Question 1

The legislative lag represents ________.

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 C

Question 2

A criticism of the monetarist autonomous spending variable is that ________.

Accepted Answer

A)  some types of autonomous spending do not affect aggregate demand 
B)  some types of autonomous spending affect aggregate demand before the spending occurs 
C)  some types of autonomous spending affect aggregate demand only long after they occur 
D)  Keynesians do not think that autonomous spending affects aggregate demand 
A)  some types of autonomous spending do not affect aggregate demand 
B)  some types of autonomous spending affect aggregate demand before the spending occurs 
C)  some types of autonomous spending affect aggregate demand only long after they occur 
D)  Keynesians do not think that autonomous spending affects aggregate demand B

Question 3

What is reverse causation and how does it relate to reduced-form evidence on monetary policy transmission?

Accepted Answer

A basic principle applicable to all scientific disciplines,including economics,states that correlation does not necessarily imply causation.The situation where after finding correlation between two variables say M and Y,we conclude erroneously that one causes the other is called reverse causation.The fact that the movement of one variable is linked to another doesn't necessarily mean that one variable causes the other.The reverse causation problem may be present when examining the link between changes in money and aggregate output or spending.If most of the correlation between M and Y occurs because of the Bank's interest-rate target,controlling the money supply will not help control aggregate output because it is actually changes in Y that are causing changes in M rather than the other way around.

Question 4

Figure 27-4  
-In the new classical model in Figure 27-4,the initial impact of an anticipated increase in aggregate demand that is less than expected ________.

Accepted Answer

A)  increases output from Yn to Y2, and the inflation rate from P1 to P2 
B)  decreases output from Yn to Y5, and increases the inflation rate from P1 to P5 
C)  decreases output from Yn to Y4, and increases the inflation rate from P1 to P4 
D)  does not change output and increases the inflation rate from P1 to P3 
A)  increases output from Yn to Y2, and the inflation rate from P1 to P2 
B)  decreases output from Yn to Y5, and increases the inflation rate from P1 to P5 
C)  decreases output from Yn to Y4, and increases the inflation rate from P1 to P4 
D)  does not change output and increases the inflation rate from P1 to P3

Question 5

When the Bank of Canada has an interest rate target,________ output might lead to a ________ money supply.

Accepted Answer

A)  higher; higher 
B)  higher; lower 
C)  higher; stable 
D)  lower; lower 
A)  higher; higher 
B)  higher; lower 
C)  higher; stable 
D)  lower; lower

Question 6

A ________ model is one that describes how ________.

Accepted Answer

A)  structural; the economy works 
B)  structural; prices change 
C)  simple; the economy works 
D)  analytical; prices change 
A)  structural; the economy works 
B)  structural; prices change 
C)  simple; the economy works 
D)  analytical; prices change

Question 7

Early Keynesians believed that monetary policy ________.

Accepted Answer

A)  affected aggregate demand solely through its effect on nominal interest rates 
B)  did not affect aggregate demand through nominal interest rates 
C)  affected aggregate demand through many channels 
D)  affected real output directly 
A)  affected aggregate demand solely through its effect on nominal interest rates 
B)  did not affect aggregate demand through nominal interest rates 
C)  affected aggregate demand through many channels 
D)  affected real output directly

Question 8

Milton Friedman and Anna Schwartz showed that monetary policy during the Great Depression had ________.

Accepted Answer

A)  been quite inflationary 
B)  never been more contractionary 
C)  been more expansionary than in the 1920s 
D)  been essentially neutral 
A)  been quite inflationary 
B)  never been more contractionary 
C)  been more expansionary than in the 1920s 
D)  been essentially neutral

Question 9

Milton Friedman's proposition concerning the cause of inflation implies a simple solution to the inflation problem: ________.

Accepted Answer

A)  reduce government budget deficits 
B)  limit the ability of fiscal policymakers to bring pressure to bear on the monetary authority 
C)  limit the number of terms that politicians are allowed to serve 
D)  reduce the growth rate of the money supply 
A)  reduce government budget deficits 
B)  limit the ability of fiscal policymakers to bring pressure to bear on the monetary authority 
C)  limit the number of terms that politicians are allowed to serve 
D)  reduce the growth rate of the money supply

Question 10

Why a cost-push inflation is a monetary phenomenon? Use the appropriate graph to support your answer.

Accepted Answer

Students must use a graph similar to the

Question 11

Figure 27-3  
-In the new classical model in Figure 27-3,the initial impact of an unanticipated monetary expansion ________.

Accepted Answer

A)  increases output from Yn to Y2, and the inflation rate from P1 to P2 
B)  decreases output from Yn to Y4, and the inflation rate from P3 to P4 
C)  does not change output and increases the inflation rate from P1 to P3 
D)  does not change output and decreases the inflation rate from P3 to P1 
A)  increases output from Yn to Y2, and the inflation rate from P1 to P2 
B)  decreases output from Yn to Y4, and the inflation rate from P3 to P4 
C)  does not change output and increases the inflation rate from P1 to P3 
D)  does not change output and decreases the inflation rate from P3 to P1

Question 12

What are the advantages of reduced-form evidence?

Accepted Answer

The main advantage of reduced-form evide

Question 13

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 14

An important feature of the new classical model is that an expansionary policy,such as an increase in the rate of money growth,can lead to a decline in aggregate output ________.

Accepted Answer

A)  if the public expects an even more expansionary policy than the one that is actually implemented 
B)  if the policy comes as a surprise 
C)  if the public expects a less expansionary policy than the one that is actually implemented 
D)  if the policy is anticipated 
A)  if the public expects an even more expansionary policy than the one that is actually implemented 
B)  if the policy comes as a surprise 
C)  if the public expects a less expansionary policy than the one that is actually implemented 
D)  if the policy is anticipated

Question 15

During the Great Depression,real interest rates ________.

Accepted Answer

A)  rose to unprecedentedly high levels 
B)  rose only slightly above the long-run trend 
C)  fell to unprecedentedly low levels 
D)  fell only slightly below the long-run trend 
A)  rose to unprecedentedly high levels 
B)  rose only slightly above the long-run trend 
C)  fell to unprecedentedly low levels 
D)  fell only slightly below the long-run trend

Question 16

In the new classical model,an anticipated increase in the money stock will cause ________.

Accepted Answer

A)  the price level and aggregate output to increase 
B)  aggregate output to increase 
C)  the price level to increase 
D)  no effect on either the price level or aggregate output 
A)  the price level and aggregate output to increase 
B)  aggregate output to increase 
C)  the price level to increase 
D)  no effect on either the price level or aggregate output

Question 17

A basic principle in economics is that correlation ________ imply ________.

Accepted Answer

A)  does not necessarily; causation 
B)  does; causation 
C)  does not necessarily; independence 
D)  Both A and C 
A)  does not necessarily; causation 
B)  does; causation 
C)  does not necessarily; independence 
D)  Both A and C

Question 18

The new classical model has the word classical associated with it because,when an increase in the money supply is anticipated,________.

Accepted Answer

A)  aggregate output drops below the natural rate level 
B)  aggregate output rises above the natural rate level 
C)  aggregate output remains at the natural rate level 
D)  aggregate output increases in the short run, but not in the long run 
A)  aggregate output drops below the natural rate level 
B)  aggregate output rises above the natural rate level 
C)  aggregate output remains at the natural rate level 
D)  aggregate output increases in the short run, but not in the long run

Question 19

In the new classical model,an expansionary monetary policy causes ________.

Accepted Answer

A)  the aggregate demand curve to shift to the right, and output to increase only if the policy is anticipated 
B)  the aggregate demand curve to shift to the right, and output to increase only if the policy is unanticipated 
C)  a decline in the price level 
D)  both B and C of the above 
A)  the aggregate demand curve to shift to the right, and output to increase only if the policy is anticipated 
B)  the aggregate demand curve to shift to the right, and output to increase only if the policy is unanticipated 
C)  a decline in the price level 
D)  both B and C of the above

Question 20

According to the new classical school of thought,a continually increasing money supply causes ________.

Accepted Answer

A)  the aggregate demand curve to shift continually to the right, and the price level to increase continually 
B)  the aggregate supply curve to shift continually to the right, and the price level to increase continually 
C)  the long-run aggregate supply curve to shift continually to the right, and the price level to increase continually 
D)  both B and C of the above 
A)  the aggregate demand curve to shift continually to the right, and the price level to increase continually 
B)  the aggregate supply curve to shift continually to the right, and the price level to increase continually 
C)  the long-run aggregate supply curve to shift continually to the right, and the price level to increase continually 
D)  both B and C of the above

Exam 25: Monetary Policy Theory

The legislative lag represents ________.

A criticism of the monetarist autonomous spending variable is that ________.

What is reverse causation and how does it relate to reduced-form evidence on monetary policy transmission?

Figure 27-4 -In the new classical model in Figure 27-4,the initial impact of an anticipated increase in aggregate demand that is less than expected ________.

When the Bank of Canada has an interest rate target,________ output might lead to a ________ money supply.

A ________ model is one that describes how ________.

Early Keynesians believed that monetary policy ________.

Milton Friedman and Anna Schwartz showed that monetary policy during the Great Depression had ________.

Milton Friedman's proposition concerning the cause of inflation implies a simple solution to the inflation problem: ________.

Why a cost-push inflation is a monetary phenomenon? Use the appropriate graph to support your answer.

Figure 27-3 -In the new classical model in Figure 27-3,the initial impact of an unanticipated monetary expansion ________.

What are the advantages of reduced-form evidence?

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

An important feature of the new classical model is that an expansionary policy,such as an increase in the rate of money growth,can lead to a decline in aggregate output ________.

During the Great Depression,real interest rates ________.

In the new classical model,an anticipated increase in the money stock will cause ________.

A basic principle in economics is that correlation ________ imply ________.

The new classical model has the word classical associated with it because,when an increase in the money supply is anticipated,________.

In the new classical model,an expansionary monetary policy causes ________.

According to the new classical school of thought,a continually increasing money supply causes ________.

Why Study Money, banking, and Financial Markets

An Overview of the Financial System

What Is Money

Understanding Interest Rates

The Behaviour 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

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Nonbank Finance

Banking and the Management of Financial Institutions

Risk Management With Financial Derivatives

Central Banks and the Bank of Canada

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

Filters

When the Bank of Canada has an interest rate target, output might lead to a money supply.

A model is one that describes how .

A basic principle in economics is that correlation imply .