Question 1

Which of the following statements about potential GDP is FALSE?

Accepted Answer

A)  The Fed's goal is to have equilibrium GDP close to potential GDP. 
B)  When GDP is at potential, cyclical unemployment is zero. 
C)  It occurs when firms are producing at their maximum level of output. 
D)  It occurs when firms are producing with a workforce of normal size working normal hours. 
A)  The Fed's goal is to have equilibrium GDP close to potential GDP. 
B)  When GDP is at potential, cyclical unemployment is zero. 
C)  It occurs when firms are producing at their maximum level of output. 
D)  It occurs when firms are producing with a workforce of normal size working normal hours. C

Question 2

What is the multiplier? If MPC = 0.75,what is the value of the multiplier in the simple model of the economy?

Accepted Answer

The multiplier is the change in equilibrium GDP divided by a change in autonomous expenditure.In the simple model of the economy,the multiplier = 1 / (1-MPC)which equals 1 / (1-0.75)= 4.

Question 3

The LM curve is the combinations of

Accepted Answer

A)  the output gap and the real interest rate for which the money market is in equilibrium. 
B)  the inflation rate and the nominal interest rate for which the money market is in equilibrium. 
C)  the inflation rate and the real interest rate for which the money market is in equilibrium. 
D)  the inflation rate and the real interest rate for which the goods market is in equilibrium. 
A)  the output gap and the real interest rate for which the money market is in equilibrium. 
B)  the inflation rate and the nominal interest rate for which the money market is in equilibrium. 
C)  the inflation rate and the real interest rate for which the money market is in equilibrium. 
D)  the inflation rate and the real interest rate for which the goods market is in equilibrium. A

Question 4

An increase in the real interest rate causes

Accepted Answer

A)  the IS curve to shift to the right. 
B)  the IS curve to shift to the left. 
C)  a movement up the IS curve. 
D)  a movement down the IS curve. 
A)  the IS curve to shift to the right. 
B)  the IS curve to shift to the left. 
C)  a movement up the IS curve. 
D)  a movement down the IS curve.

Question 5

How does the goods market return to equilibrium if AE is less than production?

Accepted Answer

With spending less than production,there

Question 6

Changes in net worth and liquidity may significantly affect the volume of lending and economic activity according to the

Accepted Answer

A)  interest rate channel. 
B)  balance sheet channel. 
C)  money channel. 
D)  bank lending channel. 
A)  interest rate channel. 
B)  balance sheet channel. 
C)  money channel. 
D)  bank lending channel.

Question 7

What is the multiplier effect?

Accepted Answer

The series of induced changes

Question 8

Analysts have attempted to model the impact of monetary policy on net worth by emphasizing

Accepted Answer

A)  the impact of lower interest rates on business spending on fixed investment. 
B)  the impact of lower interest rates on household spending on housing and durable goods. 
C)  the liquidity of balance sheet positions as a determinant of business and household spending. 
D)  the greater variability of business spending compared to household spending. 
A)  the impact of lower interest rates on business spending on fixed investment. 
B)  the impact of lower interest rates on household spending on housing and durable goods. 
C)  the liquidity of balance sheet positions as a determinant of business and household spending. 
D)  the greater variability of business spending compared to household spending.

Question 9

The relationship between the output gap and the cyclical rate of unemployment is known as

Accepted Answer

A)  the Phillips curve. 
B)  the LM curve. 
C)  Murphy's law. 
D)  Okun's law. 
A)  the Phillips curve. 
B)  the LM curve. 
C)  Murphy's law. 
D)  Okun's law.

Question 10

Lowering the target for the federal funds rate is unlikely to be effective in fighting a recession when a(n)________ in the risk premium demanded by investors causes a ________ in interest rates.

Accepted Answer

A)  increase; rise 
B)  increase; fall 
C)  decrease; rise 
D)  decrease; fall 
A)  increase; rise 
B)  increase; fall 
C)  decrease; rise 
D)  decrease; fall

Question 11

Use the following data to calculate equilibrium real GDP: C = 0.75Y,I = $2 trillion,G = $1 trillion and NX = -$0.5 trillion.

Accepted Answer

Y = 0.75Y + 2 + 1 -

Question 12

The capacity of a firm can best be described as

Accepted Answer

A)  when a firm is producing maximum output. 
B)  a firm's production when operating normal hours using a normal sized workforce. 
C)  when a firm makes full use of all the space available in its factory or building. 
D)  when all of the firm's workers are producing at their maximum potential. 
A)  when a firm is producing maximum output. 
B)  a firm's production when operating normal hours using a normal sized workforce. 
C)  when a firm makes full use of all the space available in its factory or building. 
D)  when all of the firm's workers are producing at their maximum potential.

Question 13

By the early 1990s,Fannie Mae,Freddie Mac,and other federal agencies held

Accepted Answer

A)  over 85% of residential mortgages. 
B)  less than 15% of residential mortgages. 
C)  a majority of residential mortgages. 
D)  virtually no residential mortgages. 
A)  over 85% of residential mortgages. 
B)  less than 15% of residential mortgages. 
C)  a majority of residential mortgages. 
D)  virtually no residential mortgages.

Question 14

A key reason that FOMC members expected that their target for the federal funds rate in 2016 would be higher than it actually was is that they had expected the growth rate of real GDP to be ________ and the inflation rate to be ________ than they actually were.

Accepted Answer

A)  higher; higher 
B)  higher; lower 
C)  lower; higher 
D)  lower; lower 
A)  higher; higher 
B)  higher; lower 
C)  lower; higher 
D)  lower; lower

Question 15

An increase in the money supply will cause

Accepted Answer

A)  the IS curve to shift to the right. 
B)  the IS curve to shift to the left. 
C)  the LM curve to shift to the right. 
D)  the LM curve to shift to the left. 
A)  the IS curve to shift to the right. 
B)  the IS curve to shift to the left. 
C)  the LM curve to shift to the right. 
D)  the LM curve to shift to the left.

Question 16

How is the economy likely to respond when AE (sales)exceeds production?

Accepted Answer

If sales exceed production,firms will us

Question 17

The gap between the current unemployment rate and the natural rate of unemployment is called

Accepted Answer

A)  frictional unemployment. 
B)  structural unemployment. 
C)  cyclical unemployment. 
D)  full employment. 
A)  frictional unemployment. 
B)  structural unemployment. 
C)  cyclical unemployment. 
D)  full employment.

Question 18

Lower interest rates which reduce the debt-servicing burden of households,thus increasing their net worth,is best described by the

Accepted Answer

A)  bank lending channel. 
B)  money channel. 
C)  financial market channel. 
D)  balance sheet channel. 
A)  bank lending channel. 
B)  money channel. 
C)  financial market channel. 
D)  balance sheet channel.

Question 19

In a closed economy,the total quantity of goods demanded equals the sum of

Accepted Answer

A)  consumption spending, investment spending, and government spending. 
B)  consumption spending, national saving, and taxes. 
C)  consumption spending, government spending, and taxes. 
D)  investment spending, national saving, and taxes. 
A)  consumption spending, investment spending, and government spending. 
B)  consumption spending, national saving, and taxes. 
C)  consumption spending, government spending, and taxes. 
D)  investment spending, national saving, and taxes.

Question 20

An increase in the output gap causes the demand for real balances

Accepted Answer

A)  to rise and the interest rate to fall. 
B)  to fall and the interest rate to rise. 
C)  and the interest rate to fall. 
D)  and the interest rate to rise. 
A)  to rise and the interest rate to fall. 
B)  to fall and the interest rate to rise. 
C)  and the interest rate to fall. 
D)  and the interest rate to rise.

Which of the following statements about potential GDP is FALSE?

What is the multiplier? If MPC = 0.75,what is the value of the multiplier in the simple model of the economy?

The LM curve is the combinations of

An increase in the real interest rate causes

How does the goods market return to equilibrium if AE is less than production?

Changes in net worth and liquidity may significantly affect the volume of lending and economic activity according to the

What is the multiplier effect?

Analysts have attempted to model the impact of monetary policy on net worth by emphasizing

The relationship between the output gap and the cyclical rate of unemployment is known as

Lowering the target for the federal funds rate is unlikely to be effective in fighting a recession when a(n) in the risk premium demanded by investors causes a in interest rates.

Use the following data to calculate equilibrium real GDP: C = 0.75Y,I = $2 trillion,G = $1 trillion and NX = -$0.5 trillion.

The capacity of a firm can best be described as

By the early 1990s,Fannie Mae,Freddie Mac,and other federal agencies held

A key reason that FOMC members expected that their target for the federal funds rate in 2016 would be higher than it actually was is that they had expected the growth rate of real GDP to be and the inflation rate to be than they actually were.

An increase in the money supply will cause

How is the economy likely to respond when AE (sales)exceeds production?

The gap between the current unemployment rate and the natural rate of unemployment is called

Lower interest rates which reduce the debt-servicing burden of households,thus increasing their net worth,is best described by the

In a closed economy,the total quantity of goods demanded equals the sum of

An increase in the output gap causes the demand for real balances

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

Transactions Costs, asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Beyond Commercial Banks: Shadow Banks and Nonbank Financial Institutions

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I- the Aggregate Demand and Aggregate Supply Model

Filters

Exam 18: Monetary Theory Ii: the Is-Mp Model

Which of the following statements about potential GDP is FALSE?

What is the multiplier? If MPC = 0.75,what is the value of the multiplier in the simple model of the economy?

The LM curve is the combinations of

An increase in the real interest rate causes

How does the goods market return to equilibrium if AE is less than production?

Changes in net worth and liquidity may significantly affect the volume of lending and economic activity according to the

What is the multiplier effect?

Analysts have attempted to model the impact of monetary policy on net worth by emphasizing

The relationship between the output gap and the cyclical rate of unemployment is known as

Lowering the target for the federal funds rate is unlikely to be effective in fighting a recession when a(n)________ in the risk premium demanded by investors causes a ________ in interest rates.

Use the following data to calculate equilibrium real GDP: C = 0.75Y,I = $2 trillion,G = $1 trillion and NX = -$0.5 trillion.

The capacity of a firm can best be described as

By the early 1990s,Fannie Mae,Freddie Mac,and other federal agencies held

A key reason that FOMC members expected that their target for the federal funds rate in 2016 would be higher than it actually was is that they had expected the growth rate of real GDP to be ________ and the inflation rate to be ________ than they actually were.

An increase in the money supply will cause

How is the economy likely to respond when AE (sales)exceeds production?

The gap between the current unemployment rate and the natural rate of unemployment is called

Lower interest rates which reduce the debt-servicing burden of households,thus increasing their net worth,is best described by the

In a closed economy,the total quantity of goods demanded equals the sum of

An increase in the output gap causes the demand for real balances

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

Transactions Costs, asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Beyond Commercial Banks: Shadow Banks and Nonbank Financial Institutions

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I- the Aggregate Demand and Aggregate Supply Model

Filters

Lowering the target for the federal funds rate is unlikely to be effective in fighting a recession when a(n) in the risk premium demanded by investors causes a in interest rates.

A key reason that FOMC members expected that their target for the federal funds rate in 2016 would be higher than it actually was is that they had expected the growth rate of real GDP to be and the inflation rate to be than they actually were.