Question 1

A decrease in the real interest rate in the U.S.will cause net exports to:

Accepted Answer

A) increase because exports will remain constant but imports will decrease. 
B) decrease because exports will decrease and imports will increase. 
C) decrease because exports will increase but imports will increase. 
D) increase because exports will increase and imports will decrease. 
A) increase because exports will remain constant but imports will decrease. 
B) decrease because exports will decrease and imports will increase. 
C) decrease because exports will increase but imports will increase. 
D) increase because exports will increase and imports will decrease.

Question 2

Use the equation of exchange to show that in the long run, inflation must equal money growth less the growth of potential output.

Accepted Answer

The equation of exchange is MV = PY; if

Question 3

Use the monetary policy reaction curve to link a higher inflation rate to lower aggregate demand.

Accepted Answer

When the inflation rate is above the tar

Question 4

One way inflation reduces aggregate demand is by:

Accepted Answer

A) increasing nominal GDP. 
B) increasing velocity. 
C) reducing real balances. 
D) increasing wealth. 
A) increasing nominal GDP. 
B) increasing velocity. 
C) reducing real balances. 
D) increasing wealth.

Question 5

Which of the following statements is most correct?

Accepted Answer

A) When the real interest rate increases the reward for saving decreases. 
B) When the real interest rate decreases current consumption becomes less expensive and the reward for saving decreases. 
C) When the real interest rate decreases the cost of current consumption increases. 
D) When the real interest rate increases the level of saving always decreases. 
A) When the real interest rate increases the reward for saving decreases. 
B) When the real interest rate decreases current consumption becomes less expensive and the reward for saving decreases. 
C) When the real interest rate decreases the cost of current consumption increases. 
D) When the real interest rate increases the level of saving always decreases.

Question 6

Evidence seems to point out that just before recessions interest rates rose.Why would monetary policymakers choose to cause recessions?

Accepted Answer

The primary answer is that they were con

Question 7

An output gap occurs when:

Accepted Answer

A) aggregate demand does not equal short-run aggregate supply. 
B) aggregate demand equals long-run aggregate supply. 
C) aggregate demand equals short-run aggregate supply but not long-run aggregate supply. 
D) short-run aggregate supply equals long-run aggregate supply. 
A) aggregate demand does not equal short-run aggregate supply. 
B) aggregate demand equals long-run aggregate supply. 
C) aggregate demand equals short-run aggregate supply but not long-run aggregate supply. 
D) short-run aggregate supply equals long-run aggregate supply.

Question 8

A rightward shift in the dynamic aggregate demand curve could result from:

Accepted Answer

A) a decrease in government purchases. 
B) an increase in investment resulting from a lower inflation rate. 
C) a rightward shift of the monetary policy reaction curve. 
D) a leftward shift of the monetary policy reaction curve. 
A) a decrease in government purchases. 
B) an increase in investment resulting from a lower inflation rate. 
C) a rightward shift of the monetary policy reaction curve. 
D) a leftward shift of the monetary policy reaction curve.

Question 9

The dynamic aggregate demand curve has a negative slope for all of the following reasons except:

Accepted Answer

A) the reduction in real wealth caused by inflation. 
B) the fact that high rates of inflation are good for the stock market. 
C) the redistribution that occurs as inflation has a greater impact on the poor than it does on the wealthy. 
D) higher current inflation leads policymakers to increase the real interest rate, which depresses various components of aggregate expenditures. 
A) the reduction in real wealth caused by inflation. 
B) the fact that high rates of inflation are good for the stock market. 
C) the redistribution that occurs as inflation has a greater impact on the poor than it does on the wealthy. 
D) higher current inflation leads policymakers to increase the real interest rate, which depresses various components of aggregate expenditures.

Question 10

In the face of constant velocity, explain what happens to aggregate demand if the growth rate of money is less than the rate of inflation.

Accepted Answer

If the velocity of money is constant, ag

Question 11

Each of the following factors contribute to the slope of the dynamic aggregate demand curve, except the:

Accepted Answer

A) strength of the effect of inflation on real balances. 
B) current level of technology. 
C) extent to which monetary policymakers react to a change in current inflation. 
D) size of the response of aggregate expenditures to changes in the interest rate. 
A) strength of the effect of inflation on real balances. 
B) current level of technology. 
C) extent to which monetary policymakers react to a change in current inflation. 
D) size of the response of aggregate expenditures to changes in the interest rate.

Question 12

The point where the central bank's target inflation rate is consistent with the long-run real interest rate lies:

Accepted Answer

A) above the monetary policy reaction curve. 
B) below the monetary policy reaction curve. 
C) on the monetary policy reaction curve. 
D) on the horizontal (inflation) axis. 
A) above the monetary policy reaction curve. 
B) below the monetary policy reaction curve. 
C) on the monetary policy reaction curve. 
D) on the horizontal (inflation) axis.

Question 13

If a recession were the result of monetary policy, we should observe:

Accepted Answer

A) inflation increasing as output decreases. 
B) potential output decreasing. 
C) inflation slowing as output falls. 
D) a high rate of money growth. 
A) inflation increasing as output decreases. 
B) potential output decreasing. 
C) inflation slowing as output falls. 
D) a high rate of money growth.

Question 14

The conditions for long-run equilibrium include each of the following, except:

Accepted Answer

A) imports equal exports. 
B) current inflation is steady and equals target inflation. 
C) current output equals potential output. 
D) current inflation equals expected inflation. 
A) imports equal exports. 
B) current inflation is steady and equals target inflation. 
C) current output equals potential output. 
D) current inflation equals expected inflation.

Question 15

If the slope of the monetary policy reaction curve is relatively flat, it means that central bankers are:

Accepted Answer

A) very concerned about keeping inflation close to the target rate. 
B) not concerned at all about inflation. 
C) less concerned about keeping inflation close to its short-run target. 
D) not going to let inflation deviate from its target at all. 
A) very concerned about keeping inflation close to the target rate. 
B) not concerned at all about inflation. 
C) less concerned about keeping inflation close to its short-run target. 
D) not going to let inflation deviate from its target at all.

Question 16

One reason the long-run aggregate supply curve has the slope it does is due to the fact that:

Accepted Answer

A) if current output equals potential output, the short-run aggregate supply curve is stable. 
B) that inflation is zero in the long run. 
C) over long periods of time the economy moves to its potential level of output with higher inflation. 
D) over long periods of time the economy moves to its potential level of output with lower inflation. 
A) if current output equals potential output, the short-run aggregate supply curve is stable. 
B) that inflation is zero in the long run. 
C) over long periods of time the economy moves to its potential level of output with higher inflation. 
D) over long periods of time the economy moves to its potential level of output with lower inflation.

Question 17

Which of the following statements is correct?

Accepted Answer

A) The long-run real interest rate varies directly with changes in non-interest sensitive components of aggregate demand and inversely with potential output. 
B) The long-run real interest rate varies inversely with changes in non-interest sensitive components of aggregate demand and inversely with potential output. 
C) The long-run real interest rate varies directly with changes in non-interest sensitive components of aggregate demand and directly with potential output. 
D) The long-run real interest rate varies directly with changes in non-interest sensitive components of aggregate demand and does not vary with potential output. 
A) The long-run real interest rate varies directly with changes in non-interest sensitive components of aggregate demand and inversely with potential output. 
B) The long-run real interest rate varies inversely with changes in non-interest sensitive components of aggregate demand and inversely with potential output. 
C) The long-run real interest rate varies directly with changes in non-interest sensitive components of aggregate demand and directly with potential output. 
D) The long-run real interest rate varies directly with changes in non-interest sensitive components of aggregate demand and does not vary with potential output.

Question 18

What are the determinants of the potential output for an economy?

Accepted Answer

The key determinants are the levels and

Question 19

If the level of current output suddenly falls below the potential level of output, central bankers would:

Accepted Answer

A) lower the real interest rate. 
B) raise the real interest rate. 
C) keep the real interest rate constant and focus on only changing the nominal interest rate. 
D) attempt to shift the aggregate expenditures curve. 
A) lower the real interest rate. 
B) raise the real interest rate. 
C) keep the real interest rate constant and focus on only changing the nominal interest rate. 
D) attempt to shift the aggregate expenditures curve.

Question 20

Explain why the short-run aggregate supply curve has a positive slope.

Accepted Answer

The short-run aggregate supply curve sho

Exam 21: Output, Inflation, and Monetary Policy

A decrease in the real interest rate in the U.S.will cause net exports to:

Use the equation of exchange to show that in the long run, inflation must equal money growth less the growth of potential output.

Use the monetary policy reaction curve to link a higher inflation rate to lower aggregate demand.

One way inflation reduces aggregate demand is by:

Which of the following statements is most correct?

Evidence seems to point out that just before recessions interest rates rose.Why would monetary policymakers choose to cause recessions?

An output gap occurs when:

A rightward shift in the dynamic aggregate demand curve could result from:

The dynamic aggregate demand curve has a negative slope for all of the following reasons except:

In the face of constant velocity, explain what happens to aggregate demand if the growth rate of money is less than the rate of inflation.

Each of the following factors contribute to the slope of the dynamic aggregate demand curve, except the:

The point where the central bank's target inflation rate is consistent with the long-run real interest rate lies:

If a recession were the result of monetary policy, we should observe:

The conditions for long-run equilibrium include each of the following, except:

If the slope of the monetary policy reaction curve is relatively flat, it means that central bankers are:

One reason the long-run aggregate supply curve has the slope it does is due to the fact that:

Which of the following statements is correct?

What are the determinants of the potential output for an economy?

If the level of current output suddenly falls below the potential level of output, central bankers would:

Explain why the short-run aggregate supply curve has a positive slope.

An Introduction to Money and the Financial System

Money and the Payments System

Financial Instruments, Financial Markets, and Financial Institutions

Future Value, Present Value, and Interest Rates

Understanding Risk

Bonds, Bond Prices, and the Determination of Interest Rates

The Risk and Term Structure of Interest Rates

Stocks, Stock Markets, and Market Efficiency

Derivatives: Futures, Options, and Swaps

Foreign Exchange

The Economics of Financial Intermediation

Depository Institutions: Banks and Bank Management

Financial Industry Structure

Regulating the Financial System

Central Banks in the World Today

The Structure of Central Banks: The Federal Reserve and the European Central Bank

The Central Bank Balance Sheet and the Money Supply Process

Monetary Policy: Stabilizing the Domestic Economy

Exchange-Rate Policy and the Central Bank

Money Growth, Money Demand, and Modern Monetary Policy

Understanding Business Cycle Fluctuations

Modern Monetary Policy and the Challenges Facing Central Bankers

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