Question 1

Which of the following is an example of active fiscal policy?

Accepted Answer

A) Income tax revenues rise in an inflationary period. 
B) Income tax revenues fall in a recession. 
C) Congress passes a major tax increase in an inflationary period. 
D) Unemployment benefits increase in a recession. 
A) Income tax revenues rise in an inflationary period. 
B) Income tax revenues fall in a recession. 
C) Congress passes a major tax increase in an inflationary period. 
D) Unemployment benefits increase in a recession.

Question 2

The inability of Congress to pass a stimulus package after September 11, 2001, could be used as an argument for

Accepted Answer

A) activist fiscal policy. 
B) activist monetary policy. 
C) expansionary fiscal policy. 
D) contractionary monetary policy. 
A) activist fiscal policy. 
B) activist monetary policy. 
C) expansionary fiscal policy. 
D) contractionary monetary policy.

Question 3

Most economists think that it is impossible to prevent asset price bubbles.

Accepted Answer

A) True 
 B)False

Question 4

The quantity theory of money assumes that

Accepted Answer

A) velocity varies inversely with interest rates. 
B) if velocity equals six, the Fed can increase nominal GDP by 30 percent if it increases the money supply by 5 percent. 
C) changes in the money supply affect output but not prices. 
D) changes in velocity are so small that velocity can be considered constant. 
A) velocity varies inversely with interest rates. 
B) if velocity equals six, the Fed can increase nominal GDP by 30 percent if it increases the money supply by 5 percent. 
C) changes in the money supply affect output but not prices. 
D) changes in velocity are so small that velocity can be considered constant.

Question 5

A look at the historical data indicates that velocity for M1

Accepted Answer

A) has been more variable than the velocity for M2, but both have been fairly constant for the past 65 years. 
B) and M2 have both trended downward, but velocity for M2 has been more erratic than velocity for M11. 
C) has been fairly constant for the past 65 years, but velocity for M2 has trended downward. 
D) has trended upward in the past 65 years, but velocity for M2 has been more constant. 
A) has been more variable than the velocity for M2, but both have been fairly constant for the past 65 years. 
B) and M2 have both trended downward, but velocity for M2 has been more erratic than velocity for M11. 
C) has been fairly constant for the past 65 years, but velocity for M2 has trended downward. 
D) has trended upward in the past 65 years, but velocity for M2 has been more constant.

Question 6

Advocates of active stabilization policies, in defense of their views, argue that

Accepted Answer

A) stabilization is less necessary than is commonly advocated by monetarists. 
B) discretionary policy in not necessary because automatic stabilizers are sufficient. 
C) perfect stabilization is not possible, but moderate improvements in economic performance are possible, such as the response to the events of September 11, 2001. 
D) All of the above are correct. 
A) stabilization is less necessary than is commonly advocated by monetarists. 
B) discretionary policy in not necessary because automatic stabilizers are sufficient. 
C) perfect stabilization is not possible, but moderate improvements in economic performance are possible, such as the response to the events of September 11, 2001. 
D) All of the above are correct.

Question 7

An expansionary monetary policy is most likely to produce an inflationary effect with little impact on output when the economy

Accepted Answer

A) is near full employment and the aggregate supply curve is horizontal. 
B) is near full employment and the aggregate supply curve is vertical. 
C) has substantial unemployment and the aggregate supply curve is vertical. 
D) has substantial unemployment and the aggregate supply curve is horizontal. 
A) is near full employment and the aggregate supply curve is horizontal. 
B) is near full employment and the aggregate supply curve is vertical. 
C) has substantial unemployment and the aggregate supply curve is vertical. 
D) has substantial unemployment and the aggregate supply curve is horizontal.

Question 8

In 2005-2006, the Fed increased interest rates in an attempt to halt inflation.What was the most likely effect of raising interest rates on velocity?

Accepted Answer

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

Question 9

​Regarding government intervention in the economy, which of the following statements is not true?

Accepted Answer

A) ​Liberals tend to favor intervention. 
B) ​Conservatives are inclined to adhere to fixed rules. 
C) ​There is no guarantee that government intervention will have the desired effect. 
D) ​The effect of government actions on interest rates and spending is unknown. 
E) ​All of the above are true. 
A) ​Liberals tend to favor intervention. 
B) ​Conservatives are inclined to adhere to fixed rules. 
C) ​There is no guarantee that government intervention will have the desired effect. 
D) ​The effect of government actions on interest rates and spending is unknown. 
E) ​All of the above are true.

Question 10

Which of the following was a reason that the Federal Reserve took on additional risks associated with unconventional policy during the recession of 2007-2009?

Accepted Answer

A) The inflated price of Treasury bills made them too expensive to purchase in open market operations. 
B) The large budget deficit constrained conventional monetary policy. 
C) The U.S.Treasury was unable to sell Treasury bills in the primary market. 
D) The Fed was able to act more quickly than Congress. 
A) The inflated price of Treasury bills made them too expensive to purchase in open market operations. 
B) The large budget deficit constrained conventional monetary policy. 
C) The U.S.Treasury was unable to sell Treasury bills in the primary market. 
D) The Fed was able to act more quickly than Congress.

Question 11

Velocity can be calculated as the ratio of the value of transactions to

Accepted Answer

A) the price level. 
B) level of real GDP. 
C) the money stock. 
D) the inflation rate. 
A) the price level. 
B) level of real GDP. 
C) the money stock. 
D) the inflation rate.

Question 12

According to Baumol and Blinder, the lag between the time a policy is implemented and the time it affects aggregate demand is

Accepted Answer

A) longer for fiscal than monetary policy. 
B) longer for monetary than fiscal policy. 
C) approximately equal for both. 
D) influenced mainly by the size of the multiplier. 
A) longer for fiscal than monetary policy. 
B) longer for monetary than fiscal policy. 
C) approximately equal for both. 
D) influenced mainly by the size of the multiplier.

Question 13

According to the quantity theory of money, a decision on the part of all business firms currently paying employees on a monthly basis to begin paying on a weekly basis would be expected to

Accepted Answer

A) increase velocity and increase nominal GDP. 
B) increase velocity and decrease nominal GDP. 
C) decrease velocity and increase nominal GDP. 
D) decrease velocity and decrease nominal GDP. 
A) increase velocity and increase nominal GDP. 
B) increase velocity and decrease nominal GDP. 
C) decrease velocity and increase nominal GDP. 
D) decrease velocity and decrease nominal GDP.

Question 14

Which of the following was the result of the Federal Reserve's purchase of mortgage-backed securities in 2009?

Accepted Answer

A) MBS interest rates declined, home mortgage rates declined, and the Fed turned a profit on these operations. 
B) MBS interest rates declined, home mortgage rates declined, but the Fed had a loss on these operations. 
C) MBS interest rates increased, home mortgage rates declined, and the Fed turned a profit on these operations 
D) MBS interest rates increased, home mortgage rates increased, but the Fed had a loss on these operations 
A) MBS interest rates declined, home mortgage rates declined, and the Fed turned a profit on these operations. 
B) MBS interest rates declined, home mortgage rates declined, but the Fed had a loss on these operations. 
C) MBS interest rates increased, home mortgage rates declined, and the Fed turned a profit on these operations 
D) MBS interest rates increased, home mortgage rates increased, but the Fed had a loss on these operations

Question 15

The monetary stimulus enacted in the fall of 2001 provides support for those economists who favor

Accepted Answer

A) stable money supply growth. 
B) activist monetary policy. 
C) rules-governed monetary policy. 
D) fixed rates of growth for the money supply. 
A) stable money supply growth. 
B) activist monetary policy. 
C) rules-governed monetary policy. 
D) fixed rates of growth for the money supply.

Question 16

If credit cards were suddenly ruled illegal and were no longer used, the most likely effect would be a decrease in the

Accepted Answer

A) demand for money. 
B) level of cash balances. 
C) average checking account balance. 
D) velocity of circulation. 
A) demand for money. 
B) level of cash balances. 
C) average checking account balance. 
D) velocity of circulation.

Question 17

Critics of macroeconomic stabilization policies argue that

Accepted Answer

A) economists are unable to influence policy. 
B) stabilization policies often do more harm than good. 
C) stabilization theory has no practical effect. 
D) policy makers need practical advice, not theory. 
A) economists are unable to influence policy. 
B) stabilization policies often do more harm than good. 
C) stabilization theory has no practical effect. 
D) policy makers need practical advice, not theory.

Question 18

What is the effect on velocity if payments are made more often?

Accepted Answer

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

Question 19

Which of the following will increase the velocity of circulation?

Accepted Answer

A) Interest rates increase. 
B) The inflation rate decreases. 
C) Federal banking legislation abolishes credit cards. 
D) Employers decide to pay employees once a month instead of once a week. 
A) Interest rates increase. 
B) The inflation rate decreases. 
C) Federal banking legislation abolishes credit cards. 
D) Employers decide to pay employees once a month instead of once a week.

Question 20

If economists say that a 7 percent growth in the money supply will increase aggregate demand by 7 percent, they are assuming that velocity

Accepted Answer

A) will decrease. 
B) is constant. 
C) will increase. 
D) is unpredictable. 
A) will decrease. 
B) is constant. 
C) will increase. 
D) is unpredictable.

Exam 32: The Debate Over Monetary and Fiscal Policy

Which of the following is an example of active fiscal policy?

The inability of Congress to pass a stimulus package after September 11, 2001, could be used as an argument for

Most economists think that it is impossible to prevent asset price bubbles.

The quantity theory of money assumes that

A look at the historical data indicates that velocity for M1

Advocates of active stabilization policies, in defense of their views, argue that

An expansionary monetary policy is most likely to produce an inflationary effect with little impact on output when the economy

In 2005-2006, the Fed increased interest rates in an attempt to halt inflation.What was the most likely effect of raising interest rates on velocity?

​Regarding government intervention in the economy, which of the following statements is not true?

Which of the following was a reason that the Federal Reserve took on additional risks associated with unconventional policy during the recession of 2007-2009?

Velocity can be calculated as the ratio of the value of transactions to

According to Baumol and Blinder, the lag between the time a policy is implemented and the time it affects aggregate demand is

According to the quantity theory of money, a decision on the part of all business firms currently paying employees on a monthly basis to begin paying on a weekly basis would be expected to

Which of the following was the result of the Federal Reserve's purchase of mortgage-backed securities in 2009?

The monetary stimulus enacted in the fall of 2001 provides support for those economists who favor

If credit cards were suddenly ruled illegal and were no longer used, the most likely effect would be a decrease in the

Critics of macroeconomic stabilization policies argue that

What is the effect on velocity if payments are made more often?

Which of the following will increase the velocity of circulation?

If economists say that a 7 percent growth in the money supply will increase aggregate demand by 7 percent, they are assuming that velocity

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

Filters

Regarding government intervention in the economy, which of the following statements is not true?