Question 1

When the economy is hit by a negative demand shock and the central bank pursues policies to increase aggregate demand to its initial level,then

Accepted Answer

A)  inflation will be lower. 
B)  output will be at its potential. 
C)  output will be lower. 
D)  inflation will be unchanged. 
E)  both B and D. 
A)  inflation will be lower. 
B)  output will be at its potential. 
C)  output will be lower. 
D)  inflation will be unchanged. 
E)  both B and D.

Question 2

When the economy is hit by a temporary negative supply shock and the central bank does not respond by changing the autonomous component of monetary policy,then in the long run

Accepted Answer

A)  inflation will be lower. 
B)  output will be at its potential. 
C)  output will be lower. 
D)  inflation will be unchanged. 
E)  both B and D. 
A)  inflation will be lower. 
B)  output will be at its potential. 
C)  output will be lower. 
D)  inflation will be unchanged. 
E)  both B and D.

Question 3

Which of the following is least likely to lead to inflationary monetary policy?

Accepted Answer

A)  Rising unemployment 
B)  Expanding federal budget deficits 
C)  Declining oil prices 
D)  Conflict in the Middle East 
A)  Rising unemployment 
B)  Expanding federal budget deficits 
C)  Declining oil prices 
D)  Conflict in the Middle East

Question 4

If workers believe that government policymakers will increase aggregate demand to avoid a politically unpopular increase in unemployment when workers demand higher wages,then workers will not fear higher unemployment and their wage demands will result in

Accepted Answer

A)  demand-pull inflation. 
B)  hyperinflation. 
C)  deflation. 
D)  cost-push inflation. 
A)  demand-pull inflation. 
B)  hyperinflation. 
C)  deflation. 
D)  cost-push inflation.

Question 5

Which of the following statements is correct?

Accepted Answer

A)  If most shocks to the economy are aggregate demand shocks or permanent aggregate supply shocks, then policy that stabilizes inflation will also stabilize economic activity, even in the short run. 
B)  If temporary supply shocks are more common, then a central bank must choose between stabilizing inflation and stabilizing output in the short run. 
C)  In the long run, there is no conflict between stabilizing inflation and economic activity in response to shocks. 
D)  all of the above. 
A)  If most shocks to the economy are aggregate demand shocks or permanent aggregate supply shocks, then policy that stabilizes inflation will also stabilize economic activity, even in the short run. 
B)  If temporary supply shocks are more common, then a central bank must choose between stabilizing inflation and stabilizing output in the short run. 
C)  In the long run, there is no conflict between stabilizing inflation and economic activity in response to shocks. 
D)  all of the above.

Question 6

If the economy suffers a permanent negative supply shock because there is an increase in regulations that permanently reduce the level of potential output,then

Accepted Answer

A)  potential output falls. 
B)  the long-run aggregate supply curve shifts leftward. 
C)  the short-run aggregate supply curve shifts upward. 
D)  all of the above. 
A)  potential output falls. 
B)  the long-run aggregate supply curve shifts leftward. 
C)  the short-run aggregate supply curve shifts upward. 
D)  all of the above.

Question 7

When the economy suffers a permanent negative supply shock and the central bank does not respond by changing the autonomous component of monetary policy,then

Accepted Answer

A)  inflation will be lower. 
B)  output will be at its potential. 
C)  output will be unchanged. 
D)  inflation will be unchanged. 
A)  inflation will be lower. 
B)  output will be at its potential. 
C)  output will be unchanged. 
D)  inflation will be unchanged.

Question 8

The recognition lag is

Accepted Answer

A)  the time it takes for policy makers to obtain data indicating what is happening in the economy. 
B)  the time it takes for policy makers to be sure of what the data are signaling about the future course of the economy. 
C)  the time it takes to pass legislation to implement a particular policy. 
D)  the time it takes for policy makers to change policy instruments once they have decided on the new policy. 
E)  the time it takes for the policy actually to have an impact on the economy. 
A)  the time it takes for policy makers to obtain data indicating what is happening in the economy. 
B)  the time it takes for policy makers to be sure of what the data are signaling about the future course of the economy. 
C)  the time it takes to pass legislation to implement a particular policy. 
D)  the time it takes for policy makers to change policy instruments once they have decided on the new policy. 
E)  the time it takes for the policy actually to have an impact on the economy.

Question 9

When the economy suffers a permanent negative supply shock and the central bank does not respond by changing the autonomous component of monetary policy,then

Accepted Answer

A)  inflation will be lower. 
B)  output will be at its potential. 
C)  output will be lower. 
D)  inflation will not change. 
E)  both A and B. 
A)  inflation will be lower. 
B)  output will be at its potential. 
C)  output will be lower. 
D)  inflation will not change. 
E)  both A and B.

Question 10

If policymakers set a target for unemployment that is too low because it is less than the natural rate of unemployment,this can set the stage for a higher rate of money growth and

Accepted Answer

A)  cost-push inflation. 
B)  demand-pull inflation. 
C)  cost-pull inflation. 
D)  demand-push inflation. 
A)  cost-push inflation. 
B)  demand-pull inflation. 
C)  cost-pull inflation. 
D)  demand-push inflation.

Question 11

The time it takes to pass legislation to implement a particular policy is called

Accepted Answer

A)  the data lag. 
B)  the recognition lag. 
C)  the legislative lag. 
D)  the implementation lag. 
E)  the effectiveness lag. 
A)  the data lag. 
B)  the recognition lag. 
C)  the legislative lag. 
D)  the implementation lag. 
E)  the effectiveness lag.

Question 12

When the economy suffers a temporary negative supply shock and the central bank responds by changing the autonomous component of monetary policy to keep inflation at the target inflation rate,then

Accepted Answer

A)  aggregate output drops in the short run. 
B)  output will return to potential output over time. 
C)  aggregate output is stabilized. 
D)  all of the above. 
E)  both A and B. 
A)  aggregate output drops in the short run. 
B)  output will return to potential output over time. 
C)  aggregate output is stabilized. 
D)  all of the above. 
E)  both A and B.

Question 13

Nonactivists of the policies believe that

Accepted Answer

A)  wages and prices are very flexible. 
B)  the self-correcting mechanism is very rapid. 
C)  government action is unnecessary. 
D)  all of the above. 
A)  wages and prices are very flexible. 
B)  the self-correcting mechanism is very rapid. 
C)  government action is unnecessary. 
D)  all of the above.

Question 14

The effectiveness lag is

Accepted Answer

A)  the time it takes for policy makers to obtain data indicating what is happening in the economy. 
B)  the time it takes for policy makers to be sure of what the data are signaling about the future course of the economy. 
C)  the time it takes to pass legislation to implement a particular policy. 
D)  the time it takes for policy makers to change policy instruments once they have decided on the new policy. 
E)  the time it takes for the policy actually to have an impact on the economy. 
A)  the time it takes for policy makers to obtain data indicating what is happening in the economy. 
B)  the time it takes for policy makers to be sure of what the data are signaling about the future course of the economy. 
C)  the time it takes to pass legislation to implement a particular policy. 
D)  the time it takes for policy makers to change policy instruments once they have decided on the new policy. 
E)  the time it takes for the policy actually to have an impact on the economy.

Question 15

The disruption to financial markets starting in August 2007 that caused both consumer and business spending to fall

Accepted Answer

A)  shifted the aggregate demand curve to the right. 
B)  shifted the aggregate demand curve to the left. 
C)  shifted the aggregate supply curve to the right. 
D)  shifted the aggregate supply curve to the left. 
A)  shifted the aggregate demand curve to the right. 
B)  shifted the aggregate demand curve to the left. 
C)  shifted the aggregate supply curve to the right. 
D)  shifted the aggregate supply curve to the left.

Question 16

Complete Milton Friedman's famous proposition: "Inflation is always and everywhere a ________ phenomenon."

Accepted Answer

A)  monetary 
B)  political 
C)  policy 
D)  budgetary 
A)  monetary 
B)  political 
C)  policy 
D)  budgetary

Question 17

The combination of a successful wage push by workers and the government's commitment to high employment leads to

Accepted Answer

A)  demand-pull inflation. 
B)  supply-side inflation. 
C)  supply-shock inflation. 
D)  cost-push inflation. 
A)  demand-pull inflation. 
B)  supply-side inflation. 
C)  supply-shock inflation. 
D)  cost-push inflation.

Question 18

If aggregate output is below the natural rate level,nonactivists of policies would recommend that the government

Accepted Answer

A)  do nothing. 
B)  try to eliminate the high unemployment by attempting to shift the aggregate supply curve to the right. 
C)  try to eliminate the high unemployment by attempting to shift the aggregate demand curve to the right. 
D)  try to eliminate the high unemployment by attempting to shift the aggregate demand curve to the left. 
A)  do nothing. 
B)  try to eliminate the high unemployment by attempting to shift the aggregate supply curve to the right. 
C)  try to eliminate the high unemployment by attempting to shift the aggregate demand curve to the right. 
D)  try to eliminate the high unemployment by attempting to shift the aggregate demand curve to the left.

Question 19

When the economy suffers a temporary negative supply shock and the monetary policy makers try to stabilize economic activity in the short run,then

Accepted Answer

A)  aggregate demand curve shifts rightward. 
B)  output will be at its potential. 
C)  inflation rate will be higher. 
D)  all of the above. 
E)  both A and B. 
A)  aggregate demand curve shifts rightward. 
B)  output will be at its potential. 
C)  inflation rate will be higher. 
D)  all of the above. 
E)  both A and B.

Question 20

The time it takes for the policy actually to have an impact on the economy is called

Accepted Answer

A)  the data lag. 
B)  the recognition lag. 
C)  the legislative lag. 
D)  the implementation lag. 
E)  the effectiveness lag. 
A)  the data lag. 
B)  the recognition lag. 
C)  the legislative lag. 
D)  the implementation lag. 
E)  the effectiveness lag.

Exam 23: Monetary Policy Theory

When the economy is hit by a negative demand shock and the central bank pursues policies to increase aggregate demand to its initial level,then

When the economy is hit by a temporary negative supply shock and the central bank does not respond by changing the autonomous component of monetary policy,then in the long run

Which of the following is least likely to lead to inflationary monetary policy?

If workers believe that government policymakers will increase aggregate demand to avoid a politically unpopular increase in unemployment when workers demand higher wages,then workers will not fear higher unemployment and their wage demands will result in

Which of the following statements is correct?

If the economy suffers a permanent negative supply shock because there is an increase in regulations that permanently reduce the level of potential output,then

When the economy suffers a permanent negative supply shock and the central bank does not respond by changing the autonomous component of monetary policy,then

The recognition lag is

When the economy suffers a permanent negative supply shock and the central bank does not respond by changing the autonomous component of monetary policy,then

If policymakers set a target for unemployment that is too low because it is less than the natural rate of unemployment,this can set the stage for a higher rate of money growth and

The time it takes to pass legislation to implement a particular policy is called

When the economy suffers a temporary negative supply shock and the central bank responds by changing the autonomous component of monetary policy to keep inflation at the target inflation rate,then

Nonactivists of the policies believe that

The effectiveness lag is

The disruption to financial markets starting in August 2007 that caused both consumer and business spending to fall

Complete Milton Friedman's famous proposition: "Inflation is always and everywhere a ________ phenomenon."

The combination of a successful wage push by workers and the government's commitment to high employment leads to

If aggregate output is below the natural rate level,nonactivists of policies would recommend that the government

When the economy suffers a temporary negative supply shock and the monetary policy makers try to stabilize economic activity in the short run,then

The time it takes for the policy actually to have an impact on the economy is called

Why Study Money, banking, and Financial Markets

An Overview of the Financial System

What Is Money

Understanding 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

Financial Crises

Banking and the Management of Financial Institutions

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

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

The Role of Expectations in Monetary Policy

Transmission Mechanisms of Monetary Policy

The ISLM Model

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