Question 1

The velocity of money is

Accepted Answer

A) the rate at which the price index for consumer goods rises. 
B) the multiple by which an increase in government expenditures will cause output to rise. 
C) set by the Board of Governors of the Federal Reserve System. 
D) the average number of times one dollar is used to buy final goods and services during a year. 
A) the rate at which the price index for consumer goods rises. 
B) the multiple by which an increase in government expenditures will cause output to rise. 
C) set by the Board of Governors of the Federal Reserve System. 
D) the average number of times one dollar is used to buy final goods and services during a year.

Question 2

In the short run,which of the following is the most likely effect of an unanticipated move to a more expansionary monetary policy?

Accepted Answer

A) an increase in employment 
B) a decrease in employment 
C) an increase in the velocity of money 
D) an increase in prices proportional to the rise in the money supply 
A) an increase in employment 
B) a decrease in employment 
C) an increase in the velocity of money 
D) an increase in prices proportional to the rise in the money supply

Question 3

An unexpected shift to a more expansionary monetary policy will generally

Accepted Answer

A) stimulate aggregate demand and real output as soon as the policy is instituted. 
B) exert its primary impact on aggregate demand and real output 6 to 15 months in the future. 
C) cause inflation in the short run,but expand real output in the long run. 
D) increase real interest rates in the short run. 
A) stimulate aggregate demand and real output as soon as the policy is instituted. 
B) exert its primary impact on aggregate demand and real output 6 to 15 months in the future. 
C) cause inflation in the short run,but expand real output in the long run. 
D) increase real interest rates in the short run.

Question 4

Cross-country figures indicate that

Accepted Answer

A) countries with high rates of monetary growth also experience high inflation. 
B) countries with high rates of monetary growth experience low inflation. 
C) monetary growth rates and inflation are unrelated. 
D) inflation is primarily the result of restrictive monetary policy. 
A) countries with high rates of monetary growth also experience high inflation. 
B) countries with high rates of monetary growth experience low inflation. 
C) monetary growth rates and inflation are unrelated. 
D) inflation is primarily the result of restrictive monetary policy.

Question 5

The most likely impact of an unanticipated increase in the money supply is

Accepted Answer

A) an increase in the real interest rate,which in turn stimulates investment and GDP. 
B) a decrease in the real interest rate,which in turn stimulates investment and GDP. 
C) a reduction in the general level of prices,which will increase the disposable income of households. 
D) an improvement in technology,which will stimulate both output and employment. 
A) an increase in the real interest rate,which in turn stimulates investment and GDP. 
B) a decrease in the real interest rate,which in turn stimulates investment and GDP. 
C) a reduction in the general level of prices,which will increase the disposable income of households. 
D) an improvement in technology,which will stimulate both output and employment.

Question 6

The Fed's purchase of U.S.government securities 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 lowers the amount of excess reserves in the banking system. 
C) an expansionary policy because it raises the amount of total reserves in the banking system. 
D) an expansionary policy because it lowers 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 lowers the amount of excess reserves in the banking system. 
C) an expansionary policy because it raises the amount of total reserves in the banking system. 
D) an expansionary policy because it lowers the amount of required reserves in the banking system.

Question 7

An increase in the required reserve ratio would be

Accepted Answer

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

Question 8

The velocity of money is the

Accepted Answer

A) rate at which the price index for consumer goods rises. 
B) multiple by which an increase in government expenditures will cause output to expand. 
C) average number of times a dollar is used to buy goods and services included in GDP. 
D) number of times a dollar is taken out of the country during a year. 
A) rate at which the price index for consumer goods rises. 
B) multiple by which an increase in government expenditures will cause output to expand. 
C) average number of times a dollar is used to buy goods and services included in GDP. 
D) number of times a dollar is taken out of the country during a year.

Question 9

Use the figure below to answer the following question(s).
Figure 14-2
  
-If the Fed anticipates that the conditions illustrated by AD₁ and SRAS in Figure 14-2 will be present in the near future,it should

Accepted Answer

A) shift to a more restrictive policy. 
B) shift to a more expansionary policy. 
C) request that Congress raise tax rates. 
D) refuse to buy any more U.S.securities. 
A) shift to a more restrictive policy. 
B) shift to a more expansionary policy. 
C) request that Congress raise tax rates. 
D) refuse to buy any more U.S.securities.

Question 10

If the Federal Reserve unexpectedly increases the money supply,which of the following will most likely happen in the short run?

Accepted Answer

A) real GDP will rise. 
B) real GDP will fall. 
C) real interest rates will rise. 
D) the budget deficit will rise. 
A) real GDP will rise. 
B) real GDP will fall. 
C) real interest rates will rise. 
D) the budget deficit will rise.

Question 11

In the short run,which of the following is the most likely effect of an unanticipated move to expansionary monetary policy?

Accepted Answer

A) an increase in real output 
B) a decrease in real output 
C) an improvement in technology,which will stimulate growth in the long run 
D) an increase in prices proportional to the increase in the money supply 
A) an increase in real output 
B) a decrease in real output 
C) an improvement in technology,which will stimulate growth in the long run 
D) an increase in prices proportional to the increase in the money supply

Question 12

Which of the following is true?

Accepted Answer

A) An unanticipated shift to a more expansionary monetary policy will temporarily stimulate output and employment. 
B) Persistent growth of the money supply at a rapid rate will cause inflation. 
C) Both a and b are true. 
D) None of the above is true. 
A) An unanticipated shift to a more expansionary monetary policy will temporarily stimulate output and employment. 
B) Persistent growth of the money supply at a rapid rate will cause inflation. 
C) Both a and b are true. 
D) None of the above is true.

Question 13

An unanticipated increase in the money supply will initially exert its primary impact on

Accepted Answer

A) output and employment rather than on prices. 
B) prices;output and employment will be largely unaffected. 
C) interest rates;rising interest rates will stimulate additional saving. 
D) prices if the economy operates at an output level below its long-run supply constraint. 
A) output and employment rather than on prices. 
B) prices;output and employment will be largely unaffected. 
C) interest rates;rising interest rates will stimulate additional saving. 
D) prices if the economy operates at an output level below its long-run supply constraint.

Question 14

Which one of the following factors would reduce the quantity of money balances that households would want to hold?

Accepted Answer

A) higher prices 
B) a rise in inflation 
C) higher nominal interest rates 
D) an expansion in nominal income (nominal GDP) 
A) higher prices 
B) a rise in inflation 
C) higher nominal interest rates 
D) an expansion in nominal income (nominal GDP)

Question 15

In the long run,changes in the money supply affect only the price level because

Accepted Answer

A) the aggregate demand curve is vertical. 
B) the aggregate demand curve is downward sloping. 
C) the long-run aggregate supply curve is vertical. 
D) the long-run aggregate supply curve is upward sloping. 
E) current real GDP is less than the economy's potential GDP. 
A) the aggregate demand curve is vertical. 
B) the aggregate demand curve is downward sloping. 
C) the long-run aggregate supply curve is vertical. 
D) the long-run aggregate supply curve is upward sloping. 
E) current real GDP is less than the economy's potential GDP.

Question 16

Low rates of inflation are generally associated with

Accepted Answer

A) low rates of government spending. 
B) small or nonexistent government budget deficits. 
C) low rates of productivity growth. 
D) low rates of growth of the quantity of money. 
A) low rates of government spending. 
B) small or nonexistent government budget deficits. 
C) low rates of productivity growth. 
D) low rates of growth of the quantity of money.

Question 17

In the short run,an unanticipated increase in the money supply will

Accepted Answer

A) increase interest rates and shift the aggregate demand curve to the left. 
B) increase interest rates and shift the aggregate demand curve to the right. 
C) lower interest rates and shift the aggregate demand curve to the left. 
D) lower interest rates and shift the aggregate demand curve to the right. 
A) increase interest rates and shift the aggregate demand curve to the left. 
B) increase interest rates and shift the aggregate demand curve to the right. 
C) lower interest rates and shift the aggregate demand curve to the left. 
D) lower interest rates and shift the aggregate demand curve to the right.

Question 18

According to the Austrian view of the business cycle,expansionary monetary policy that pushes the interest rate to an artificially low level will

Accepted Answer

A) lead to an increase in long-term investments like houses and office buildings without generating the savings that will be required for their purchase in the future. 
B) lead to a reduction in long-term investments like houses and office buildings that will quickly throw the economy into a recession. 
C) lead to an increase in long-term investments like houses and office buildings that will enhance the long-term growth of the economy. 
D) lead to a reduction in investment,but there will be no impact on output,employment or the general level of prices. 
A) lead to an increase in long-term investments like houses and office buildings without generating the savings that will be required for their purchase in the future. 
B) lead to a reduction in long-term investments like houses and office buildings that will quickly throw the economy into a recession. 
C) lead to an increase in long-term investments like houses and office buildings that will enhance the long-term growth of the economy. 
D) lead to a reduction in investment,but there will be no impact on output,employment or the general level of prices.

Question 19

Which of the following contributed to the strong auto sales and soaring housing prices during 2002-2004?

Accepted Answer

A) the Fed's high-interest rate policy during the period 
B) the tightening of loan standards by commercial lenders 
C) the increasing popularity of fixed-rate,long-term loans to lock in low interest rates 
D) the Fed's low-interest rate policy during the period 
A) the Fed's high-interest rate policy during the period 
B) the tightening of loan standards by commercial lenders 
C) the increasing popularity of fixed-rate,long-term loans to lock in low interest rates 
D) the Fed's low-interest rate policy during the period

Question 20

Monetary policy pushed interest rates to historically low levels during 2002-2004,but was more restrictive during 2005-2006.Economic analysis indicates that this policy

Accepted Answer

A) helped to smooth the ups and downs of the business cycle during this era. 
B) contributed to the boom and bust of the housing market,and thereby the instability of this era. 
C) contributed to the housing bust of 2002-2004,but helped to restore stability to the housing market in 2006-2008. 
D) helped to bring inflation under control during 2002-2004,and thereby established a foundation for a strong recovery during 2007-2010 
A) helped to smooth the ups and downs of the business cycle during this era. 
B) contributed to the boom and bust of the housing market,and thereby the instability of this era. 
C) contributed to the housing bust of 2002-2004,but helped to restore stability to the housing market in 2006-2008. 
D) helped to bring inflation under control during 2002-2004,and thereby established a foundation for a strong recovery during 2007-2010

Exam 14: Modern Macroeconomics and Monetary Policy

The velocity of money is

In the short run,which of the following is the most likely effect of an unanticipated move to a more expansionary monetary policy?

An unexpected shift to a more expansionary monetary policy will generally

Cross-country figures indicate that

The most likely impact of an unanticipated increase in the money supply is

The Fed's purchase of U.S.government securities constitutes

An increase in the required reserve ratio would be

The velocity of money is the

Use the figure below to answer the following question(s). Figure 14-2 -If the Fed anticipates that the conditions illustrated by AD₁ and SRAS in Figure 14-2 will be present in the near future,it should

If the Federal Reserve unexpectedly increases the money supply,which of the following will most likely happen in the short run?

In the short run,which of the following is the most likely effect of an unanticipated move to expansionary monetary policy?

Which of the following is true?

An unanticipated increase in the money supply will initially exert its primary impact on

Which one of the following factors would reduce the quantity of money balances that households would want to hold?

In the long run,changes in the money supply affect only the price level because

Low rates of inflation are generally associated with

In the short run,an unanticipated increase in the money supply will

According to the Austrian view of the business cycle,expansionary monetary policy that pushes the interest rate to an artificially low level will

Which of the following contributed to the strong auto sales and soaring housing prices during 2002-2004?

Monetary policy pushed interest rates to historically low levels during 2002-2004,but was more restrictive during 2005-2006.Economic analysis indicates that this policy

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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