Question 1

If the public decides to hold smaller cash balances, this will cause a(n)

Accepted Answer

A) increase in interest rates. 
B) decrease in average paychecks. 
C) increase in nominal GDP. 
D) increase in velocity. 
A) increase in interest rates. 
B) decrease in average paychecks. 
C) increase in nominal GDP. 
D) increase in velocity.

Question 2

If nominal GDP is $7,700 billion and M1 is $1,000 billion, then velocity is

Accepted Answer

A) 10.7. 
B) 7.7. 
C) 7.1. 
D) 7.0. 
A) 10.7. 
B) 7.7. 
C) 7.1. 
D) 7.0.

Question 3

In response to the Great Recession of 2007-2009, when did the Federal Reserve first cut the federal funds rate to zero?

Accepted Answer

A) December 2007 
B) June 2008 
C) December 2008 
D) January 2010 
A) December 2007 
B) June 2008 
C) December 2008 
D) January 2010

Question 4

During the financial crisis of 2007-2009, the proper policy response was

Accepted Answer

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

Question 5

Many economists maintain that

Accepted Answer

A) the aggregate supply curve is nearly horizontal at low levels of real GDP. 
B) the aggregate supply curve is nearly vertical at very high levels of real GDP. 
C) any change in aggregate demand will have most of its effect on output when economic activity is low but on prices when the economy is near full employment. 
D) All of the above are correct. 
A) the aggregate supply curve is nearly horizontal at low levels of real GDP. 
B) the aggregate supply curve is nearly vertical at very high levels of real GDP. 
C) any change in aggregate demand will have most of its effect on output when economic activity is low but on prices when the economy is near full employment. 
D) All of the above are correct.

Question 6

The rapid speed with which the stimulus bill passed through both houses of Congress and was signed by the President 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 7

Monetarists have received this label because they emphasize the role of

Accepted Answer

A) money supply in determining aggregate supply. 
B) the money supply in determining nominal GDP. 
C) the Fed in making monetary policy. 
D) the money supply in determining interest rates and investment. 
A) money supply in determining aggregate supply. 
B) the money supply in determining nominal GDP. 
C) the Fed in making monetary policy. 
D) the money supply in determining interest rates and investment.

Question 8

The differences between monetarist and Keynesian theories are more apparent than real.

Accepted Answer

A) True 
 B)False

Question 9

When something happens to the economy, monetarists ask two questions:

Accepted Answer

A) What does this do to government spending, and what does it do to tax revenues? 
B) What does this do to real GDP, and what does it do to the price level? 
C) What does this do to investment spending, and what does it do to net exports? 
D) What does this do to the money supply, and what does it do to velocity? 
A) What does this do to government spending, and what does it do to tax revenues? 
B) What does this do to real GDP, and what does it do to the price level? 
C) What does this do to investment spending, and what does it do to net exports? 
D) What does this do to the money supply, and what does it do to velocity?

Question 10

The equation of exchange is an accounting identity that

Accepted Answer

A) relates the money supply to nominal GDP. 
B) equates the demand for money with the supply of money. 
C) relates the money supply to real GDP. 
D) accounts use to balance assets and liabilities. 
A) relates the money supply to nominal GDP. 
B) equates the demand for money with the supply of money. 
C) relates the money supply to real GDP. 
D) accounts use to balance assets and liabilities.

Question 11

Which of the following policies would a Keynesian expect to produce the largest increase in income?

Accepted Answer

A) a reduction in government spending of $100 billion 
B) an increase in transfer payments of $100 billion 
C) an increase in government spending of $100 billion 
D) a tax cut of $100 billion 
A) a reduction in government spending of $100 billion 
B) an increase in transfer payments of $100 billion 
C) an increase in government spending of $100 billion 
D) a tax cut of $100 billion

Question 12

As a result of the Fed's unconventional purchase of over $1 trillion of mortgage-backed securities in 2009, interest rates on both mortgage-backed securities and home mortgages increased.

Accepted Answer

A) True 
 B)False

Question 13

The fiscal stimulus bills of 2001, 2008, and 2009 were unusual examples of rapid implementation of fiscal policy.

Accepted Answer

A) True 
 B)False

Question 14

The monetary stimulus post-September 11, 2001, achieved some desired effects within the year.

Accepted Answer

A) True 
 B)False

Question 15

Advocates of discretionary policy make these criticisms of the economy's "self-correcting" mechanism:

Accepted Answer

A) ​it is slow 
B) ​it is not very reliable 
C) ​it works only when supplemented by automatic stabilizers 
D) ​All of the above are correct. 
E) ​a and b only are correct. 
A) ​it is slow 
B) ​it is not very reliable 
C) ​it works only when supplemented by automatic stabilizers 
D) ​All of the above are correct. 
E) ​a and b only are correct.

Question 16

The alternatives of the active versus passive view of stabilization policy are usually expressed as

Accepted Answer

A) fiscal versus monetary policy. 
B) internal versus external. 
C) present value versus future value. 
D) discretion versus rules. 
A) fiscal versus monetary policy. 
B) internal versus external. 
C) present value versus future value. 
D) discretion versus rules.

Question 17

Velocity is commonly calculated by which of the following formulas?

Accepted Answer

A) (Value of money stock)/(Value of nominal GDP) 
B) (Value of transactions)/(money stock) 
C) (Value of financial transactions)/(GDP) 
D) (Value of output)/(Value of input) 
A) (Value of money stock)/(Value of nominal GDP) 
B) (Value of transactions)/(money stock) 
C) (Value of financial transactions)/(GDP) 
D) (Value of output)/(Value of input)

Question 18

The velocity of circulation has remained constant over long periods of time.

Accepted Answer

A) True 
 B)False

Question 19

The principal factor determining velocity is the

Accepted Answer

A) level of income. 
B) frequency with which paychecks are distributed. 
C) frequency with which taxes are paid. 
D) growth rate of real output. 
A) level of income. 
B) frequency with which paychecks are distributed. 
C) frequency with which taxes are paid. 
D) growth rate of real output.

Question 20

Nominal GDP is proportional to money stock when

Accepted Answer

A) velocity of money is volatile. 
B) velocity of money is constant. 
C) there are major changes in the value of velocity of money. 
D) velocity of money is zero. 
A) velocity of money is volatile. 
B) velocity of money is constant. 
C) there are major changes in the value of velocity of money. 
D) velocity of money is zero.

Exam 32: The Debate Over Monetary and Fiscal Policy

If the public decides to hold smaller cash balances, this will cause a(n)

If nominal GDP is $7,700 billion and M1 is $1,000 billion, then velocity is

In response to the Great Recession of 2007-2009, when did the Federal Reserve first cut the federal funds rate to zero?

During the financial crisis of 2007-2009, the proper policy response was

Many economists maintain that

The rapid speed with which the stimulus bill passed through both houses of Congress and was signed by the President could be used as an argument for

Monetarists have received this label because they emphasize the role of

The differences between monetarist and Keynesian theories are more apparent than real.

When something happens to the economy, monetarists ask two questions:

The equation of exchange is an accounting identity that

Which of the following policies would a Keynesian expect to produce the largest increase in income?

As a result of the Fed's unconventional purchase of over $1 trillion of mortgage-backed securities in 2009, interest rates on both mortgage-backed securities and home mortgages increased.

The fiscal stimulus bills of 2001, 2008, and 2009 were unusual examples of rapid implementation of fiscal policy.

The monetary stimulus post-September 11, 2001, achieved some desired effects within the year.

Advocates of discretionary policy make these criticisms of the economy's "self-correcting" mechanism:

The alternatives of the active versus passive view of stabilization policy are usually expressed as

Velocity is commonly calculated by which of the following formulas?

The velocity of circulation has remained constant over long periods of time.

The principal factor determining velocity is the

Nominal GDP is proportional to money stock when

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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