Question 1

The major limitation of both the Keynesian approach and the monetarist approach is that both

Accepted Answer

A) focus on the determination of interest rates to the exclusion of price levels. 
B) study the determination of real GDP equilibrium without including the price level. 
C) are ways of studying the aggregate demand curve, but to learn anything about the price level and output, the aggregate supply curve must be included in the analysis. 
D) concentrate on interest rates without considering changes in consumption or net exports. 
A) focus on the determination of interest rates to the exclusion of price levels. 
B) study the determination of real GDP equilibrium without including the price level. 
C) are ways of studying the aggregate demand curve, but to learn anything about the price level and output, the aggregate supply curve must be included in the analysis. 
D) concentrate on interest rates without considering changes in consumption or net exports.

Question 2

When the Fed increases 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 3

In 2009, nominal GDP was $14,050 billion and M1 was $1,587 billion.Velocity was

Accepted Answer

A) 0.11. 
B) 8.85. 
C) 11.30. 
D) 14.25. 
A) 0.11. 
B) 8.85. 
C) 11.30. 
D) 14.25.

Question 4

Which one of the following will cause velocity to increase?

Accepted Answer

A) a decrease in interest rates 
B) increasing the efficiency of the payments system 
C) switching from weekly to monthly payroll checks 
D) an increase in the money supply 
A) a decrease in interest rates 
B) increasing the efficiency of the payments system 
C) switching from weekly to monthly payroll checks 
D) an increase in the money supply

Question 5

Which of the following lags makes stabilization policy more problematic?

Accepted Answer

A) expenditure lags 
B) recognition lags 
C) policy lags 
D) All of the above. 
A) expenditure lags 
B) recognition lags 
C) policy lags 
D) All of the above.

Question 6

Describe an asset price bubble and give examples.Explain why it is extremely difficult if not impossible for the Federal Reserve to prevent such bubbles.

Accepted Answer

A price bubble is an increase in the pri

Question 7

If the aggregate supply curve is steep,

Accepted Answer

A) increased aggregate demand will not lead to higher prices. 
B) greater demand for labor will not cause significant wage increases. 
C) business firms are probably producing near capacity. 
D) All of the above are correct. 
A) increased aggregate demand will not lead to higher prices. 
B) greater demand for labor will not cause significant wage increases. 
C) business firms are probably producing near capacity. 
D) All of the above are correct.

Question 8

Once the federal funds rate is reduced to zero, conventional expansionary monetary policy is no longer an option.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is the order of fastest to slowest acting policy, once enacted, in affecting aggregate demand?

Accepted Answer

A) taxes, money, government spending 
B) taxes, government spending, money 
C) government spending, taxes, money 
D) government spending, money, taxes 
A) taxes, money, government spending 
B) taxes, government spending, money 
C) government spending, taxes, money 
D) government spending, money, taxes

Question 10

The main policy tool for manipulating consumer spending is personal income tax, but this tool takes time to have an effect.

Accepted Answer

A) True 
 B)False

Question 11

How does government expenditure discourage some private investment?

Accepted Answer

Government often borrows money from the

Question 12

The relationship between money growth rates and inflation between 1982 and 2010 helps explain why, by the 1990s, most economists had

Accepted Answer

A) adopted the monetarist explanation of inflation. 
B) adopted a rules-only approach to monetary policy. 
C) become more convinced of the monetary causes of inflation. 
D) abandoned monetarism as the primary explanation of inflation. 
A) adopted the monetarist explanation of inflation. 
B) adopted a rules-only approach to monetary policy. 
C) become more convinced of the monetary causes of inflation. 
D) abandoned monetarism as the primary explanation of inflation.

Question 13

Both approaches-Keynesian and monetarist-are ways of analyzing

Accepted Answer

A) aggregate supply. 
B) aggregate demand. 
C) the average price level. 
D) government spending and expenditures. 
A) aggregate supply. 
B) aggregate demand. 
C) the average price level. 
D) government spending and expenditures.

Question 14

In the monetarist view, the money supply affects the economy

Accepted Answer

A) through investment spending and government spending. 
B) indirectly through interest rates. 
C) directly, apart from interest rates. 
D) by altering the size of the money multiplier. 
A) through investment spending and government spending. 
B) indirectly through interest rates. 
C) directly, apart from interest rates. 
D) by altering the size of the money multiplier.

Question 15

What role does ideology play in the debate on stabilization?

Accepted Answer

A) A large role, because there are conservative and liberal economists. 
B) A primary role, because there are no economic aspects to the debate at all. 
C) A minor role, because economists are fairly uniform in their political views. 
D) No role at all, because this is purely a technical question. 
A) A large role, because there are conservative and liberal economists. 
B) A primary role, because there are no economic aspects to the debate at all. 
C) A minor role, because economists are fairly uniform in their political views. 
D) No role at all, because this is purely a technical question.

Question 16

Some economists believe that policy makers should avoid stabilization policy because

Accepted Answer

A) lags make the policy impact unpredictable. 
B) no tax cut ever stimulated demand. 
C) stabilization policies are rarely signed into law. 
D) it never works. 
A) lags make the policy impact unpredictable. 
B) no tax cut ever stimulated demand. 
C) stabilization policies are rarely signed into law. 
D) it never works.

Question 17

It is ____ to identify an asset bubble before it bursts ____ to identify an asset bubble after it bursts.

Accepted Answer

A) simple; and also simple 
B) simple; but difficult 
C) difficult; but simple 
D) difficult; and also difficult 
A) simple; and also simple 
B) simple; but difficult 
C) difficult; but simple 
D) difficult; and also difficult

Question 18

Advocates of stabilization policy prefer quick medicine for economic ills.This leads some observers to favor fiscal policy while others endorse monetary policy.Describe the positions of each side in the debate and what seems to be the current consensus.

Accepted Answer

Fiscal policy advocates argue that fisca

Question 19

The substantial fluctuations in velocity make the equation of exchange more useful in predicting changes in nominal GDP.

Accepted Answer

A) True 
 B)False

Question 20

A contractionary monetary policy is most likely to reduce output with little impact on inflation 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.

Exam 32: The Debate Over Monetary and Fiscal Policy

The major limitation of both the Keynesian approach and the monetarist approach is that both

When the Fed increases the money supply, interest rates

In 2009, nominal GDP was $14,050 billion and M1 was $1,587 billion.Velocity was

Which one of the following will cause velocity to increase?

Which of the following lags makes stabilization policy more problematic?

Describe an asset price bubble and give examples.Explain why it is extremely difficult if not impossible for the Federal Reserve to prevent such bubbles.

If the aggregate supply curve is steep,

Once the federal funds rate is reduced to zero, conventional expansionary monetary policy is no longer an option.

Which of the following is the order of fastest to slowest acting policy, once enacted, in affecting aggregate demand?

The main policy tool for manipulating consumer spending is personal income tax, but this tool takes time to have an effect.

How does government expenditure discourage some private investment?

The relationship between money growth rates and inflation between 1982 and 2010 helps explain why, by the 1990s, most economists had

Both approaches-Keynesian and monetarist-are ways of analyzing

In the monetarist view, the money supply affects the economy

What role does ideology play in the debate on stabilization?

Some economists believe that policy makers should avoid stabilization policy because

It is ____ to identify an asset bubble before it bursts ____ to identify an asset bubble after it bursts.

Advocates of stabilization policy prefer quick medicine for economic ills.This leads some observers to favor fiscal policy while others endorse monetary policy.Describe the positions of each side in the debate and what seems to be the current consensus.

The substantial fluctuations in velocity make the equation of exchange more useful in predicting changes in nominal GDP.

A contractionary monetary policy is most likely to reduce output with little impact on inflation when the economy

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

It is to identify an asset bubble before it bursts to identify an asset bubble after it bursts.