real GDP

If the Fed decreases the money supply,

The highest interest rates in the world are found in countries

In the short run, which of the following is the most likely effect of an unanticipated move to expansionary monetary policy?

An analysis of countries experiencing rapid inflation indicates that inflation is generally

Demographic changes that increase the number of people in the lending phase (approximately age 50 to 75) and fewer in the borrowing phase (under age 50), would tend to

When the Fed conducts expansionary monetary policy, lower short-term interest rates will tend to stimulate the economy. How will the change in the velocity of money affect this result?

If the Fed wanted to institute a more expansionary monetary policy, which of the following would it be most likely to do?

Use the figure below to answer the following question(s). Figure 14-2 If the Fed anticipates that the conditions illustrated by AD2 and SRAS in Figure 14-2 will be present in the near future, it should

The most likely impact of an unanticipated increase in the money supply is

The demand curve for money

"Every major contraction in the U.S. economy has either been created or greatly exacerbated by monetary instability. Every major inflation has been caused by monetary expansion." Which of the following economists made this statement?

A shift to a more expansionary monetary policy will have its greatest effect on

The equation of exchange states that

Which of the following contributed to the strong auto sales and soaring housing prices during 2002-2004?

Beginning from full-employment equilibrium, illustrate graphically how each of the following would impact the economy. a.the short-run impact of an unanticipated decrease in the money supply b.the long-run impact of an unanticipated decrease in the money supply

If the U.S. government decided to pay off the national debt by creating money, what would be the most likely effect?

If the monetary authorities persistently expand the money supply at a rapid rate, the probable result will be

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad--As Model

Fiscal Policy: The Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy: Incentives, and Secondary Effects

Money and the Banking System

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Special Topics

Filters

Use the figure below to answer the following question(s). Figure 14-2 If the Fed anticipates that the conditions illustrated by AD₂ and SRAS in Figure 14-2 will be present in the near future, it should