Question 1

If AE < Y,which of the following will NOT occur?

Accepted Answer

A)  Inventories will decline. 
B)  Actual investment will be more than planned investment. 
C)  Employment will decline. 
D)  GDP will decline. 
A)  Inventories will decline. 
B)  Actual investment will be more than planned investment. 
C)  Employment will decline. 
D)  GDP will decline.

Question 2

Which of the following does NOT lead to an increase in potential GDP?

Accepted Answer

A)  labor force grows 
B)  technological change takes place 
C)  new machinery and equipment are installed 
D)  aggregate expenditures increase 
A)  labor force grows 
B)  technological change takes place 
C)  new machinery and equipment are installed 
D)  aggregate expenditures increase

Question 3

Which interest rate is most relevant in determining aggregate expenditures?

Accepted Answer

A)  federal funds rate 
B)  short-term real interest rate 
C)  long-term nominal interest rate 
D)  long-term real interest rate 
A)  federal funds rate 
B)  short-term real interest rate 
C)  long-term nominal interest rate 
D)  long-term real interest rate

Question 4

The aggregate expenditure line is upward sloping since as GDP increases

Accepted Answer

A)  consumption increases. 
B)  investment increases. 
C)  government purchases increase. 
D)  net exports increase. 
A)  consumption increases. 
B)  investment increases. 
C)  government purchases increase. 
D)  net exports increase.

Question 5

What three parts of the economy are represented in the IS-MP model?

Accepted Answer

The IS curve,which represents equilibriu

Question 6

The IS curve depicts the relationship between

Accepted Answer

A)  aggregate output and the real interest rate. 
B)  investment demand and the real interest rate. 
C)  investment demand and the level of current output. 
D)  national saving and the level of current output. 
A)  aggregate output and the real interest rate. 
B)  investment demand and the real interest rate. 
C)  investment demand and the level of current output. 
D)  national saving and the level of current output.

Question 7

Which monetary policy channel focuses on the ability of money market mutual funds to purchase commercial paper issued by firms?

Accepted Answer

A)  interest rate channel 
B)  commercial bank lending channel 
C)  shadow bank lending channel 
D)  balance sheet channel 
A)  interest rate channel 
B)  commercial bank lending channel 
C)  shadow bank lending channel 
D)  balance sheet channel

Question 8

Mortgage interest rates are likely to ________ if the mortgage market becomes privatized,and they are likely to ________ if the Fed reduces its holdings of mortgage-backed securities over time.

Accepted Answer

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

Question 9

How do expectations of higher inflation become embedded in the economy and affect actual inflation?

Accepted Answer

Workers will push for an increase in the

Question 10

A closed economy is one in which

Accepted Answer

A)  investment spending is zero. 
B)  government spending is zero. 
C)  there are no imports or exports. 
D)  demand equals supply in every market. 
A)  investment spending is zero. 
B)  government spending is zero. 
C)  there are no imports or exports. 
D)  demand equals supply in every market.

Question 11

The ways in which monetary policy affect output and prices are known as

Accepted Answer

A)  channels. 
B)  stations. 
C)  vehicles. 
D)  means. 
A)  channels. 
B)  stations. 
C)  vehicles. 
D)  means.

Question 12

Which of the following statements is correct?

Accepted Answer

A)  Because in practice few borrowers are bank-dependent, the bank lending channel is of little real-world importance. 
B)  In the interest rate channel, an expansionary monetary policy may cause a leftward shift in the AD curve. 
C)  In the bank lending channel, an expansionary monetary policy can increase output in the short run even if it does not result in a decrease in the real interest rate. 
D)  In the interest rate channel, an expansionary monetary policy affects spending but not output. 
A)  Because in practice few borrowers are bank-dependent, the bank lending channel is of little real-world importance. 
B)  In the interest rate channel, an expansionary monetary policy may cause a leftward shift in the AD curve. 
C)  In the bank lending channel, an expansionary monetary policy can increase output in the short run even if it does not result in a decrease in the real interest rate. 
D)  In the interest rate channel, an expansionary monetary policy affects spending but not output.

Question 13

To permanently reduce the inflation rate,the Fed can cause a(n)________ in real GDP by ________ the real interest rate.

Accepted Answer

A)  increase; raising 
B)  increase; lowering 
C)  decline; raising 
D)  decline; lowering 
A)  increase; raising 
B)  increase; lowering 
C)  decline; raising 
D)  decline; lowering

Question 14

Which of the following is the least likely to take place if the Fed responds to a negative demand shock by reducing the real interest rate?

Accepted Answer

A)  The IS curve shifts to the right. 
B)  Output gap returns to zero. 
C)  Inflation returns to its previous rate. 
D)  The MP curve shifts down. 
A)  The IS curve shifts to the right. 
B)  Output gap returns to zero. 
C)  Inflation returns to its previous rate. 
D)  The MP curve shifts down.

Question 15

If AE > Y,which of the following will NOT occur?

Accepted Answer

A)  Inventories will decline. 
B)  Actual investment will be more than planned investment. 
C)  Employment will increase. 
D)  GDP will increase. 
A)  Inventories will decline. 
B)  Actual investment will be more than planned investment. 
C)  Employment will increase. 
D)  GDP will increase.

Question 16

Which of the following prevented the Fed from reducing long-term real interest rates during the financial crisis of 2007-2009?

Accepted Answer

A)  an increase in expected inflation 
B)  an increase in the risk premium 
C)  the collapse in the housing market 
D)  the failure of the federal funds rate to respond to monetary policy 
A)  an increase in expected inflation 
B)  an increase in the risk premium 
C)  the collapse in the housing market 
D)  the failure of the federal funds rate to respond to monetary policy

Question 17

An increase in the expected profitability of investment will cause

Accepted Answer

A)  the IS curve to shift right. 
B)  the IS curve to shift left. 
C)  the MP curve to shift upward. 
D)  the MP curve to shift downward. 
A)  the IS curve to shift right. 
B)  the IS curve to shift left. 
C)  the MP curve to shift upward. 
D)  the MP curve to shift downward.

Question 18

What is potential GDP? What happens to unemployment when GDP is at its potential?

Accepted Answer

Potential GDP is the level of real GDP a

Question 19

In a closed economy,the goods market is in equilibrium when

Accepted Answer

A)  Y = S + I + G. 
B)  C + S = I + G. 
C)  C + I = S + G. 
D)  Y = C + I + G. 
A)  Y = S + I + G. 
B)  C + S = I + G. 
C)  C + I = S + G. 
D)  Y = C + I + G.

Question 20

What happened to the risk premium on Baa corporate bonds during the financial crisis of 2007-2009?

Accepted Answer

A)  It declined slightly. 
B)  It rose to about 2%. 
C)  It rose to about 4%. 
D)  It rose to about 6%. 
A)  It declined slightly. 
B)  It rose to about 2%. 
C)  It rose to about 4%. 
D)  It rose to about 6%.

If AE < Y,which of the following will NOT occur?

Which of the following does NOT lead to an increase in potential GDP?

Which interest rate is most relevant in determining aggregate expenditures?

The aggregate expenditure line is upward sloping since as GDP increases

What three parts of the economy are represented in the IS-MP model?

The IS curve depicts the relationship between

Which monetary policy channel focuses on the ability of money market mutual funds to purchase commercial paper issued by firms?

Mortgage interest rates are likely to if the mortgage market becomes privatized,and they are likely to if the Fed reduces its holdings of mortgage-backed securities over time.

How do expectations of higher inflation become embedded in the economy and affect actual inflation?

A closed economy is one in which

The ways in which monetary policy affect output and prices are known as

Which of the following statements is correct?

To permanently reduce the inflation rate,the Fed can cause a(n) in real GDP by the real interest rate.

Which of the following is the least likely to take place if the Fed responds to a negative demand shock by reducing the real interest rate?

If AE > Y,which of the following will NOT occur?

Which of the following prevented the Fed from reducing long-term real interest rates during the financial crisis of 2007-2009?

An increase in the expected profitability of investment will cause

What is potential GDP? What happens to unemployment when GDP is at its potential?

In a closed economy,the goods market is in equilibrium when

What happened to the risk premium on Baa corporate bonds during the financial crisis of 2007-2009?

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

If AE < Y,which of the following will NOT occur?

Which of the following does NOT lead to an increase in potential GDP?

Which interest rate is most relevant in determining aggregate expenditures?

The aggregate expenditure line is upward sloping since as GDP increases

What three parts of the economy are represented in the IS-MP model?

The IS curve depicts the relationship between

Which monetary policy channel focuses on the ability of money market mutual funds to purchase commercial paper issued by firms?

Mortgage interest rates are likely to ________ if the mortgage market becomes privatized,and they are likely to ________ if the Fed reduces its holdings of mortgage-backed securities over time.

How do expectations of higher inflation become embedded in the economy and affect actual inflation?

A closed economy is one in which

The ways in which monetary policy affect output and prices are known as

Which of the following statements is correct?

To permanently reduce the inflation rate,the Fed can cause a(n)________ in real GDP by ________ the real interest rate.

Which of the following is the least likely to take place if the Fed responds to a negative demand shock by reducing the real interest rate?

If AE > Y,which of the following will NOT occur?

Which of the following prevented the Fed from reducing long-term real interest rates during the financial crisis of 2007-2009?

An increase in the expected profitability of investment will cause

What is potential GDP? What happens to unemployment when GDP is at its potential?

In a closed economy,the goods market is in equilibrium when

What happened to the risk premium on Baa corporate bonds during the financial crisis of 2007-2009?

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

Mortgage interest rates are likely to if the mortgage market becomes privatized,and they are likely to if the Fed reduces its holdings of mortgage-backed securities over time.

To permanently reduce the inflation rate,the Fed can cause a(n) in real GDP by the real interest rate.