Question 1

If prices are expected to decrease, and the nominal interest rate is close to zero,

Accepted Answer

A)  the real interest rate will be less than zero, so investment spending will increase a lot. 
B)  the real interest rate could still be rather high, so investment spending will not be stimulated by an expansionary monetary policy 
C)  the real interest rate is unaffected, so investment spending continues as before. 
D)  the real interest rate is no longer important in investment spending decisions. 
A)  the real interest rate will be less than zero, so investment spending will increase a lot. 
B)  the real interest rate could still be rather high, so investment spending will not be stimulated by an expansionary monetary policy 
C)  the real interest rate is unaffected, so investment spending continues as before. 
D)  the real interest rate is no longer important in investment spending decisions.

Question 2

An activist central bank concerned with _________ would

Accepted Answer

A)  real GDP; lower real interest rates if real GDP was above its potential level. 
B)  real GDP; raise real interest rates if real GDP was below its target level. 
C)  unemployment; lower real interest rates if unemployment was below the natural rate. 
D)  inflation; raise real interest rates if unemployment was below the natural rate. 
A)  real GDP; lower real interest rates if real GDP was above its potential level. 
B)  real GDP; raise real interest rates if real GDP was below its target level. 
C)  unemployment; lower real interest rates if unemployment was below the natural rate. 
D)  inflation; raise real interest rates if unemployment was below the natural rate.

Question 3

The questions with which Chapter 13 is concerned include each of the following except

Accepted Answer

A)  how does the Federal Reserve work? 
B)  what aspects of stabilization policy do economists argue about today? 
C)  is stabilization policy better conducted according to fixed rules or by authorities with substantial discretion? 
D)  how does certainty affect the way stabilization policy should be made? 
A)  how does the Federal Reserve work? 
B)  what aspects of stabilization policy do economists argue about today? 
C)  is stabilization policy better conducted according to fixed rules or by authorities with substantial discretion? 
D)  how does certainty affect the way stabilization policy should be made?

Question 4

Federal deposit insurance was created

Accepted Answer

A)  to insulate bank depositors from the effects of financial crises. 
B)  to protect the federal government from default on its loans. 
C)  to protect lenders to the federal government from government defaulting on its obligations. 
D)  to protect Federal Reserve Banks from bankruptcy. 
A)  to insulate bank depositors from the effects of financial crises. 
B)  to protect the federal government from default on its loans. 
C)  to protect lenders to the federal government from government defaulting on its obligations. 
D)  to protect Federal Reserve Banks from bankruptcy.

Question 5

In a study of the independence of central banks, Economists Alberto Alesina and Lawrence Summers concluded that

Accepted Answer

A)  the more independent a central bank, the better its inflation performance. 
B)  the more independent a central bank, the worse its inflation performance. 
C)  the more independent a central bank, the worse its unemployment performance. 
D)  the more independent a central bank, the worse the real GDP of the country. 
A)  the more independent a central bank, the better its inflation performance. 
B)  the more independent a central bank, the worse its inflation performance. 
C)  the more independent a central bank, the worse its unemployment performance. 
D)  the more independent a central bank, the worse the real GDP of the country.

Question 6

If the principal instability in the economy is due to shifts in the IS curve,

Accepted Answer

A)  targeting interest rates will do little or nothing to stabilize the magnitude of shocks to the economy. 
B)  targeting interest rates will stabilize the magnitude of shocks to the economy. 
C)  targeting the exchange rate will stabilize the magnitude of the shocks to the economy. 
D)  the Federal Reserve should take monetary policy action to shift the IS curve in the opposite direction of the shock. 
A)  targeting interest rates will do little or nothing to stabilize the magnitude of shocks to the economy. 
B)  targeting interest rates will stabilize the magnitude of shocks to the economy. 
C)  targeting the exchange rate will stabilize the magnitude of the shocks to the economy. 
D)  the Federal Reserve should take monetary policy action to shift the IS curve in the opposite direction of the shock.

Question 7

Each of the following is a component of the Conference Board's Index of Leading Indicators except

Accepted Answer

A)  average weekly hours, service sector. 
B)  average weekly initial claims for unemployment insurance. 
C)  vendor performance, slower deliveries diffusion index. 
D)  building permits, new private housing units. 
A)  average weekly hours, service sector. 
B)  average weekly initial claims for unemployment insurance. 
C)  vendor performance, slower deliveries diffusion index. 
D)  building permits, new private housing units.

Question 8

The one kind of fiscal policy that does work rapidly enough to be important is

Accepted Answer

A)  discretionary fiscal policy. 
B)  mandatory fiscal policy. 
C)  fiscal automatic stabilizers. 
D)  tax reductions. 
A)  discretionary fiscal policy. 
B)  mandatory fiscal policy. 
C)  fiscal automatic stabilizers. 
D)  tax reductions.

Question 9

The questions with which Chapter 13 is concerned include each of the following except

Accepted Answer

A)  what are the goals of stabilization policy? 
B)  what aspects of stabilization policy do economists argue about today? 
C)  why is fiscal policy more effective as a stabilization policy? 
D)  how does uncertainty affect the way stabilization policy should be made? 
A)  what are the goals of stabilization policy? 
B)  what aspects of stabilization policy do economists argue about today? 
C)  why is fiscal policy more effective as a stabilization policy? 
D)  how does uncertainty affect the way stabilization policy should be made?

Question 10

If the Federal Reserve wanted to pursue an expansionary monetary policy, it could

Accepted Answer

A)  raise the discount rate. 
B)  buy U.S. government bonds. 
C)  increase the reserve requirement. 
D)  raise credit card interest rates. 
A)  raise the discount rate. 
B)  buy U.S. government bonds. 
C)  increase the reserve requirement. 
D)  raise credit card interest rates.

Question 11

If the ratio of excess reserves to total deposits that banks desire to hold increases,

Accepted Answer

A)  the value of the autonomous spending multiplier will decrease. 
B)  the value of the money multiplier will increase. 
C)  the value of the money multiplier will not change. 
D)  the value of the money multiplier will decrease. 
A)  the value of the autonomous spending multiplier will decrease. 
B)  the value of the money multiplier will increase. 
C)  the value of the money multiplier will not change. 
D)  the value of the money multiplier will decrease.

Question 12

Which of the following is not a policy option if a country finds itself in a liquidity trap situation?

Accepted Answer

A)  Expansionary fiscal policy via increased government purchases. 
B)  Expansionary monetary policy designed to decrease interest rates and increase investment spending. 
C)  Expansionary fiscal policy via decreased taxes. 
D)  Expansionary monetary policy designed to increase inflation expectations. 
A)  Expansionary fiscal policy via increased government purchases. 
B)  Expansionary monetary policy designed to decrease interest rates and increase investment spending. 
C)  Expansionary fiscal policy via decreased taxes. 
D)  Expansionary monetary policy designed to increase inflation expectations.

Question 13

The stagflation of the early 1970s was the result of

Accepted Answer

A)  expansionary aggregate demand policies and an increase in expected inflation. 
B)  expansionary aggregate demand policies and a decrease in expected inflation. 
C)  contractionary aggregate demand policies and a decrease in expected inflation. 
D)  expansionary aggregate demand policies. 
A)  expansionary aggregate demand policies and an increase in expected inflation. 
B)  expansionary aggregate demand policies and a decrease in expected inflation. 
C)  contractionary aggregate demand policies and a decrease in expected inflation. 
D)  expansionary aggregate demand policies.

Question 14

The two general approaches that economists take in trying to forecast the near-term future of the economy are

Accepted Answer

A)  to use small-scale physical models and to search for leading indicators. 
B)  to use large-scale econometric models and to search for lagging indicators. 
C)  to use large-scale econometric models and to search for leading indicators. 
D)  to use large-scale physical models and to search for lagging indicators. 
A)  to use small-scale physical models and to search for leading indicators. 
B)  to use large-scale econometric models and to search for lagging indicators. 
C)  to use large-scale econometric models and to search for leading indicators. 
D)  to use large-scale physical models and to search for lagging indicators.

Question 15

If the reserve requirement is 5% and the Federal Reserve increases the reserves in the banking system by $20 billion, the potential increase in the money supply is

Accepted Answer

A)  $4 billion. 
B)  $40 billion. 
C)  $400 billion. 
D)  $4000 billion. 
A)  $4 billion. 
B)  $40 billion. 
C)  $400 billion. 
D)  $4000 billion.

Question 16

Changes in expectations of inflation, changes in the natural rate of unemployment, and supply shocks

Accepted Answer

A)  change the level of planned expenditure and move the economy along the Phillips curve, raising and lowering inflation and unemployment. 
B)  change the level of aggregate supply and move the economy along the Phillips curve, raising and lowering inflation and unemployment. 
C)  change the level of planned expenditure and move the economy along the aggregate demand curve, raising and lowering inflation and unemployment. 
D)  change the position of the short-run Phillips curve, raising and lowering inflation and unemployment. 
A)  change the level of planned expenditure and move the economy along the Phillips curve, raising and lowering inflation and unemployment. 
B)  change the level of aggregate supply and move the economy along the Phillips curve, raising and lowering inflation and unemployment. 
C)  change the level of planned expenditure and move the economy along the aggregate demand curve, raising and lowering inflation and unemployment. 
D)  change the position of the short-run Phillips curve, raising and lowering inflation and unemployment.

Question 17

The steps in the Budget Process include each of the following except

Accepted Answer

A)  planning by departments. 
B)  negotiations between departments and the President's Office of Management and Budget. 
C)  negotiations between the President's Office of Management and Budget and the Federal Reserve. 
D)  Congress passes its budget resolution. 
A)  planning by departments. 
B)  negotiations between departments and the President's Office of Management and Budget. 
C)  negotiations between the President's Office of Management and Budget and the Federal Reserve. 
D)  Congress passes its budget resolution.

Question 18

If households' and businesses' desired holding ratio of currency-to-deposits increases,

Accepted Answer

A)  the value of the autonomous spending multiplier will decrease. 
B)  the value of the money multiplier will increase. 
C)  the value of the money multiplier will decrease. 
D)  the value of the money multiplier will not change. 
A)  the value of the autonomous spending multiplier will decrease. 
B)  the value of the money multiplier will increase. 
C)  the value of the money multiplier will decrease. 
D)  the value of the money multiplier will not change.

Question 19

The velocity of money from 1960 until 1980 was

Accepted Answer

A)  unstable and predictable around a steady upward trend. 
B)  unstable and unpredictable around a steady upward trend. 
C)  stable and predictable with a constant downward trend. 
D)  stable and predictable with a constant upward trend. 
A)  unstable and predictable around a steady upward trend. 
B)  unstable and unpredictable around a steady upward trend. 
C)  stable and predictable with a constant downward trend. 
D)  stable and predictable with a constant upward trend.

Question 20

Between the mid-1950s and the late 1960s in the United States,

Accepted Answer

A)  unemployment and inflation were low and stable. 
B)  unemployment and inflation were high and volatile. 
C)  unemployment was high and inflation was low. 
D)  unemployment was low and inflation was high. 
A)  unemployment and inflation were low and stable. 
B)  unemployment and inflation were high and volatile. 
C)  unemployment was high and inflation was low. 
D)  unemployment was low and inflation was high.

If prices are expected to decrease, and the nominal interest rate is close to zero,

An activist central bank concerned with _________ would

The questions with which Chapter 13 is concerned include each of the following except

Federal deposit insurance was created

In a study of the independence of central banks, Economists Alberto Alesina and Lawrence Summers concluded that

If the principal instability in the economy is due to shifts in the IS curve,

Each of the following is a component of the Conference Board's Index of Leading Indicators except

The one kind of fiscal policy that does work rapidly enough to be important is

The questions with which Chapter 13 is concerned include each of the following except

If the Federal Reserve wanted to pursue an expansionary monetary policy, it could

If the ratio of excess reserves to total deposits that banks desire to hold increases,

Which of the following is not a policy option if a country finds itself in a liquidity trap situation?

The stagflation of the early 1970s was the result of

The two general approaches that economists take in trying to forecast the near-term future of the economy are

If the reserve requirement is 5% and the Federal Reserve increases the reserves in the banking system by $20 billion, the potential increase in the money supply is

Changes in expectations of inflation, changes in the natural rate of unemployment, and supply shocks

The steps in the Budget Process include each of the following except

If households' and businesses' desired holding ratio of currency-to-deposits increases,

The velocity of money from 1960 until 1980 was

Between the mid-1950s and the late 1960s in the United States,

Introduction to Macroeconomics

Measuring the Macroeconomy

Thinking Like an Economist

The Theory of Economic Growth

The Reality of Economic Growth: History and Prospect

Building Blocks of the Flexible-Price Model

Equilibrium in the Flexible-Price M Odel

Money, Prices, and Inflation

The Sticky-Price Income-Expenditure Framework: Consumption and the Multiplier

Investment, Net Exports, and Interest Rates: The Is Curve

The Money Market and the LM Curve

The Phillips Curve, Expectations, and Monetary Policy

Budget Balance, National Debt, and Investment

International Economic Policy

Changes in the Macroeconomy and Changes in Macroeconomic Policy

The Future of Macroeconomics

Epilogue

Filters

Exam 13: Stabilization Policy

If prices are expected to decrease, and the nominal interest rate is close to zero,

An activist central bank concerned with _________ would

The questions with which Chapter 13 is concerned include each of the following except

Federal deposit insurance was created

In a study of the independence of central banks, Economists Alberto Alesina and Lawrence Summers concluded that

If the principal instability in the economy is due to shifts in the IS curve,

Each of the following is a component of the Conference Board's Index of Leading Indicators except

The one kind of fiscal policy that does work rapidly enough to be important is

The questions with which Chapter 13 is concerned include each of the following except

If the Federal Reserve wanted to pursue an expansionary monetary policy, it could

If the ratio of excess reserves to total deposits that banks desire to hold increases,

Which of the following is not a policy option if a country finds itself in a liquidity trap situation?

The stagflation of the early 1970s was the result of

The two general approaches that economists take in trying to forecast the near-term future of the economy are

If the reserve requirement is 5% and the Federal Reserve increases the reserves in the banking system by $20 billion, the potential increase in the money supply is

Changes in expectations of inflation, changes in the natural rate of unemployment, and supply shocks

The steps in the Budget Process include each of the following except

If households' and businesses' desired holding ratio of currency-to-deposits increases,

The velocity of money from 1960 until 1980 was

Between the mid-1950s and the late 1960s in the United States,

Introduction to Macroeconomics

Measuring the Macroeconomy

Thinking Like an Economist

The Theory of Economic Growth

The Reality of Economic Growth: History and Prospect

Building Blocks of the Flexible-Price Model

Equilibrium in the Flexible-Price M Odel

Money, Prices, and Inflation

The Sticky-Price Income-Expenditure Framework: Consumption and the Multiplier

Investment, Net Exports, and Interest Rates: The Is Curve

The Money Market and the LM Curve

The Phillips Curve, Expectations, and Monetary Policy

Budget Balance, National Debt, and Investment

International Economic Policy

Changes in the Macroeconomy and Changes in Macroeconomic Policy

The Future of Macroeconomics

Epilogue

Filters