Question 1

Monetarists reject using discretionary monetary policy as an effective stabilization tool because

Accepted Answer

A) it would require the money supply to grow at a rate equal to the economy's long-run rate of economic growth. 
B) they do not believe that changes in the money stock affect output or prices. 
C) they believe that there are lengthy and variable time lags between when a change in monetary policy is instituted and when the change exerts its primary impact on output and prices. 
D) they believe monetary policy can stimulate aggregate demand,but it cannot control inflation. 
A) it would require the money supply to grow at a rate equal to the economy's long-run rate of economic growth. 
B) they do not believe that changes in the money stock affect output or prices. 
C) they believe that there are lengthy and variable time lags between when a change in monetary policy is instituted and when the change exerts its primary impact on output and prices. 
D) they believe monetary policy can stimulate aggregate demand,but it cannot control inflation.

Question 2

Countries that persistently expand the supply of money at a rapid rate can expect to experience

Accepted Answer

A) high rates of inflation 
B) rapid economic growth. 
C) lower interest rates. 
D) low rates of unemployment. 
A) high rates of inflation 
B) rapid economic growth. 
C) lower interest rates. 
D) low rates of unemployment.

Question 3

Which of the following makes it more difficult for monetary policy makers to time policy changes correctly?

Accepted Answer

A) Monetary policy makers cannot act without congressional approval. 
B) The primary effects of the policy change will not be felt for 6 to 15 months into the future. 
C) The Board of Governors of the Federal Reserve System does not meet very often. 
D) Monetary policy affects only the general level of prices;it exerts no impact on real variables such as output and employment. 
A) Monetary policy makers cannot act without congressional approval. 
B) The primary effects of the policy change will not be felt for 6 to 15 months into the future. 
C) The Board of Governors of the Federal Reserve System does not meet very often. 
D) Monetary policy affects only the general level of prices;it exerts no impact on real variables such as output and employment.

Question 4

If the amount of money in circulation is $400 billion and the nominal GDP is $800 billion,the velocity of money is

Accepted Answer

A) 0.5. 
B) 2. 
C) 4. 
D) 8. 
A) 0.5. 
B) 2. 
C) 4. 
D) 8.

Question 5

The quantity of money that households and businesses will demand

Accepted Answer

A) increases if income falls but decreases if interest rates rise. 
B) increases if income falls and increases if interest rates rise. 
C) decreases if income falls but increases if interest rates rise. 
D) decreases if income falls and decreases if interest rates rise. 
A) increases if income falls but decreases if interest rates rise. 
B) increases if income falls and increases if interest rates rise. 
C) decreases if income falls but increases if interest rates rise. 
D) decreases if income falls and decreases if interest rates rise.

Question 6

Starting from an initial long-run equilibrium,an unanticipated shift to a more expansionary monetary policy would tend to increase

Accepted Answer

A) prices and unemployment in the long run. 
B) real output in the short run but not in the long run. 
C) real output in the long run but not in the short run. 
D) real output in both the long run and the short run. 
A) prices and unemployment in the long run. 
B) real output in the short run but not in the long run. 
C) real output in the long run but not in the short run. 
D) real output in both the long run and the short run.

Question 7

Which of the following correctly indicates a potential path for the transmission of expansionary monetary policy to the goods and services market?

Accepted Answer

A) Higher real interest rates will lead to a decrease in both business investment and consumer purchases of durable items,causing a decrease in aggregate demand. 
B) Lower interest rates lead to a depreciation in the foreign exchange value of the dollar,an increase in net exports,and an expansion in aggregate demand. 
C) Higher interest rates will tend to increase asset prices,leading to a decrease in wealth that will decrease consumer spending and aggregate demand. 
D) A reduction in the general level of prices will increase the disposable income of households and aggregate demand. 
A) Higher real interest rates will lead to a decrease in both business investment and consumer purchases of durable items,causing a decrease in aggregate demand. 
B) Lower interest rates lead to a depreciation in the foreign exchange value of the dollar,an increase in net exports,and an expansion in aggregate demand. 
C) Higher interest rates will tend to increase asset prices,leading to a decrease in wealth that will decrease consumer spending and aggregate demand. 
D) A reduction in the general level of prices will increase the disposable income of households and aggregate demand.

Question 8

Which of the following is a true statement?

Accepted Answer

A) Expansionary monetary policy has the same effect in the long run regardless of whether it is originally anticipated or unanticipated. 
B) Expansionary monetary policy increases real output only when it is unanticipated,and the increase is only in the short run. 
C) The primary long-run impact of expansionary monetary policy is a higher price level (or inflation). 
D) All of the above are true. 
A) Expansionary monetary policy has the same effect in the long run regardless of whether it is originally anticipated or unanticipated. 
B) Expansionary monetary policy increases real output only when it is unanticipated,and the increase is only in the short run. 
C) The primary long-run impact of expansionary monetary policy is a higher price level (or inflation). 
D) All of the above are true.

Question 9

The Fed's sale of U.S.government securities in its open market operations constitutes

Accepted Answer

A) a restrictive policy because it lowers the amount of total reserves in the banking system. 
B) a restrictive policy because it raise the amount of required reserves in the banking system. 
C) an expansionary policy because it raises the amount of total and excess reserves in the banking system. 
D) an expansionary policy because it raises the amount of excess reserves and lowers the amount of required reserves in the banking system. 
E) an expansionary policy because it raises the amount of required reserves in the banking system. 
A) a restrictive policy because it lowers the amount of total reserves in the banking system. 
B) a restrictive policy because it raise the amount of required reserves in the banking system. 
C) an expansionary policy because it raises the amount of total and excess reserves in the banking system. 
D) an expansionary policy because it raises the amount of excess reserves and lowers the amount of required reserves in the banking system. 
E) an expansionary policy because it raises the amount of required reserves in the banking system.

Question 10

When the Fed unexpectedly increases the money supply,it will cause an increase in aggregate demand because

Accepted Answer

A) real interest rates will fall,stimulating business investment and consumer purchases. 
B) the dollar will appreciate on the foreign exchange market,leading to a decrease in net exports. 
C) lower interest rates will tend to decrease asset prices (for example,stock prices),which decreases wealth and,thereby,decreases current consumption. 
D) the general level of prices will fall,which will increase the disposable income of households. 
A) real interest rates will fall,stimulating business investment and consumer purchases. 
B) the dollar will appreciate on the foreign exchange market,leading to a decrease in net exports. 
C) lower interest rates will tend to decrease asset prices (for example,stock prices),which decreases wealth and,thereby,decreases current consumption. 
D) the general level of prices will fall,which will increase the disposable income of households.

Question 11

A decrease in the money supply

Accepted Answer

A) lowers the interest rate,causing a decrease in investment and a decrease in GDP. 
B) lowers the interest rate,causing a decrease in investment and an increase in GDP. 
C) raises the interest rate,causing an increase in investment and a decrease in GDP. 
D) raises the interest rate,causing an increase in investment and an increase in GDP. 
E) raises the interest rate,causing a decrease in investment and a decrease in GDP. 
A) lowers the interest rate,causing a decrease in investment and a decrease in GDP. 
B) lowers the interest rate,causing a decrease in investment and an increase in GDP. 
C) raises the interest rate,causing an increase in investment and a decrease in GDP. 
D) raises the interest rate,causing an increase in investment and an increase in GDP. 
E) raises the interest rate,causing a decrease in investment and a decrease in GDP.

Question 12

If the growth rate of real GDP is 3 percent,velocity is constant,and the money supply grows at 9 percent,the rate of inflation will be approximately

Accepted Answer

A) 3 percent. 
B) 6 percent. 
C) 9 percent. 
D) 12 percent. 
A) 3 percent. 
B) 6 percent. 
C) 9 percent. 
D) 12 percent.

Question 13

Starting from a position of macroeconomic equilibrium at the full-employment level of real GDP,in the short run an unanticipated increase in the money supply will

Accepted Answer

A) raise real interest rates,lower prices,and reduce real GDP. 
B) raise real interest rates,lower prices,and leave real GDP unchanged. 
C) raise nominal interest rates,lower prices,and leave real GDP unchanged. 
D) lower real interest rates,raise prices,and increase real GDP. 
A) raise real interest rates,lower prices,and reduce real GDP. 
B) raise real interest rates,lower prices,and leave real GDP unchanged. 
C) raise nominal interest rates,lower prices,and leave real GDP unchanged. 
D) lower real interest rates,raise prices,and increase real GDP.

Question 14

As the Fed increased the volume of loans to financial institutions in response to the 2008 financial crisis,this resulted in

Accepted Answer

A) a vast increase in the monetary base and the excess reserves of the commercial banking system. 
B) a substantial increase in short term interest rates. 
C) a sharp decrease in the monetary base and a contraction in the excess reserves of the commercial banking system. 
D) an increase in the volume of loans extended by commercial banks and a sharp increase in the inflation rate. 
A) a vast increase in the monetary base and the excess reserves of the commercial banking system. 
B) a substantial increase in short term interest rates. 
C) a sharp decrease in the monetary base and a contraction in the excess reserves of the commercial banking system. 
D) an increase in the volume of loans extended by commercial banks and a sharp increase in the inflation rate.

Question 15

Which of the following would be most indicative of a shift to a more restrictive monetary policy?

Accepted Answer

A) Rapid expansion in the monetary base,higher short-term interest rates,and a decline in the growth rate of the M1 money supply. 
B) Rapid expansion in the monetary base,declining short-term interest rates,and an increase in the growth rate of the M2 money supply. 
C) A reduction in the monetary base,higher short-term interest rates,and a decline in the growth rate of the M2 money supply. 
D) A reduction in the monetary base,lower short-term interest rates,and a decline in the growth rate of the M1 money supply. 
A) Rapid expansion in the monetary base,higher short-term interest rates,and a decline in the growth rate of the M1 money supply. 
B) Rapid expansion in the monetary base,declining short-term interest rates,and an increase in the growth rate of the M2 money supply. 
C) A reduction in the monetary base,higher short-term interest rates,and a decline in the growth rate of the M2 money supply. 
D) A reduction in the monetary base,lower short-term interest rates,and a decline in the growth rate of the M1 money supply.

Question 16

According to the modern view,the impact of expansionary monetary policy will

Accepted Answer

A) be the same in the long run as in the short run. 
B) be the same regardless of whether the effects of the policy are anticipated or unanticipated. 
C) initially be an increase in real output if the policy is unanticipated,but in the long run,the primary result will be a higher price level (inflation). 
D) initially be an increase in prices if the policy is unanticipated,but in the long run,the primary result will be larger real output. 
A) be the same in the long run as in the short run. 
B) be the same regardless of whether the effects of the policy are anticipated or unanticipated. 
C) initially be an increase in real output if the policy is unanticipated,but in the long run,the primary result will be a higher price level (inflation). 
D) initially be an increase in prices if the policy is unanticipated,but in the long run,the primary result will be larger real output.

Question 17

"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 18

If the Fed sells bonds and,thereby,unexpectedly shifts to a more restrictive monetary policy,in the short run,the primary impact of this policy will tend to

Accepted Answer

A) increase inflation. 
B) reduce unemployment. 
C) increase real output. 
D) increase real interest rates. 
A) increase inflation. 
B) reduce unemployment. 
C) increase real output. 
D) increase real interest rates.

Question 19

Which of the following was true of the actions of the Federal Reserve in response to the recession of 2008?

Accepted Answer

A) The Fed shifted toward a highly restrictive monetary policy in 2008,which was a major cause of the recession. 
B) The Fed continued to focus only on price stability and therefore it expanded the money supply at a slow and steady rate throughout the recession. 
C) The Fed introduced several new procedures for the conduct of monetary policy and substantially increased bank reserves as the recession worsened. 
D) The Fed continued to purchase and sell only U.S.Treasury bonds when conducting open market operations to control the money supply. 
A) The Fed shifted toward a highly restrictive monetary policy in 2008,which was a major cause of the recession. 
B) The Fed continued to focus only on price stability and therefore it expanded the money supply at a slow and steady rate throughout the recession. 
C) The Fed introduced several new procedures for the conduct of monetary policy and substantially increased bank reserves as the recession worsened. 
D) The Fed continued to purchase and sell only U.S.Treasury bonds when conducting open market operations to control the money supply.

Question 20

If the Federal Reserve increases its bond purchases,the short-run effects will be

Accepted Answer

A) an increase in the money supply and lower real interest rates. 
B) a decrease in the money supply and lower real interest rates. 
C) an increase in the money supply and higher real interest rates. 
D) a decrease in the money supply and higher real interest rates. 
A) an increase in the money supply and lower real interest rates. 
B) a decrease in the money supply and lower real interest rates. 
C) an increase in the money supply and higher real interest rates. 
D) a decrease in the money supply and higher real interest rates.

Exam 14: Modern Macroeconomics and Monetary Policy

Monetarists reject using discretionary monetary policy as an effective stabilization tool because

Countries that persistently expand the supply of money at a rapid rate can expect to experience

Which of the following makes it more difficult for monetary policy makers to time policy changes correctly?

If the amount of money in circulation is $400 billion and the nominal GDP is $800 billion,the velocity of money is

The quantity of money that households and businesses will demand

Starting from an initial long-run equilibrium,an unanticipated shift to a more expansionary monetary policy would tend to increase

Which of the following correctly indicates a potential path for the transmission of expansionary monetary policy to the goods and services market?

Which of the following is a true statement?

The Fed's sale of U.S.government securities in its open market operations constitutes

When the Fed unexpectedly increases the money supply,it will cause an increase in aggregate demand because

A decrease in the money supply

If the growth rate of real GDP is 3 percent,velocity is constant,and the money supply grows at 9 percent,the rate of inflation will be approximately

Starting from a position of macroeconomic equilibrium at the full-employment level of real GDP,in the short run an unanticipated increase in the money supply will

As the Fed increased the volume of loans to financial institutions in response to the 2008 financial crisis,this resulted in

Which of the following would be most indicative of a shift to a more restrictive monetary policy?

According to the modern view,the impact of expansionary monetary policy will

"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?

If the Fed sells bonds and,thereby,unexpectedly shifts to a more restrictive monetary policy,in the short run,the primary impact of this policy will tend to

Which of the following was true of the actions of the Federal Reserve in response to the recession of 2008?

If the Federal Reserve increases its bond purchases,the short-run effects will be

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

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