Question 1

A scatter diagram of money growth rates and inflation rates from 1982 to 2010 indicates

Accepted Answer

A) a clear direct relationship between money growth and inflation. 
B) a clear indirect relationship between money growth and inflation. 
C) no clear relationship between money growth rates and inflation. 
D) that inflation is always and everywhere a monetary phenomenon. 
A) a clear direct relationship between money growth and inflation. 
B) a clear indirect relationship between money growth and inflation. 
C) no clear relationship between money growth rates and inflation. 
D) that inflation is always and everywhere a monetary phenomenon.

Question 2

As the price level rises, the demand for money

Accepted Answer

A) decreases because interest rates also increase. 
B) decreases because consumers buy fewer goods and services. 
C) increases because more money is needed for each transaction. 
D) increases because investment spending will also increase. 
A) decreases because interest rates also increase. 
B) decreases because consumers buy fewer goods and services. 
C) increases because more money is needed for each transaction. 
D) increases because investment spending will also increase.

Question 3

The equation of exchange is M × Y = P × V.

Accepted Answer

A) True 
 B)False

Question 4

By purchasing large amounts of mortgage-backed securities (MBS) in 2009, the Federal Reserve's goal was to

Accepted Answer

A) raise the price of MBS and raise their yields. 
B) raise the price of MBS and lower their yields. 
C) lower the price of MBS and raise their yields. 
D) lower the price of MBS and lower their yields. 
A) raise the price of MBS and raise their yields. 
B) raise the price of MBS and lower their yields. 
C) lower the price of MBS and raise their yields. 
D) lower the price of MBS and lower their yields.

Question 5

If financial news broadcasts reported that inflation was likely to rise significantly next year, what would most likely happen to the velocity of circulation?

Accepted Answer

A) It will decrease. 
B) It will increase. 
C) It will remain constant. 
D) Velocity is unrelated to inflation. 
A) It will decrease. 
B) It will increase. 
C) It will remain constant. 
D) Velocity is unrelated to inflation.

Question 6

In order to consider the equation of exchange an economic model, what must we assume?

Accepted Answer

A) Real GDP is a constant value. 
B) Changes in GDP cause changes in the money supply. 
C) The money supply is constant. 
D) Changes in velocity are small and predictable. 
A) Real GDP is a constant value. 
B) Changes in GDP cause changes in the money supply. 
C) The money supply is constant. 
D) Changes in velocity are small and predictable.

Question 7

The increased use of PayPal will decrease the velocity of money.

Accepted Answer

A) True 
 B)False

Question 8

The inflation rate in January of 2009 as measured by the CPI was zero.If inflation were to remain at zero for a long period, what would be the effect on velocity?

Accepted Answer

A) It will decrease. 
B) It will increase. 
C) It will remain constant. 
D) Velocity is unrelated to interest rates. 
A) It will decrease. 
B) It will increase. 
C) It will remain constant. 
D) Velocity is unrelated to interest rates.

Question 9

The velocity of circulation is the number of times per year a dollar is spent.

Accepted Answer

A) True 
 B)False

Question 10

More economists adopted monetarism in the early 1990s.

Accepted Answer

A) True 
 B)False

Question 11

If you believe that velocity is constant and that the aggregate supply curve is vertical, then the quantity theory of money would predict that a doubling of the money supply would cause a doubling of

Accepted Answer

A) nominal output and real output. 
B) nominal output and no change in real output. 
C) real output and no change in nominal output. 
D) the price level and real output. 
A) nominal output and real output. 
B) nominal output and no change in real output. 
C) real output and no change in nominal output. 
D) the price level and real output.

Question 12

Over long periods of time, M2 velocity has been relatively constant.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following was not a reason that the Federal Reserve took on additional risks associated with unconventional policy during the recession of 2007-2009?

Accepted Answer

A) The large budget deficit constrained fiscal policy. 
B) The inflated price of Treasury bills made them too expensive to purchase in open market operations. 
C) Only the Federal Reserve acting as the central bank can serve as the lender of last resort. 
D) The Fed was able to act more quickly than Congress. 
A) The large budget deficit constrained fiscal policy. 
B) The inflated price of Treasury bills made them too expensive to purchase in open market operations. 
C) Only the Federal Reserve acting as the central bank can serve as the lender of last resort. 
D) The Fed was able to act more quickly than Congress.

Question 14

The equation of exchange is an accounting identity, not an economic theory.

Accepted Answer

A) True 
 B)False

Question 15

What are the important factors which determine the velocity of money?

Accepted Answer

The main determinants of velocity are: (

Question 16

Over the years, economists in universities and government agencies have developed a number of fairly accurate techniques to assist them in predicting what the economy will do.

Accepted Answer

A) True 
 B)False

Question 17

When recessions occur, advocates of small government should recommend

Accepted Answer

A) reductions in the number of federal employees. 
B) reductions in transfer payments. 
C) reductions in taxes. 
D) increases in transfer payments and government spending. 
A) reductions in the number of federal employees. 
B) reductions in transfer payments. 
C) reductions in taxes. 
D) increases in transfer payments and government spending.

Question 18

In terms of the price-real GDP diagram, a given expansion of the money supply will have a greater effect on prices the

Accepted Answer

A) steeper the aggregate supply curve. 
B) flatter the aggregate supply curve. 
C) higher the initial price level. 
D) lower the initial price level. 
A) steeper the aggregate supply curve. 
B) flatter the aggregate supply curve. 
C) higher the initial price level. 
D) lower the initial price level.

Question 19

Which is likely to be larger, the velocity of M1 or M2?

Accepted Answer

A) M1, because M2 is a larger number. 
B) M2, because M1 is a larger number. 
C) The velocities of both are approximately equal. 
D) The numbers of velocity switch in relative size. 
A) M1, because M2 is a larger number. 
B) M2, because M1 is a larger number. 
C) The velocities of both are approximately equal. 
D) The numbers of velocity switch in relative size.

Question 20

Believers in a fixed-rule approach to stabilization policy propose that

Accepted Answer

A) Congress should balance the high employment budget. 
B) the Fed should keep the money supply growth constant. 
C) the economy be stabilized by automatic mechanisms. 
D) All of the above are correct. 
A) Congress should balance the high employment budget. 
B) the Fed should keep the money supply growth constant. 
C) the economy be stabilized by automatic mechanisms. 
D) All of the above are correct.

Exam 32: The Debate Over Monetary and Fiscal Policy

A scatter diagram of money growth rates and inflation rates from 1982 to 2010 indicates

As the price level rises, the demand for money

The equation of exchange is M × Y = P × V.

By purchasing large amounts of mortgage-backed securities (MBS) in 2009, the Federal Reserve's goal was to

If financial news broadcasts reported that inflation was likely to rise significantly next year, what would most likely happen to the velocity of circulation?

In order to consider the equation of exchange an economic model, what must we assume?

The increased use of PayPal will decrease the velocity of money.

The inflation rate in January of 2009 as measured by the CPI was zero.If inflation were to remain at zero for a long period, what would be the effect on velocity?

The velocity of circulation is the number of times per year a dollar is spent.

More economists adopted monetarism in the early 1990s.

If you believe that velocity is constant and that the aggregate supply curve is vertical, then the quantity theory of money would predict that a doubling of the money supply would cause a doubling of

Over long periods of time, M2 velocity has been relatively constant.

Which of the following was not a reason that the Federal Reserve took on additional risks associated with unconventional policy during the recession of 2007-2009?

The equation of exchange is an accounting identity, not an economic theory.

What are the important factors which determine the velocity of money?

Over the years, economists in universities and government agencies have developed a number of fairly accurate techniques to assist them in predicting what the economy will do.

When recessions occur, advocates of small government should recommend

In terms of the price-real GDP diagram, a given expansion of the money supply will have a greater effect on prices the

Which is likely to be larger, the velocity of M1 or M2?

Believers in a fixed-rule approach to stabilization policy propose that

What Is Economics

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: the Importance of Marginal Analysis

Securities: Business Finance and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets: the Price System

The Shortcomings of Free Markets

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

Is Useconomic Leadership Threatened

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation

Bringing in the Supply Side: Unemployment and Inflation

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

He Financial Crisis and the Great Recession

Budget Deficits in the Short and Long Run

The Trade-Off Between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder

Exchange Rates and the Macroeconomy

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