Question 1

In what year did the technology stock bubble burst?

Accepted Answer

A) 2000 
B) 2006 
C) 2007 
D) 2008 
A) 2000 
B) 2006 
C) 2007 
D) 2008

Question 2

List the reasons why the actual multiplier, which is estimated to be less than 2 for the U.S.economy, is much less than what the oversimplified formula suggests.

Accepted Answer

The oversimplified formula: 1.ignores va

Question 3

When analyzing how money affects income, we are analyzing the way in which a

Accepted Answer

A) stock affects another stock. 
B) stock affects a flow. 
C) flow affects another flow. 
D) flow affects a stock. 
A) stock affects another stock. 
B) stock affects a flow. 
C) flow affects another flow. 
D) flow affects a stock.

Question 4

One of the strongest arguments against active stabilization policy is

Accepted Answer

A) that recognition lags make timely intervention very difficult. 
B) the economy corrects itself very slowly. 
C) the inability of economic theory to suggest appropriate policy. 
D) the difficulty of obtaining agreement on monetary policy. 
A) that recognition lags make timely intervention very difficult. 
B) the economy corrects itself very slowly. 
C) the inability of economic theory to suggest appropriate policy. 
D) the difficulty of obtaining agreement on monetary policy.

Question 5

Economists who believe that the economy has a strong self-correcting mechanism argued that, after September 11, 2001, the economy needed

Accepted Answer

A) a quick and expansionary fiscal policy stimulus. 
B) a quick and expansionary monetary stimulus. 
C) only a short time to return to equilibrium full employment. 
D) President Bush to propose a large budget stimulus package. 
A) a quick and expansionary fiscal policy stimulus. 
B) a quick and expansionary monetary stimulus. 
C) only a short time to return to equilibrium full employment. 
D) President Bush to propose a large budget stimulus package.

Question 6

Believers in fixed rules maintain that

Accepted Answer

A) with accurate forecasts, we can see inflation coming at least one year ahead of time. 
B) the length of stabilization lags is not important because fiscal policy actions are taken quickly and the economy feels the effect on aggregate demand quickly. 
C) we should forget about discretionary policy and put the economy on autopilot, relying instead on automatic stabilizers and the economy's self-correcting mechanism. 
D) the economy's self-correcting mechanism is slow and not very reliable, even with automatic stabilizers. 
A) with accurate forecasts, we can see inflation coming at least one year ahead of time. 
B) the length of stabilization lags is not important because fiscal policy actions are taken quickly and the economy feels the effect on aggregate demand quickly. 
C) we should forget about discretionary policy and put the economy on autopilot, relying instead on automatic stabilizers and the economy's self-correcting mechanism. 
D) the economy's self-correcting mechanism is slow and not very reliable, even with automatic stabilizers.

Question 7

Economists observed the following growth rates in the fourth quarter of 1995: real GDP = 2.8 percent; M1 = 7.8 percent; GDP Deflator = 2.2 percent.Given this data, the growth of nominal GDP was approximately

Accepted Answer

A) 12.8 percent. 
B) 10.0 percent. 
C) 5.6 percent. 
D) 5.0 percent. 
E) 0.6 percent. 
A) 12.8 percent. 
B) 10.0 percent. 
C) 5.6 percent. 
D) 5.0 percent. 
E) 0.6 percent.

Question 8

The speed with which money circulates through the economy is called the

Accepted Answer

A) oversimplified multiplier. 
B) velocity of circulation. 
C) exchange rate. 
D) money multiplier. 
A) oversimplified multiplier. 
B) velocity of circulation. 
C) exchange rate. 
D) money multiplier.

Question 9

Economists who focus their analyses on the effects of a change in the money supply and velocity are called

Accepted Answer

A) realists. 
B) Keynesians. 
C) supply-siders. 
D) monetarists. 
A) realists. 
B) Keynesians. 
C) supply-siders. 
D) monetarists.

Question 10

Both M1 and M2 are monetary values much larger than nominal GDP.

Accepted Answer

A) True 
 B)False

Question 11

When the Fed decreases the money supply, interest rates

Accepted Answer

A) rise, causing velocity to fall. 
B) fall, causing velocity to fall. 
C) rise, causing velocity to rise. 
D) fall, causing velocity to rise. 
A) rise, causing velocity to fall. 
B) fall, causing velocity to fall. 
C) rise, causing velocity to rise. 
D) fall, causing velocity to rise.

Question 12

The Federal Reserve reduced the fed funds rate to the 0-0.25 percent range in 2008 in response to the Lehman Brother's catastrophe.

Accepted Answer

A) True 
 B)False

Question 13

In the short run, an increase in the quantity of money normally

Accepted Answer

A) has no effect; in the long run, V will increase. 
B) has no effect; in the long run, V will decrease. 
C) results in an increase in velocity. 
D) results in a decrease in velocity. 
A) has no effect; in the long run, V will increase. 
B) has no effect; in the long run, V will decrease. 
C) results in an increase in velocity. 
D) results in a decrease in velocity.

Question 14

The Fed's quick response to the threat to the economy after September 11, 2001, makes a strong case for

Accepted Answer

A) a rules-based monetary policy regime. 
B) a discretionary-based monetary policy regime. 
C) the superiority of fiscal policy. 
D) the dominant role of Congress in activist policy. 
A) a rules-based monetary policy regime. 
B) a discretionary-based monetary policy regime. 
C) the superiority of fiscal policy. 
D) the dominant role of Congress in activist policy.

Question 15

The Federal Reserve has policy instruments that it can aim directly at a specific category of asset price bubble.

Accepted Answer

A) True 
 B)False

Question 16

The optimal time for the implementation of contractionary fiscal policy would be

Accepted Answer

A) before inflation accelerated. 
B) after inflation accelerated. 
C) after unemployment increased. 
D) after the price level had risen significantly. 
A) before inflation accelerated. 
B) after inflation accelerated. 
C) after unemployment increased. 
D) after the price level had risen significantly.

Question 17

If you divide the amount of nominal GDP by the stock of money, you have computed the

Accepted Answer

A) multiplier. 
B) price level. 
C) velocity of circulation. 
D) inflation rate. 
A) multiplier. 
B) price level. 
C) velocity of circulation. 
D) inflation rate.

Question 18

Monetarists believe that the aggregate supply curve is relatively steep in the short and long runs.This means they expect

Accepted Answer

A) inflation with no change in output. 
B) increases in output to bring much inflation. 
C) increases in output to bring little inflation. 
D) decreases in output to bring much inflation. 
A) inflation with no change in output. 
B) increases in output to bring much inflation. 
C) increases in output to bring little inflation. 
D) decreases in output to bring much inflation.

Question 19

As individuals hold more of their financial assets in the form of money market accounts and mutual funds, the velocity of money will decrease.

Accepted Answer

A) True 
 B)False

Question 20

Treasury securities have ____ risk of default and mortgage-backed securities have ____ risk of default.

Accepted Answer

A) no; no 
B) no; some 
C) some; no 
D) some; some 
A) no; no 
B) no; some 
C) some; no 
D) some; some

Exam 32: The Debate Over Monetary and Fiscal Policy

In what year did the technology stock bubble burst?

List the reasons why the actual multiplier, which is estimated to be less than 2 for the U.S.economy, is much less than what the oversimplified formula suggests.

When analyzing how money affects income, we are analyzing the way in which a

One of the strongest arguments against active stabilization policy is

Economists who believe that the economy has a strong self-correcting mechanism argued that, after September 11, 2001, the economy needed

Believers in fixed rules maintain that

Economists observed the following growth rates in the fourth quarter of 1995: real GDP = 2.8 percent; M1 = 7.8 percent; GDP Deflator = 2.2 percent.Given this data, the growth of nominal GDP was approximately

The speed with which money circulates through the economy is called the

Economists who focus their analyses on the effects of a change in the money supply and velocity are called

Both M1 and M2 are monetary values much larger than nominal GDP.

When the Fed decreases the money supply, interest rates

The Federal Reserve reduced the fed funds rate to the 0-0.25 percent range in 2008 in response to the Lehman Brother's catastrophe.

In the short run, an increase in the quantity of money normally

The Fed's quick response to the threat to the economy after September 11, 2001, makes a strong case for

The Federal Reserve has policy instruments that it can aim directly at a specific category of asset price bubble.

The optimal time for the implementation of contractionary fiscal policy would be

If you divide the amount of nominal GDP by the stock of money, you have computed the

Monetarists believe that the aggregate supply curve is relatively steep in the short and long runs.This means they expect

As individuals hold more of their financial assets in the form of money market accounts and mutual funds, the velocity of money will decrease.

Treasury securities have ____ risk of default and mortgage-backed securities have ____ risk of default.

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

Treasury securities have risk of default and mortgage-backed securities have risk of default.