Question 1

In utilizing unconventional monetary policy in 2010, the Federal Reserve purchased

Accepted Answer

A) real estate worth more than $2 trillion. 
B) $800 billion in Treasury bills. 
C) over $1 trillion in mortgage backed securities. 
D) $600 billion in long-term Treasury bonds. 
A) real estate worth more than $2 trillion. 
B) $800 billion in Treasury bills. 
C) over $1 trillion in mortgage backed securities. 
D) $600 billion in long-term Treasury bonds.

Question 2

Historically, most harmful bubbles are characterized by

Accepted Answer

A) investment in stocks. 
B) the sale of Treasury bills. 
C) heaving borrowing. 
D) reliance on technology. 
A) investment in stocks. 
B) the sale of Treasury bills. 
C) heaving borrowing. 
D) reliance on technology.

Question 3

During the financial crisis of 2007-2009 the interest rate on mortgage-backed securities had

Accepted Answer

A) increased and the Treasury interest rate had risen. 
B) increased and the Treasury interest rate had fallen. 
C) decreased and the Treasury interest rate had risen. 
D) decreased and the Treasury interest rate had fallen. 
A) increased and the Treasury interest rate had risen. 
B) increased and the Treasury interest rate had fallen. 
C) decreased and the Treasury interest rate had risen. 
D) decreased and the Treasury interest rate had fallen.

Question 4

Velocity is calculated as nominal GDP/money stock.

Accepted Answer

A) True 
 B)False

Question 5

Following an anticapitalist coup, Freedonia forces all citizens to turn in and stop using all credit cards.What is the most likely effect of this on velocity?

Accepted Answer

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

Question 6

The equation of exchange can be written as

Accepted Answer

A) Velocity × Nominal GDP = Price Index 
B) Real GDP × Price Index = Money supply 
C) Money supply × Price Index = Real GDP 
D) Money supply × Velocity = Nominal GDP 
A) Velocity × Nominal GDP = Price Index 
B) Real GDP × Price Index = Money supply 
C) Money supply × Price Index = Real GDP 
D) Money supply × Velocity = Nominal GDP

Question 7

As the interest rate increases, the velocity of money will increase as well.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following will reduce the velocity of circulation of the money stock?

Accepted Answer

A) The inflation rate increases. 
B) The interest rate falls. 
C) Credit cards are used more frequently. 
D) More employees are paid once a week instead of once a month. 
A) The inflation rate increases. 
B) The interest rate falls. 
C) Credit cards are used more frequently. 
D) More employees are paid once a week instead of once a month.

Question 9

In the second quarter of 1995, the following values were observed: real GDP = 4,359.3 billion; GDP Deflator = 325.1; and M1 = 989.5.What is the value of velocity?

Accepted Answer

A) 32.51 
B) 24.31 
C) 14.32 
D) 2.31 
A) 32.51 
B) 24.31 
C) 14.32 
D) 2.31

Question 10

Contractionary fiscal policy would be most effective in decreasing inflation when

Accepted Answer

A) the marginal propensity to consume low. 
B) investment spending is insensitive to interest rates. 
C) the economy has a high marginal tax rate. 
D) investment spending is sensitive to interest rates. 
A) the marginal propensity to consume low. 
B) investment spending is insensitive to interest rates. 
C) the economy has a high marginal tax rate. 
D) investment spending is sensitive to interest rates.

Question 11

When will stabilization policy be most effective in combating recessions?

Accepted Answer

A) when AS is flat 
B) when AS is very steep 
C) when AS has a moderately upward slope 
D) when AS has a moderately downward slope. 
A) when AS is flat 
B) when AS is very steep 
C) when AS has a moderately upward slope 
D) when AS has a moderately downward slope.

Question 12

Velocity can be computed with the formula

Accepted Answer

A) (Annual spending)/(Money supply). 
B) (Annual income)/(Annual spending). 
C) (Average income)/(Average spending). 
D) (Money supply)/(Average income). 
A) (Annual spending)/(Money supply). 
B) (Annual income)/(Annual spending). 
C) (Average income)/(Average spending). 
D) (Money supply)/(Average income).

Question 13

The difference between the equation of exchange and the quantity theory of money is that the

Accepted Answer

A) equation of exchange assumes that the level of real GDP is constant. 
B) quantity theory of money assumes that the Fed has no control over the money supply. 
C) equation of exchange assumes that the level of nominal GDP is constant. 
D) quantity theory of money assumes that velocity is virtually constant. 
A) equation of exchange assumes that the level of real GDP is constant. 
B) quantity theory of money assumes that the Fed has no control over the money supply. 
C) equation of exchange assumes that the level of nominal GDP is constant. 
D) quantity theory of money assumes that velocity is virtually constant.

Question 14

Expansionary monetary policy will decrease interest rates and decrease the velocity of money.

Accepted Answer

A) True 
 B)False

Question 15

Define the following terms and explain their importance to the study of macroeconomics:
a.velocity
b.equation of exchange
c.monetarism
d.automatic stabilizer

Accepted Answer

Velocity and the Quantity Theory of Mone

Question 16

The contemporary consensus with regard to stabilization policy is that

Accepted Answer

A) fiscal policy is, for now, the "only game in town." 
B) fiscal policy is more effective than monetary policy. 
C) monetary policy is, for now, the "only game in town." 
D) monetary policy is slightly more effective than fiscal policy. 
A) fiscal policy is, for now, the "only game in town." 
B) fiscal policy is more effective than monetary policy. 
C) monetary policy is, for now, the "only game in town." 
D) monetary policy is slightly more effective than fiscal policy.

Question 17

Which of the following is a reason that the Fed does not traditionally attempt to limit asset price bubbles?

Accepted Answer

A) The Fed's actions could do more harm than good. 
B) It is nearly impossible to determine if a bubble exists before it bursts. 
C) The Fed's policies cannot be targeted at only one sector of the economy. 
D) all of the above 
A) The Fed's actions could do more harm than good. 
B) It is nearly impossible to determine if a bubble exists before it bursts. 
C) The Fed's policies cannot be targeted at only one sector of the economy. 
D) all of the above

Question 18

Data indicate that the velocity of M1 is greater than the velocity of M2.

Accepted Answer

A) True 
 B)False

Question 19

Keynesian belief that the aggregate supply curve is relatively flat in the short run means that they expect their policies to cause

Accepted Answer

A) small increases in output and much inflation. 
B) small increases in output and little inflation. 
C) large increases in output and little inflation. 
D) large increases in output and much inflation. 
A) small increases in output and much inflation. 
B) small increases in output and little inflation. 
C) large increases in output and little inflation. 
D) large increases in output and much inflation.

Exam 32: The Debate Over Monetary and Fiscal Policy

In utilizing unconventional monetary policy in 2010, the Federal Reserve purchased

Historically, most harmful bubbles are characterized by

During the financial crisis of 2007-2009 the interest rate on mortgage-backed securities had

Velocity is calculated as nominal GDP/money stock.

Following an anticapitalist coup, Freedonia forces all citizens to turn in and stop using all credit cards.What is the most likely effect of this on velocity?

The equation of exchange can be written as

As the interest rate increases, the velocity of money will increase as well.

Which of the following will reduce the velocity of circulation of the money stock?

In the second quarter of 1995, the following values were observed: real GDP = 4,359.3 billion; GDP Deflator = 325.1; and M1 = 989.5.What is the value of velocity?

Contractionary fiscal policy would be most effective in decreasing inflation when

When will stabilization policy be most effective in combating recessions?

Velocity can be computed with the formula

The difference between the equation of exchange and the quantity theory of money is that the

Expansionary monetary policy will decrease interest rates and decrease the velocity of money.

Define the following terms and explain their importance to the study of macroeconomics: a.velocity b.equation of exchange c.monetarism d.automatic stabilizer

The contemporary consensus with regard to stabilization policy is that

Which of the following is a reason that the Fed does not traditionally attempt to limit asset price bubbles?

Data indicate that the velocity of M1 is greater than the velocity of M2.

Keynesian belief that the aggregate supply curve is relatively flat in the short run means that they expect their policies to cause

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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