Question 1

The severity of the 1982 recession has been attributed to

Accepted Answer

A)  the Reagan administration's tax cut. 
B)  the Federal Reserve System's tight monetary policies undertaken by Chair Paul Volker. 
C)  the large deficits in our balance-of-payments accounts. 
D)  the OPEC-sponsored oil embargo. 
E)  a rapidly falling price level caused by large federal budget deficits. 
A)  the Reagan administration's tax cut. 
B)  the Federal Reserve System's tight monetary policies undertaken by Chair Paul Volker. 
C)  the large deficits in our balance-of-payments accounts. 
D)  the OPEC-sponsored oil embargo. 
E)  a rapidly falling price level caused by large federal budget deficits.

Question 2

Which of the following best describes the equation of exchange?

Accepted Answer

A)  GDP = PQ 
B)  MV = PQ 
C)  MQ = GDP 
D)  MP = VQ 
E)  GDP = V/Q 
A)  GDP = PQ 
B)  MV = PQ 
C)  MQ = GDP 
D)  MP = VQ 
E)  GDP = V/Q

Question 3

It is not just the interest rate that influences the investment function but also the

Accepted Answer

A)  level of net exports. 
B)  distribution of income. 
C)  slope of the 45-degree line. 
D)  availability of credit. 
E)  phases of the moon. 
A)  level of net exports. 
B)  distribution of income. 
C)  slope of the 45-degree line. 
D)  availability of credit. 
E)  phases of the moon.

Question 4

If a firm borrows money at the rate of 11 percent per year and the rate of inflation is 4 percent,the real rate of interest on the loan is ________ percent.

Accepted Answer

A)  4 
B)  7 
C)  11 
D)  15 
E)  18 
A)  4 
B)  7 
C)  11 
D)  15 
E)  18

Question 5

The demand curve for money (holding real GDP and the price level constant)is the relationship between

Accepted Answer

A)  money and near monies. 
B)  levels of income and demand for money. 
C)  the money supply and the level of GDP. 
D)  the transactions and precautionary demands for money. 
E)  the interest rate and the quantity of money demanded. 
A)  money and near monies. 
B)  levels of income and demand for money. 
C)  the money supply and the level of GDP. 
D)  the transactions and precautionary demands for money. 
E)  the interest rate and the quantity of money demanded.

Question 6

Over the last 45 years,the price level has

Accepted Answer

A)  been cut in half. 
B)  remained constant. 
C)  doubled. 
D)  risen fivefold. 
E)  risen and fallen frequently. 
A)  been cut in half. 
B)  remained constant. 
C)  doubled. 
D)  risen fivefold. 
E)  risen and fallen frequently.

Question 7

Two important indicators of monetary tightness or ease are the

Accepted Answer

A)  discount rate and the prime rate of interest. 
B)  level of short-term interest rates and the rate of growth of the money supply. 
C)  size of the government deficit and the tax rate. 
D)  size of the money supply and its rate of growth. 
E)  levels of real output and interest rates. 
A)  discount rate and the prime rate of interest. 
B)  level of short-term interest rates and the rate of growth of the money supply. 
C)  size of the government deficit and the tax rate. 
D)  size of the money supply and its rate of growth. 
E)  levels of real output and interest rates.

Question 8

A rapid rate of growth in the money supply accompanied by falling interest rates indicates

Accepted Answer

A)  rapidly falling reserves in the commercial banking system. 
B)  a deflationary monetary policy. 
C)  an expansionary fiscal policy. 
D)  a balanced budget multiplier. 
E)  monetary policy is easy. 
A)  rapidly falling reserves in the commercial banking system. 
B)  a deflationary monetary policy. 
C)  an expansionary fiscal policy. 
D)  a balanced budget multiplier. 
E)  monetary policy is easy.

Question 9

The crude quantity theory is a useful predictor of long-term trends in

Accepted Answer

A)  government spending. 
B)  taxes. 
C)  price levels. 
D)  unemployment. 
E)  business expectations. 
A)  government spending. 
B)  taxes. 
C)  price levels. 
D)  unemployment. 
E)  business expectations.

Question 10

The more sophisticated quantity theory of money most accurately predicts a change in the nominal value of GDP resulting from a change in the money supply when

Accepted Answer

A)  price levels remain constant. 
B)  the level of output remains constant. 
C)  velocity remains constant. 
D)  unemployment remains constant. 
E)  average prices and output both remain constant. 
A)  price levels remain constant. 
B)  the level of output remains constant. 
C)  velocity remains constant. 
D)  unemployment remains constant. 
E)  average prices and output both remain constant.

Question 11

Many economists today agree that many of the recessions of the twentieth century can be traced to

Accepted Answer

A)  significant reductions in the rate of growth of the money supply. 
B)  consumers' efforts to save more money than their incomes would allow. 
C)  faulty investments by both firms and consumers. 
D)  falling interest rates. 
E)  increases in aggregate demand and supply. 
A)  significant reductions in the rate of growth of the money supply. 
B)  consumers' efforts to save more money than their incomes would allow. 
C)  faulty investments by both firms and consumers. 
D)  falling interest rates. 
E)  increases in aggregate demand and supply.

Question 12

A decrease in the money supply

Accepted Answer

A)  shifts the aggregate demand curve to the left. 
B) shifts the aggregate demand curve to the right. 
C)  shifts the aggregate supply curve to the left 
D)  shifts the aggregate supply curve to the right 
E)  affects neither the aggregate demand nor the aggregate supply curve, only the interest rate. 
A)  shifts the aggregate demand curve to the left. 
B) shifts the aggregate demand curve to the right. 
C)  shifts the aggregate supply curve to the left 
D)  shifts the aggregate supply curve to the right 
E)  affects neither the aggregate demand nor the aggregate supply curve, only the interest rate.

Question 13

If prices double,the value of a dollar would

Accepted Answer

A)  double. 
B)  remain the same (be unaffected). 
C)  be halved. 
D)  decline by twice that amount. 
E)  fall to zero. 
A)  double. 
B)  remain the same (be unaffected). 
C)  be halved. 
D)  decline by twice that amount. 
E)  fall to zero.

Question 14

Periods of inflation are generally characterized by a decline in

Accepted Answer

A)  the value of money. 
B)  the price level. 
C)  total intended spending. 
D)  nominal GDP. 
E)  the supply of money. 
A)  the value of money. 
B)  the price level. 
C)  total intended spending. 
D)  nominal GDP. 
E)  the supply of money.

Question 15

Interest rates and bond prices

Accepted Answer

A)  have identical values most of the time. 
B)  are largely unaffected by monetary policy. 
C)  are unrelated in their behavior. 
D)  move in opposite directions. 
E)  rise and fall together. 
A)  have identical values most of the time. 
B)  are largely unaffected by monetary policy. 
C)  are unrelated in their behavior. 
D)  move in opposite directions. 
E)  rise and fall together.

Question 16

Adhering to a monetary rule,according to some economists,is superior to discretionary attempts to "lean against the wind" because

Accepted Answer

A)  it would virtually eliminate business fluctuations. 
B)  the success of monetary policy since World War II has demonstrated the effectiveness of such a rule. 
C)  the Fed would be free to concentrate on manipulating interest rates. 
D)  the lag between policy actions and their economic impact is highly variable and unpredictable. 
E)  it would allow for more successful fine-tuning of the economy. 
A)  it would virtually eliminate business fluctuations. 
B)  the success of monetary policy since World War II has demonstrated the effectiveness of such a rule. 
C)  the Fed would be free to concentrate on manipulating interest rates. 
D)  the lag between policy actions and their economic impact is highly variable and unpredictable. 
E)  it would allow for more successful fine-tuning of the economy.

Question 17

The amount of money held for speculative reasons

Accepted Answer

A)  increases if bond prices are expected to decline soon. 
B)  decreases if GDP remains the same. 
C)  is affected by expected bond prices but not by expected bond interest rates. 
D)  varies directly with the transactions demand for money. 
E)  decreases as the number of different assets counted as fiat money rises. 
A)  increases if bond prices are expected to decline soon. 
B)  decreases if GDP remains the same. 
C)  is affected by expected bond prices but not by expected bond interest rates. 
D)  varies directly with the transactions demand for money. 
E)  decreases as the number of different assets counted as fiat money rises.

Question 18

The value of a dollar

Accepted Answer

A)  has steadily declined since the Revolutionary War. 
B)  is determined by the amount of gold held by the government. 
C)  is inversely related to the price level. 
D)  is set by government fiat. 
E)  depends on the mix of money and near money. 
A)  has steadily declined since the Revolutionary War. 
B)  is determined by the amount of gold held by the government. 
C)  is inversely related to the price level. 
D)  is set by government fiat. 
E)  depends on the mix of money and near money.

Question 19

The money supply multiplied by its velocity of circulation equals

Accepted Answer

A)  the rate of inflation. 
B)  the amount of unemployment. 
C)  nominal GDP. 
D)  the Consumer Price Index. 
E)  government spending. 
A)  the rate of inflation. 
B)  the amount of unemployment. 
C)  nominal GDP. 
D)  the Consumer Price Index. 
E)  government spending.

Question 20

Holding money because of uncertainty concerning the future is called the ________ demand for money.

Accepted Answer

A)  precautionary 
B)  speculative 
C)  transactions 
D)  aggregate 
E)  penultimate 
A)  precautionary 
B)  speculative 
C)  transactions 
D)  aggregate 
E)  penultimate

Exam 25: Monetary Policy,interest Rates,and Economic Activity

The severity of the 1982 recession has been attributed to

Which of the following best describes the equation of exchange?

It is not just the interest rate that influences the investment function but also the

If a firm borrows money at the rate of 11 percent per year and the rate of inflation is 4 percent,the real rate of interest on the loan is ________ percent.

The demand curve for money (holding real GDP and the price level constant)is the relationship between

Over the last 45 years,the price level has

Two important indicators of monetary tightness or ease are the

A rapid rate of growth in the money supply accompanied by falling interest rates indicates

The crude quantity theory is a useful predictor of long-term trends in

The more sophisticated quantity theory of money most accurately predicts a change in the nominal value of GDP resulting from a change in the money supply when

Many economists today agree that many of the recessions of the twentieth century can be traced to

A decrease in the money supply

If prices double,the value of a dollar would

Periods of inflation are generally characterized by a decline in

Interest rates and bond prices

Adhering to a monetary rule,according to some economists,is superior to discretionary attempts to "lean against the wind" because

The amount of money held for speculative reasons

The value of a dollar

The money supply multiplied by its velocity of circulation equals

Holding money because of uncertainty concerning the future is called the ________ demand for money.

What is Economics

Markets and Prices

The Business Firm: Organization,motivation,and Optimal Input Decisions

Getting Behind the Demand and Supply Curves

Market Demand and Price Elasticity

Economic Efficiency,market Supply,and Perfect Competition

Monopoly and Its Regulation

Monopolistic Competition,oligopoly,and Antitrust Policy

Pollution and the Environment

The Supply and Demand for Labor

Interest,rent,and Profit

Poverty,income Inequality,and Discrimination

Economic Growth

Public Goods and the Role of the Government

National Income and Product

Business Fluctuations and Unemployment

The Determination of National Output and the Keynesian Multiplier

Fiscal Policy and National Output

Inflation

Money and the Banking System

The Federal Reserve and Monetary Policy

Supply Shocks and Inflation

Productivity,growth,and Technology Policy

Surpluses,deficits,public Debt,and the Federal Budget

Controversies Over Stabilization Policy

International Trade

Exchange Rates and the Balance of Payments

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