Question 1

If nominal GDP is 8,100 billion florins and the money supply is 900 billion florins, the velocity of circulation is

Accepted Answer

A) 900.0. 
B) 90.0. 
C) 81.0. 
D) 9.0. 
E) 8.1. 
A) 900.0. 
B) 90.0. 
C) 81.0. 
D) 9.0. 
E) 8.1.

Question 2

Many banks offer accounts featuring "Automatic Transfer from Savings" allowing customers to overdraw checking accounts and the bank will transfer enough funds to cover the check automatically.Most likely, what is the effect of this feature 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 3

If the aggregate supply curve is flat,

Accepted Answer

A) contractionary fiscal or monetary policy will reduce inflation with little effect on real GDP. 
B) contractionary fiscal or monetary policy will cause significantly less inflation. 
C) expansionary fiscal or monetary policy will add significantly to real GDP will little effect on inflation. 
D) expansionary fiscal or monetary policy will add little to real GDP but will increase inflation significantly. 
A) contractionary fiscal or monetary policy will reduce inflation with little effect on real GDP. 
B) contractionary fiscal or monetary policy will cause significantly less inflation. 
C) expansionary fiscal or monetary policy will add significantly to real GDP will little effect on inflation. 
D) expansionary fiscal or monetary policy will add little to real GDP but will increase inflation significantly.

Question 4

In 1996, if nominal GDP was about $8.5 thousand billion.The stock of money was

Accepted Answer

A) about the same as this. 
B) much less than this. 
C) much more than this. 
D) unrelated to this number. 
A) about the same as this. 
B) much less than this. 
C) much more than this. 
D) unrelated to this number.

Question 5

Although asset price bubbles seem obvious after the fact, it is much more difficult to draw such a conclusion before the fact.

Accepted Answer

A) True 
 B)False

Question 6

In what year did the housing bubble burst?

Accepted Answer

A) 2000 
B) 2006 
C) 2008 
D) There was no such event. 
A) 2000 
B) 2006 
C) 2008 
D) There was no such event.

Question 7

The longer and more unpredictable that the policy lags are, the stronger the case for active stabilization policy.

Accepted Answer

A) True 
 B)False

Question 8

Define the following terms and explain their importance to the study of macroeconomics.
a.the relationship between interest rates and velocity
b.lags in stabilization policy
c.rules versus discretion

Accepted Answer

a.A change in interest rates changes the

Question 9

Advocates of fixed rules believe that politicians focus more on re-election than on sound policy.

Accepted Answer

A) True 
 B)False

Question 10

The quantity theory of money builds on the equation of exchange.What specific assumptions are made that turn the equation of exchange from an accounting identity into an economic theory?

Accepted Answer

The principal assumption is that velocit

Question 11

The historical data on velocity shows that velocity for

Accepted Answer

A) M1 has fallen since 1929 and has become more stable since 1981. 
B) M1 has risen since 1949 and has become more volatile since 1981. 
C) both M1 and M2 have increased since 1949 but have become more stable since 1979. 
D) both M1 and M2 have declined since 1949. 
A) M1 has fallen since 1929 and has become more stable since 1981. 
B) M1 has risen since 1949 and has become more volatile since 1981. 
C) both M1 and M2 have increased since 1949 but have become more stable since 1979. 
D) both M1 and M2 have declined since 1949.

Question 12

Since the 1970s, the velocity of money has

Accepted Answer

A) behaved in a predictable fashion. 
B) behaved in an erratic fashion. 
C) decreased in value. 
D) increased in a stable and predictable fashion. 
A) behaved in a predictable fashion. 
B) behaved in an erratic fashion. 
C) decreased in value. 
D) increased in a stable and predictable fashion.

Question 13

What is inflation targeting?

Accepted Answer

A) Making sure inflation is reduced to zero. 
B) Increasing the required reserve ratio when there is inflation. 
C) Increasing the supply of money in the economy. 
D) Aiming for a particular inflation level. 
A) Making sure inflation is reduced to zero. 
B) Increasing the required reserve ratio when there is inflation. 
C) Increasing the supply of money in the economy. 
D) Aiming for a particular inflation level.

Question 14

A factor increasing the popularity of monetarism in the late 1970s was the

Accepted Answer

A) ease with which the Fed controlled the money supply. 
B) excellent performance of the economy in the 1970s. 
C) the fear of budget deficits and growing federal debt. 
D) the predictable behavior of velocity until about 1980. 
A) ease with which the Fed controlled the money supply. 
B) excellent performance of the economy in the 1970s. 
C) the fear of budget deficits and growing federal debt. 
D) the predictable behavior of velocity until about 1980.

Question 15

According to the simple quantity theory of money, a change in the money supply of 9.6 percent would lead to a

Accepted Answer

A) 9.6 percent change in velocity. 
B) 9.6 percent change in real GDP. 
C) 9.6 percent change in nominal GDP. 
D) 9.6 percent change in aggregate supply. 
A) 9.6 percent change in velocity. 
B) 9.6 percent change in real GDP. 
C) 9.6 percent change in nominal GDP. 
D) 9.6 percent change in aggregate supply.

Question 16

The equation of exchange states that the money value of GDP must be equal to the product of the money stock times its velocity.

Accepted Answer

A) True 
 B)False

Question 17

Explain the importance of the shape of supply curve for undertaking stabilization policies.

Accepted Answer

If the aggregate supply curve is flat, e

Question 18

An employee of Macro.com Corporation is paid $5,000 a month, which she spends regularly throughout the month until she has a zero balance in her checking account at the end of the month.If the corporation changes to a semi-monthly payroll schedule, how will the employee's average cash balance change?
Assume she does not change her spending pattern when she is now paid twice a month.

Accepted Answer

A) It changes from $5,000 to $2,500 per month. 
B) It changes from $2,500 to $1,250 per month. 
C) It changes from $1,250 to $625 per month. 
D) It changes from $500 to $250 per month. 
A) It changes from $5,000 to $2,500 per month. 
B) It changes from $2,500 to $1,250 per month. 
C) It changes from $1,250 to $625 per month. 
D) It changes from $500 to $250 per month.

Question 19

What do most economists think is the most accurate statement about velocity?

Accepted Answer

A) It is fairly constant in the short run, but varies considerably in the long run, complicating predictions about nominal GDP. 
B) M1 velocity is more stable in the short run than M2 velocity, and it has been a superior tool in predicting changes in nominal GDP. 
C) It is not constant in the short run, and predictions about nominal GDP have not fared well. 
D) M2 velocity has been less stable than M1 velocity, but both are reliable enough to make accurate predictions about changes in nominal GDP. 
A) It is fairly constant in the short run, but varies considerably in the long run, complicating predictions about nominal GDP. 
B) M1 velocity is more stable in the short run than M2 velocity, and it has been a superior tool in predicting changes in nominal GDP. 
C) It is not constant in the short run, and predictions about nominal GDP have not fared well. 
D) M2 velocity has been less stable than M1 velocity, but both are reliable enough to make accurate predictions about changes in nominal GDP.

Question 20

Which of the following best describes the assumption that monetarists make regarding velocity?

Accepted Answer

A) It is fairly predictable in the short run and certainly in the long run. 
B) It is not possible to predict velocity in the short or long run. 
C) It is variable in the long run but predictable in the short run. 
D) It is constant in the long run but variable in the short run. 
A) It is fairly predictable in the short run and certainly in the long run. 
B) It is not possible to predict velocity in the short or long run. 
C) It is variable in the long run but predictable in the short run. 
D) It is constant in the long run but variable in the short run.

Exam 32: The Debate Over Monetary and Fiscal Policy

If nominal GDP is 8,100 billion florins and the money supply is 900 billion florins, the velocity of circulation is

Many banks offer accounts featuring "Automatic Transfer from Savings" allowing customers to overdraw checking accounts and the bank will transfer enough funds to cover the check automatically.Most likely, what is the effect of this feature on velocity?

If the aggregate supply curve is flat,

In 1996, if nominal GDP was about $8.5 thousand billion.The stock of money was

Although asset price bubbles seem obvious after the fact, it is much more difficult to draw such a conclusion before the fact.

In what year did the housing bubble burst?

The longer and more unpredictable that the policy lags are, the stronger the case for active stabilization policy.

Define the following terms and explain their importance to the study of macroeconomics. a.the relationship between interest rates and velocity b.lags in stabilization policy c.rules versus discretion

Advocates of fixed rules believe that politicians focus more on re-election than on sound policy.

The quantity theory of money builds on the equation of exchange.What specific assumptions are made that turn the equation of exchange from an accounting identity into an economic theory?

The historical data on velocity shows that velocity for

Since the 1970s, the velocity of money has

What is inflation targeting?

A factor increasing the popularity of monetarism in the late 1970s was the

According to the simple quantity theory of money, a change in the money supply of 9.6 percent would lead to a

The equation of exchange states that the money value of GDP must be equal to the product of the money stock times its velocity.

Explain the importance of the shape of supply curve for undertaking stabilization policies.

What do most economists think is the most accurate statement about velocity?

Which of the following best describes the assumption that monetarists make regarding 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

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