Question 1

What is the multiplier effect?

Accepted Answer

The series of induced changes in consumption spending that result from an initial change in autonomous expenditure is called the multiplier effect.

Question 2

A closed economy is one in which

Accepted Answer

A) investment spending is zero. 
B) government spending is zero. 
C) there are no imports or exports. 
D) demand equals supply in every market. 
A) investment spending is zero. 
B) government spending is zero. 
C) there are no imports or exports. 
D) demand equals supply in every market. C

Question 3

What is the multiplier? If MPC =0.75, what is the value of the multiplier in the simple model of the economy?

Accepted Answer

The multiplier is the change in equilibrium GDP divided by a change in autonomous expenditure. In the simple model of the economy, the multiplier = 1/(1-MPC)which equals 1/(1-0.75)= 4

Question 4

The marginal propensity to consume can best be described as:

Accepted Answer

A) consumption/income 
B) the impact of a change in income on GDP 
C) the change in income divided by the change in consumption 
D) the change in consumption divided by the change in income 
A) consumption/income 
B) the impact of a change in income on GDP 
C) the change in income divided by the change in consumption 
D) the change in consumption divided by the change in income

Question 5

What is the inflation gap? What is the output gap?

Accepted Answer

The inflation gap is the diffe

Question 6

Explain how does an increase in real interest rates affect the components of AE.

Accepted Answer

An increase in the real interest rate ma

Question 7

If AE < Y, which of the following will NOT occur?

Accepted Answer

A) inventories will decline 
B) actual investment will be more than planned investment 
C) employment will decline 
D) GDP will decline 
A) inventories will decline 
B) actual investment will be more than planned investment 
C) employment will decline 
D) GDP will decline

Question 8

Which interest rates is most relevant in determining aggregate expenditures?

Accepted Answer

A) federal funds rate 
B) short-term real interest rate 
C) long-term nominal interest rate 
D) long-term real interest rate 
A) federal funds rate 
B) short-term real interest rate 
C) long-term nominal interest rate 
D) long-term real interest rate

Question 9

The IS curve depicts the relationship between

Accepted Answer

A) aggregate output and the real interest rate. 
B) investment demand and the real interest rate. 
C) investment demand and the level of current output. 
D) national saving and the level of current output. 
A) aggregate output and the real interest rate. 
B) investment demand and the real interest rate. 
C) investment demand and the level of current output. 
D) national saving and the level of current output.

Question 10

The gap between the current unemployment rate and the natural rate of unemployment is called:

Accepted Answer

A) frictional unemployment 
B) structural unemployment 
C) cyclical unemployment 
D) full employment 
A) frictional unemployment 
B) structural unemployment 
C) cyclical unemployment 
D) full employment

Question 11

Which of the following prevented the Fed from reducing long-term real interest rates during the Financial Crisis of 2007-2009?

Accepted Answer

A) an increase in expected inflation 
B) an increase in the risk premium 
C) the collapse in the housing market 
D) the failure of the federal funds rate to respond to monetary policy 
A) an increase in expected inflation 
B) an increase in the risk premium 
C) the collapse in the housing market 
D) the failure of the federal funds rate to respond to monetary policy

Question 12

Most economists think changes in which type of unemployment affects inflation?

Accepted Answer

A) frictional unemployment 
B) cyclical unemployment 
C) structural unemployment 
D) natural rate of unemployment 
A) frictional unemployment 
B) cyclical unemployment 
C) structural unemployment 
D) natural rate of unemployment

Question 13

The relationship between the output gap and the cyclical rate of unemployment is known as

Accepted Answer

A) the Phillips curve. 
B) the LM curve. 
C) Murphy's law. 
D) Okun's law. 
A) the Phillips curve. 
B) the LM curve. 
C) Murphy's law. 
D) Okun's law.

Question 14

Which of the following is NOT generally recognized as a channel for monetary policy?

Accepted Answer

A) interest rate channel 
B) balance sheet channel 
C) financial market channel 
D) bank lending channel 
A) interest rate channel 
B) balance sheet channel 
C) financial market channel 
D) bank lending channel

Question 15

In a move up the IS curve,

Accepted Answer

A) investment rises. 
B) output falls. 
C) the real interest rate falls. 
D) saving rises. 
A) investment rises. 
B) output falls. 
C) the real interest rate falls. 
D) saving rises.

Question 16

A reduction in the money supply will result in:

Accepted Answer

A) a lower interest rate and more negative output gap 
B) a higher interest rate and more positive output gap 
C) a lower interest rate and more positive output gap 
D) a higher interest rates and more negative output gap 
A) a lower interest rate and more negative output gap 
B) a higher interest rate and more positive output gap 
C) a lower interest rate and more positive output gap 
D) a higher interest rates and more negative output gap

Question 17

How do expectations of higher inflation become embedded in the economy and affect actual inflation?

Accepted Answer

Workers will push for an increase in the

Question 18

All of the following are likely results of a negative demand shock EXCEPT

Accepted Answer

A) a negative output gap. 
B) lower inflation. 
C) IS shifts to the left. 
D) Phillips curve shifts to the left. 
A) a negative output gap. 
B) lower inflation. 
C) IS shifts to the left. 
D) Phillips curve shifts to the left.

Question 19

The graph of the short-run relationship between the unemployment rate and inflation is called a(n)

Accepted Answer

A) MP curve. 
B) LM curve. 
C) IS curve. 
D) Phillips curve. 
A) MP curve. 
B) LM curve. 
C) IS curve. 
D) Phillips curve.

Question 20

The LM curve slopes upward to the right because

Accepted Answer

A) the demand for money plus the demand for nonmoney assets must equal the supply of money plus the supply of nonmoney assets. 
B) a higher real interest rate is associated with a higher level of the output gap in money market equilibrium. 
C) a higher real interest rate is associated with a higher level of saving in goods market equilibrium. 
D) in equilibrium the actual real interest rate must increase one-for-one with expected real interest rate. 
A) the demand for money plus the demand for nonmoney assets must equal the supply of money plus the supply of nonmoney assets. 
B) a higher real interest rate is associated with a higher level of the output gap in money market equilibrium. 
C) a higher real interest rate is associated with a higher level of saving in goods market equilibrium. 
D) in equilibrium the actual real interest rate must increase one-for-one with expected real interest rate.

What is the multiplier effect?

A closed economy is one in which

What is the multiplier? If MPC =0.75, what is the value of the multiplier in the simple model of the economy?

The marginal propensity to consume can best be described as:

What is the inflation gap? What is the output gap?

Explain how does an increase in real interest rates affect the components of AE.

If AE < Y, which of the following will NOT occur?

Which interest rates is most relevant in determining aggregate expenditures?

The IS curve depicts the relationship between

The gap between the current unemployment rate and the natural rate of unemployment is called:

Which of the following prevented the Fed from reducing long-term real interest rates during the Financial Crisis of 2007-2009?

Most economists think changes in which type of unemployment affects inflation?

The relationship between the output gap and the cyclical rate of unemployment is known as

Which of the following is NOT generally recognized as a channel for monetary policy?

In a move up the IS curve,

A reduction in the money supply will result in:

How do expectations of higher inflation become embedded in the economy and affect actual inflation?

All of the following are likely results of a negative demand shock EXCEPT

The graph of the short-run relationship between the unemployment rate and inflation is called a(n)

The LM curve slopes upward to the right because

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, Information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

Transactions Costs, Asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Investment Banks, Mutual Funds, Hedge Funds, and the Shadow Banking System

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I: The Aggregate Demand and Aggregate Supply Model

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Exam 18: Monetary Theory II: The IS-MP Model

What is the multiplier effect?

A closed economy is one in which

What is the multiplier? If MPC =0.75, what is the value of the multiplier in the simple model of the economy?

The marginal propensity to consume can best be described as:

What is the inflation gap? What is the output gap?

Explain how does an increase in real interest rates affect the components of AE.

If AE < Y, which of the following will NOT occur?

Which interest rates is most relevant in determining aggregate expenditures?

The IS curve depicts the relationship between

The gap between the current unemployment rate and the natural rate of unemployment is called:

Which of the following prevented the Fed from reducing long-term real interest rates during the Financial Crisis of 2007-2009?

Most economists think changes in which type of unemployment affects inflation?

The relationship between the output gap and the cyclical rate of unemployment is known as

Which of the following is NOT generally recognized as a channel for monetary policy?

In a move up the IS curve,

A reduction in the money supply will result in:

How do expectations of higher inflation become embedded in the economy and affect actual inflation?

All of the following are likely results of a negative demand shock EXCEPT

The graph of the short-run relationship between the unemployment rate and inflation is called a(n)

The LM curve slopes upward to the right because

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, Information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

Transactions Costs, Asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Investment Banks, Mutual Funds, Hedge Funds, and the Shadow Banking System

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I: The Aggregate Demand and Aggregate Supply Model

Filters