Question 1

Figure 14-4
  
-In Figure 14-4,an unanticipated shift to a more restrictive monetary policy will shift

Accepted Answer

A) AD to the right and temporarily increase real GDP. 
B) AD to the left and temporarily reduce real GDP. 
C) AD to the right and SRAS to the left and lead to higher prices (inflation). 
D) both AD and SRAS to the right and lead to an increase in real GDP. 
A) AD to the right and temporarily increase real GDP. 
B) AD to the left and temporarily reduce real GDP. 
C) AD to the right and SRAS to the left and lead to higher prices (inflation). 
D) both AD and SRAS to the right and lead to an increase in real GDP.

Question 2

According to the monetarists,which of the following is true?

Accepted Answer

A) Instability in the money supply is the primary cause of economic instability. 
B) A reduction in the money supply will cause consumers to increase spending. 
C) A reduction in the money supply will cause a proportional reduction in wages and prices,leaving output unchanged. 
D) A rapid growth rate of the money supply will lead to a rapid growth rate of real GDP. 
A) Instability in the money supply is the primary cause of economic instability. 
B) A reduction in the money supply will cause consumers to increase spending. 
C) A reduction in the money supply will cause a proportional reduction in wages and prices,leaving output unchanged. 
D) A rapid growth rate of the money supply will lead to a rapid growth rate of real GDP.

Question 3

Figure 14-3
  
-Suppose the economy was currently operating at SRAS and AD₂ in Figure 14-3.To combat inflation,the Fed institutes restrictive monetary policy.Suppose that by the time the policy impacts the economy,AD has already moved to AD₁.Which of the following would be true?

Accepted Answer

A) The policy would cause the economy to fall further into a recession than it would have if the Fed had not undertaken the policy. 
B) The policy will help by preventing the recession from becoming worse. 
C) The policy would cause the economy to go into an economic boom. 
D) This is a trick question;the impact of monetary policy is felt immediately by the economy. 
A) The policy would cause the economy to fall further into a recession than it would have if the Fed had not undertaken the policy. 
B) The policy will help by preventing the recession from becoming worse. 
C) The policy would cause the economy to go into an economic boom. 
D) This is a trick question;the impact of monetary policy is felt immediately by the economy.

Question 4

Which of the following is true?

Accepted Answer

A) If the Fed wants to increase the money supply,it should increase the interest rate it pays banks on their excess reserves. 
B) When the Fed reduces the interest rate paid on excess reserves,it increases the incentive of commercial banks to hold excess reserves. 
C) If the Fed wants to reduce the future growth rate of the money supply,it could do so by increasing the interest rate it pays banks on excess reserves. 
D) When the Fed increases the interest rate it pays on excess reserves,this encourages banks to extend more loans and thereby increase the money supply. 
A) If the Fed wants to increase the money supply,it should increase the interest rate it pays banks on their excess reserves. 
B) When the Fed reduces the interest rate paid on excess reserves,it increases the incentive of commercial banks to hold excess reserves. 
C) If the Fed wants to reduce the future growth rate of the money supply,it could do so by increasing the interest rate it pays banks on excess reserves. 
D) When the Fed increases the interest rate it pays on excess reserves,this encourages banks to extend more loans and thereby increase the money supply.

Question 5

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 6

The Taylor rule was designed to provide a measure of

Accepted Answer

A) the real interest rate. 
B) the consistency of monetary policy with price stability and full employment. 
C) the inflation rate that will minimize the rate of unemployment. 
D) the growth rate of excess reserves available to commercial banks. 
A) the real interest rate. 
B) the consistency of monetary policy with price stability and full employment. 
C) the inflation rate that will minimize the rate of unemployment. 
D) the growth rate of excess reserves available to commercial banks.

Question 7

Suppose the economy is in long-run equilibrium at the level of potential output.What will be the long-run effect of an expansionary monetary policy?

Accepted Answer

A) a higher price level 
B) a higher level of real output 
C) both a higher price level and a higher level of real output 
D) a lower price level 
E) a lower level of real output 
A) a higher price level 
B) a higher level of real output 
C) both a higher price level and a higher level of real output 
D) a lower price level 
E) a lower level of real output

Question 8

In the long run,the primary effect of rapid monetary growth is

Accepted Answer

A) lower nominal interest rates. 
B) reduced unemployment. 
C) inflation. 
D) an increase in real output. 
A) lower nominal interest rates. 
B) reduced unemployment. 
C) inflation. 
D) an increase in real output.

Question 9

Write out the equation of exchange.What assumptions did the classical economists make about the variables that compose the equation,and what did this lead them to conclude about money and prices?

Accepted Answer

The equation of exchange is MV

Question 10

When the Fed decreases the money supply,interest rates

Accepted Answer

A) rise. 
B) fall. 
C) are unaffected. 
D) rise and then fall. 
E) fall and then rise. 
A) rise. 
B) fall. 
C) are unaffected. 
D) rise and then fall. 
E) fall and then rise.

Question 11

Cross country data illustrates that rapid expansion in the supply of money over a lengthy period of time (for example,a decade)leads to

Accepted Answer

A) rapid growth of real output. 
B) a low real rate of interest. 
C) high rates of inflation. 
D) an inflow of capital and a high rate of investment. 
A) rapid growth of real output. 
B) a low real rate of interest. 
C) high rates of inflation. 
D) an inflow of capital and a high rate of investment.

Question 12

The Austrian view of the business cycle stresses that

Accepted Answer

A) expansionary monetary policy will stimulate aggregate demand and thereby promote lengthy economic expansions. 
B) the velocity of money is constant and therefore an increase in the quantity of money will lead only to a proportional increase in the general level of prices. 
C) expansionary monetary policy will lead to higher interest rates that will retard investment and throw the economy into a recession. 
D) the interest rate is one of the most important prices and manipulation of the interest rate by monetary policy-makers is a major source of economic instability. 
A) expansionary monetary policy will stimulate aggregate demand and thereby promote lengthy economic expansions. 
B) the velocity of money is constant and therefore an increase in the quantity of money will lead only to a proportional increase in the general level of prices. 
C) expansionary monetary policy will lead to higher interest rates that will retard investment and throw the economy into a recession. 
D) the interest rate is one of the most important prices and manipulation of the interest rate by monetary policy-makers is a major source of economic instability.

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

Large or persistent inflation is almost always caused by

Accepted Answer

A) excessive government spending. 
B) excessive growth in the quantity of money. 
C) foreign competition. 
D) higher-than-normal levels of productivity. 
A) excessive government spending. 
B) excessive growth in the quantity of money. 
C) foreign competition. 
D) higher-than-normal levels of productivity.

Question 15

In the equation of exchange,V stands for

Accepted Answer

A) velocity,or the annual rate at which money changes hands in the purchase of final products. 
B) the investment component of aggregate demand. 
C) the amount of money in circulation. 
D) a constant equal to 3.1416,discovered by classical economists. 
A) velocity,or the annual rate at which money changes hands in the purchase of final products. 
B) the investment component of aggregate demand. 
C) the amount of money in circulation. 
D) a constant equal to 3.1416,discovered by classical economists.

Question 16

Continuous rapid growth of the money supply relative to the growth of real output will most likely lead to

Accepted Answer

A) persistent inflation. 
B) low nominal interest rates. 
C) high rates of real economic growth. 
D) low unemployment. 
A) persistent inflation. 
B) low nominal interest rates. 
C) high rates of real economic growth. 
D) low unemployment.

Question 17

The velocity of money is

Accepted Answer

A) money supply divided by prices. 
B) spending divided by output. 
C) required monetary reserves divided by income. 
D) GDP divided by the money supply. 
A) money supply divided by prices. 
B) spending divided by output. 
C) required monetary reserves divided by income. 
D) GDP divided by the money supply.

Question 18

Equilibrium in the loanable funds market is initially present at a stable price level (zero inflation)and a nominal (and real)interest rate of 4 percent.If a shift to expansionary monetary policy eventually leads to actual and expected inflation of 6 percent,

Accepted Answer

A) both the nominal and real interest rates will rise to 10 percent. 
B) the nominal interest rate will rise to 10 percent,but the real interest rate will remain at 4 percent. 
C) the real interest rate will rise to 10 percent,but the nominal interest rate will remain at 4 percent. 
D) both the real and nominal interest rates will remain at 4 percent. 
A) both the nominal and real interest rates will rise to 10 percent. 
B) the nominal interest rate will rise to 10 percent,but the real interest rate will remain at 4 percent. 
C) the real interest rate will rise to 10 percent,but the nominal interest rate will remain at 4 percent. 
D) both the real and nominal interest rates will remain at 4 percent.

Question 19

What effect does restrictive monetary policy have on short-term real interest rates?

Accepted Answer

A) Restrictive monetary policy tends to push short-term interest rates upward. 
B) Restrictive monetary policy tends to push short-term interest rates downward. 
C) The effect of restrictive monetary policy on short-term interest rates is unpredictable. 
D) Restrictive monetary policy has no effect on short-term interest rates. 
A) Restrictive monetary policy tends to push short-term interest rates upward. 
B) Restrictive monetary policy tends to push short-term interest rates downward. 
C) The effect of restrictive monetary policy on short-term interest rates is unpredictable. 
D) Restrictive monetary policy has no effect on short-term interest rates.

Question 20

Suppose the economy is experiencing full employment.An unanticipated increase in the money supply will

Accepted Answer

A) raise real GDP and the price level in the short run,but in the long run will cause no change in real GDP and only a higher price level. 
B) lower real GDP and the price level in the short run,but in the long run will cause no change in real GDP and only a lower price level. 
C) cause no change in real GDP in either the short run or long run but will increase the price level. 
D) cause the price level to rise in the short run but will increase real GDP in the long run. 
A) raise real GDP and the price level in the short run,but in the long run will cause no change in real GDP and only a higher price level. 
B) lower real GDP and the price level in the short run,but in the long run will cause no change in real GDP and only a lower price level. 
C) cause no change in real GDP in either the short run or long run but will increase the price level. 
D) cause the price level to rise in the short run but will increase real GDP in the long run.

Exam 14: Modern Macroeconomics and Monetary Policy

Figure 14-4 -In Figure 14-4,an unanticipated shift to a more restrictive monetary policy will shift

According to the monetarists,which of the following is true?

Figure 14-3 -Suppose the economy was currently operating at SRAS and AD₂ in Figure 14-3.To combat inflation,the Fed institutes restrictive monetary policy.Suppose that by the time the policy impacts the economy,AD has already moved to AD₁.Which of the following would be true?

Which of the following is true?

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

The Taylor rule was designed to provide a measure of

Suppose the economy is in long-run equilibrium at the level of potential output.What will be the long-run effect of an expansionary monetary policy?

In the long run,the primary effect of rapid monetary growth is

Write out the equation of exchange.What assumptions did the classical economists make about the variables that compose the equation,and what did this lead them to conclude about money and prices?

When the Fed decreases the money supply,interest rates

Cross country data illustrates that rapid expansion in the supply of money over a lengthy period of time (for example,a decade)leads to

The Austrian view of the business cycle stresses that

The demand curve for money

Large or persistent inflation is almost always caused by

In the equation of exchange,V stands for

Continuous rapid growth of the money supply relative to the growth of real output will most likely lead to

The velocity of money is

Equilibrium in the loanable funds market is initially present at a stable price level (zero inflation)and a nominal (and real)interest rate of 4 percent.If a shift to expansionary monetary policy eventually leads to actual and expected inflation of 6 percent,

What effect does restrictive monetary policy have on short-term real interest rates?

Suppose the economy is experiencing full employment.An unanticipated increase in the money supply will

The Economic Approach

Asome Tools of the Economist

Asupply,demand,and the Market Process

Asupply and Demand: Applications and Extensions

Difficult Cases for the Market and the Role of Government

The Economics of Collective Decision-Making

Ataking the Nations Economic Pulse

Economic Fluctuations, unemployment, and Inflation

Aan Introduction to Basic Macroeconomic Markets

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

Fiscal Policy: the Keynesian View and Historical Perspective

Fiscal Policy, incentives, and Secondary Effects

Amoney 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

Consumer Choice and Elasticity

Acosts and the Supply of Goods

Aprice Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Aprice-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Government Spending and Taxation

The Economics of Social Security

The Stock Market: Its Function, Performance, and Potential As an Investment Opportunity

Great Debates in Economics: Keynes Versus Hayek

The Crisis of 2008: Causes and Lessons for the Future

Lessons From the Great Depression

Lessons From Japan and Canada

The Federal Budget and the National Debt

The Economics of Healthcare

Education: Problems and Performance

Earnings Differences Between Men and Women

Do Labor Unions Increase the Wages of Workers

The Question of Resource Exhaustion

Difficult Environmental Cases and the Role of Government

Filters