Question 1

According to the household liquidity effect,higher stock prices lead to increased consumption expenditures because consumers

Accepted Answer

A) feel more secure about their financial position. 
B) want to sell stocks and spend the proceeds before stock prices fall. 
C) believe that their wages will increase due to increased profitability of firms. 
D) can now afford more expensive imports. 
A) feel more secure about their financial position. 
B) want to sell stocks and spend the proceeds before stock prices fall. 
C) believe that their wages will increase due to increased profitability of firms. 
D) can now afford more expensive imports.

Question 2

Monetarists contend that the channels of monetary influence in Keynesian structural models are too ________ defined,________ the importance of monetary policy.

Accepted Answer

A) broadly;exaggerating 
B) broadly;understating 
C) narrowly;understating 
D) narrowly;exaggerating 
A) broadly;exaggerating 
B) broadly;understating 
C) narrowly;understating 
D) narrowly;exaggerating

Question 3

An expansionary monetary policy lowers the real interest rate,causing the domestic currency to ________,thereby ________ net exports.

Accepted Answer

A) appreciate;raising 
B) appreciate;lowering 
C) depreciate;raising 
D) depreciate;lowering 
A) appreciate;raising 
B) appreciate;lowering 
C) depreciate;raising 
D) depreciate;lowering

Question 4

Due to asymmetric information in credit markets,monetary policy may affect economic activity through the balance sheet channel,where an increase in the money supply

Accepted Answer

A) raises stock prices,lowering the cost of new capital relative to firms' market value,thus increasing investment spending. 
B) raises firms' net worth,decreasing adverse selection and moral hazard problems,thus increasing banks' willingness to lend to finance investment spending. 
C) raises the level of bank reserves,deposits,and bank loans,thereby raising spending by those individuals who do not have access to credit markets. 
D) lowers the value of the dollar,increasing net exports and aggregate demand. 
A) raises stock prices,lowering the cost of new capital relative to firms' market value,thus increasing investment spending. 
B) raises firms' net worth,decreasing adverse selection and moral hazard problems,thus increasing banks' willingness to lend to finance investment spending. 
C) raises the level of bank reserves,deposits,and bank loans,thereby raising spending by those individuals who do not have access to credit markets. 
D) lowers the value of the dollar,increasing net exports and aggregate demand.

Question 5

In the late 1990s,the stock market bubble ________ the value of Tobin's q,and caused ________ in business equipment.

Accepted Answer

A) increased;underinvestment 
B) increased;overinvestment 
C) decreased;underinvestment 
D) decreased;overinvestment 
A) increased;underinvestment 
B) increased;overinvestment 
C) decreased;underinvestment 
D) decreased;overinvestment

Question 6

During the Great Depression,Tobin's q

Accepted Answer

A) rose dramatically,as did real interest rates. 
B) fell to unprecedentedly low levels. 
C) stayed fairly constant,in contrast to most other economic measures. 
D) rose only slightly,in spite of Hoover's attempts to prop it up. 
A) rose dramatically,as did real interest rates. 
B) fell to unprecedentedly low levels. 
C) stayed fairly constant,in contrast to most other economic measures. 
D) rose only slightly,in spite of Hoover's attempts to prop it up.

Question 7

Analysis of the transmission mechanisms of monetary policy provides four basic lessons for a central bank's conduct of monetary policy.These lessons include the following.

Accepted Answer

A) Rising interest rates indicate a tightening of monetary policy,whereas falling interest rates indicate an easing of monetary policy. 
B) Monetary policy can be highly effective in reviving a weak economy even if short-term interest rates are already near zero. 
C) Avoiding fluctuations in the level of unemployment is an important objective of monetary policy,thus providing a rationale for interest-rate stability as the primary long-run goal for monetary policy. 
D) Other asset prices beside those on short-term debt instruments do not contain important information about the stance of monetary policy because they are not important elements in various monetary policy transmission mechanisms. 
A) Rising interest rates indicate a tightening of monetary policy,whereas falling interest rates indicate an easing of monetary policy. 
B) Monetary policy can be highly effective in reviving a weak economy even if short-term interest rates are already near zero. 
C) Avoiding fluctuations in the level of unemployment is an important objective of monetary policy,thus providing a rationale for interest-rate stability as the primary long-run goal for monetary policy. 
D) Other asset prices beside those on short-term debt instruments do not contain important information about the stance of monetary policy because they are not important elements in various monetary policy transmission mechanisms.

Question 8

An expansionary monetary policy raises firms' cash flows by ________ interest rates.

Accepted Answer

A) lowering real 
B) lowering nominal 
C) raising real 
D) raising nominal 
A) lowering real 
B) lowering nominal 
C) raising real 
D) raising nominal

Question 9

Early Keynesians felt that ________ policy was ________,so they stressed the importance of ________ policy.

Accepted Answer

A) fiscal;ineffective;monetary 
B) monetary;ineffective;fiscal 
C) monetary;potent;monetary 
D) fiscal;too potent;monetary 
A) fiscal;ineffective;monetary 
B) monetary;ineffective;fiscal 
C) monetary;potent;monetary 
D) fiscal;too potent;monetary

Question 10

Predicting the impact of institutional change on the effectiveness of monetary policy is best done with a

Accepted Answer

A) structural model. 
B) reduced-form model. 
C) black-box model. 
D) scientific model. 
A) structural model. 
B) reduced-form model. 
C) black-box model. 
D) scientific model.

Question 11

________ examines whether one variable has an effect on another by simply looking directly at the relationship between the two variables.

Accepted Answer

A) Reduced-form evidence 
B) Organizational-model evidence 
C) Direct-model evidence 
D) Structural-model evidence 
A) Reduced-form evidence 
B) Organizational-model evidence 
C) Direct-model evidence 
D) Structural-model evidence

Question 12

Monetarists' preference for reduced-form models is based on their belief that

Accepted Answer

A) reverse causation is a problem. 
B) structural models may understate money's effect on economic activity. 
C) money supply changes are always endogenous. 
D) monetary policy affects only investment spending. 
A) reverse causation is a problem. 
B) structural models may understate money's effect on economic activity. 
C) money supply changes are always endogenous. 
D) monetary policy affects only investment spending.

Question 13

A contractionary monetary policy decreases net exports by ________ interest rates and ________ the value of the dollar.

Accepted Answer

A) lowering real;decreasing 
B) lowering real;increasing 
C) raising nominal;increasing 
D) raising real;increasing 
A) lowering real;decreasing 
B) lowering real;increasing 
C) raising nominal;increasing 
D) raising real;increasing

Question 14

________ examines whether one variable affects another by using data to build a model that explains the channels through which this variable affects the other.

Accepted Answer

A) Indirect-model evidence 
B) Organizational-model evidence 
C) Reduced-form evidence 
D) Structural-model evidence 
A) Indirect-model evidence 
B) Organizational-model evidence 
C) Reduced-form evidence 
D) Structural-model evidence

Question 15

In response to the early Keynesians,monetarists contended that

Accepted Answer

A) monetary policy during the Great Depression was not easy. 
B) bank failures during the Great Depression were not the cause of the decline in the money supply. 
C) evidence from the Great Depression demonstrated the ineffectiveness of monetary policy. 
D) there is a weak link between interest rates and investment spending. 
A) monetary policy during the Great Depression was not easy. 
B) bank failures during the Great Depression were not the cause of the decline in the money supply. 
C) evidence from the Great Depression demonstrated the ineffectiveness of monetary policy. 
D) there is a weak link between interest rates and investment spending.

Question 16

When Keynesians argue that "correlation does not necessarily imply causation," they are probably criticizing

Accepted Answer

A) structural-model evidence. 
B) reduced-form evidence. 
C) indirect-model evidence. 
D) black-box evidence. 
A) structural-model evidence. 
B) reduced-form evidence. 
C) indirect-model evidence. 
D) black-box evidence.

Question 17

According to Tobin's q theory,when equity prices are high the market price of existing capital is ________ relative to new capital,so expenditure on fixed investment is ________.

Accepted Answer

A) cheap;low 
B) dear;low 
C) cheap;high 
D) dear;high 
A) cheap;low 
B) dear;low 
C) cheap;high 
D) dear;high

Question 18

The subprime financial crisis caused a recession because of the ________ in adverse selection and moral hazard problems and the ________ in housing prices.

Accepted Answer

A) increase;increase 
B) increase;decrease 
C) decrease;increase 
D) decrease;decrease 
A) increase;increase 
B) increase;decrease 
C) decrease;increase 
D) decrease;decrease

Question 19

According to Tobin's q theory,if q is ________,new plant and equipment capital is ________ relative to the market value of business firms,so companies can buy a lot of new investment goods with only a ________ issue of stock.

Accepted Answer

A) high;dear;large 
B) high;cheap;large 
C) high;cheap;small 
D) low;cheap;large 
E) low;cheap;small 
A) high;dear;large 
B) high;cheap;large 
C) high;cheap;small 
D) low;cheap;large 
E) low;cheap;small

Question 20

In a study published in 1963,Milton Friedman and Anna Schwartz found that in every business cycle they studied over nearly a hundred-year period,the growth rate of the ________ decreased before ________ decreased.

Accepted Answer

A) money supply;interest rates 
B) money supply;output 
C) budget deficit;interest rates 
D) budget deficit;output 
A) money supply;interest rates 
B) money supply;output 
C) budget deficit;interest rates 
D) budget deficit;output

Exam 25: Transmission Mechanisms of Monetary Policy

According to the household liquidity effect,higher stock prices lead to increased consumption expenditures because consumers

Monetarists contend that the channels of monetary influence in Keynesian structural models are too ________ defined,________ the importance of monetary policy.

An expansionary monetary policy lowers the real interest rate,causing the domestic currency to ________,thereby ________ net exports.

Due to asymmetric information in credit markets,monetary policy may affect economic activity through the balance sheet channel,where an increase in the money supply

In the late 1990s,the stock market bubble ________ the value of Tobin's q,and caused ________ in business equipment.

During the Great Depression,Tobin's q

Analysis of the transmission mechanisms of monetary policy provides four basic lessons for a central bank's conduct of monetary policy.These lessons include the following.

An expansionary monetary policy raises firms' cash flows by ________ interest rates.

Early Keynesians felt that ________ policy was ________,so they stressed the importance of ________ policy.

Predicting the impact of institutional change on the effectiveness of monetary policy is best done with a

________ examines whether one variable has an effect on another by simply looking directly at the relationship between the two variables.

Monetarists' preference for reduced-form models is based on their belief that

A contractionary monetary policy decreases net exports by ________ interest rates and ________ the value of the dollar.

________ examines whether one variable affects another by using data to build a model that explains the channels through which this variable affects the other.

In response to the early Keynesians,monetarists contended that

When Keynesians argue that "correlation does not necessarily imply causation," they are probably criticizing

According to Tobin's q theory,when equity prices are high the market price of existing capital is ________ relative to new capital,so expenditure on fixed investment is ________.

The subprime financial crisis caused a recession because of the ________ in adverse selection and moral hazard problems and the ________ in housing prices.

According to Tobin's q theory,if q is ________,new plant and equipment capital is ________ relative to the market value of business firms,so companies can buy a lot of new investment goods with only a ________ issue of stock.

In a study published in 1963,Milton Friedman and Anna Schwartz found that in every business cycle they studied over nearly a hundred-year period,the growth rate of the ________ decreased before ________ decreased.

Why Study Money, banking, and Financial Markets

An Overview of the Financial System

What Is Money

The Meaning of Interest Rates

The Behavior of Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

An Economic Analysis of Financial Structure

Banking and the Management of Financial Institutions

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Financial Crises

Central Banks and the Federal Reserve System

The Money Supply Process

Tools of Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

Quantity Theory, inflation, and the Demand for Money

The Is Curve

The Monetary Policy and Aggregate Demand Curves

Aggregate Demand and Supply Analysis

Monetary Policy Theory

The Role of Expectations in Monetary Policy

Web 1:financial Crises in Emerging Market Economies

Web 2:the Islm Model

Web 3:nonbank Finance

Web 4:financial Derivatives

Web 5:conflicts of Interest in the Financial Services Industry

Filters

Monetarists contend that the channels of monetary influence in Keynesian structural models are too defined, the importance of monetary policy.

An expansionary monetary policy lowers the real interest rate,causing the domestic currency to ,thereby net exports.

In the late 1990s,the stock market bubble the value of Tobin's q,and caused in business equipment.

Early Keynesians felt that policy was ,so they stressed the importance of policy.

A contractionary monetary policy decreases net exports by interest rates and the value of the dollar.

According to Tobin's q theory,when equity prices are high the market price of existing capital is relative to new capital,so expenditure on fixed investment is .

The subprime financial crisis caused a recession because of the in adverse selection and moral hazard problems and the in housing prices.

According to Tobin's q theory,if q is ,new plant and equipment capital is relative to the market value of business firms,so companies can buy a lot of new investment goods with only a issue of stock.

In a study published in 1963,Milton Friedman and Anna Schwartz found that in every business cycle they studied over nearly a hundred-year period,the growth rate of the decreased before decreased.