Question 1

Which of the following statements is correct?

Accepted Answer

A) Because in practice few borrowers are bank-dependent, the bank lending channel is of little real-world importance. 
B) In the interest rate channel, an expansionary monetary policy may cause a leftward shift in the AD curve. 
C) In the bank lending channel, an expansionary monetary policy can increase output in the short run even if it does not result in a decrease in the real interest rate. 
D) In the interest rate channel, an expansionary monetary policy affects spending but not output. 
A) Because in practice few borrowers are bank-dependent, the bank lending channel is of little real-world importance. 
B) In the interest rate channel, an expansionary monetary policy may cause a leftward shift in the AD curve. 
C) In the bank lending channel, an expansionary monetary policy can increase output in the short run even if it does not result in a decrease in the real interest rate. 
D) In the interest rate channel, an expansionary monetary policy affects spending but not output.

Question 2

According to the Phillips Curve, which of the following may have taken place if both the unemployment rate and inflation have risen?

Accepted Answer

A) a negative supply shock 
B) an increase in expected inflation 
C) a severe recession 
D) a negative demand shock 
A) a negative supply shock 
B) an increase in expected inflation 
C) a severe recession 
D) a negative demand shock

Question 3

Which of the following does NOT lead to an increase in potential GDP?

Accepted Answer

A) labor force grows 
B) technological change takes place 
C) new machinery and equipment are installed 
D) aggregate expenditures increase 
A) labor force grows 
B) technological change takes place 
C) new machinery and equipment are installed 
D) aggregate expenditures increase

Question 4

How is the economy likely to respond when AE (sales)exceed production?

Accepted Answer

If sales exceed production, not just for

Question 5

The aggregate expenditure line is upward sloping since as GDP increases,

Accepted Answer

A) consumption increases 
B) investment increases 
C) government purchases increase 
D) net exports increase 
A) consumption increases 
B) investment increases 
C) government purchases increase 
D) net exports increase

Question 6

In the bank lending channel, an important reason for output increases in the short run after an expansionary monetary policy is that

Accepted Answer

A) the funds directly available for households and firms to spend will increase. 
B) prices will increase, making increased production more profitable for firms. 
C) the increase in government spending from an expansionary monetary policy increases output through the multiplier effect. 
D) the ability of banks to make loans will increase. 
A) the funds directly available for households and firms to spend will increase. 
B) prices will increase, making increased production more profitable for firms. 
C) the increase in government spending from an expansionary monetary policy increases output through the multiplier effect. 
D) the ability of banks to make loans will increase.

Question 7

At any point along the LM curve,

Accepted Answer

A) the quantity of money demanded equals the quantity of money supplied. 
B) the economy must be in general equilibrium. 
C) the nominal interest rate must equal the real interest rate. 
D) saving must equal investment. 
A) the quantity of money demanded equals the quantity of money supplied. 
B) the economy must be in general equilibrium. 
C) the nominal interest rate must equal the real interest rate. 
D) saving must equal investment.

Question 8

The MP curve represents

Accepted Answer

A) the Fed's monetary policy actions in setting a target for the federal funds rate. 
B) the relationship between the money supply and the price level. 
C) a relationship between the real interest rate and manufacturing production. 
D) the relationship between real interest rates and potential GDP. 
A) the Fed's monetary policy actions in setting a target for the federal funds rate. 
B) the relationship between the money supply and the price level. 
C) a relationship between the real interest rate and manufacturing production. 
D) the relationship between real interest rates and potential GDP.

Question 9

Economists who have studied the Phillips curve have concluded that it can shift due to all of the following EXCEPT

Accepted Answer

A) demand shocks. 
B) supply shocks. 
C) changes in household expectations of inflation. 
D) changes in firms' expectations of inflation. 
A) demand shocks. 
B) supply shocks. 
C) changes in household expectations of inflation. 
D) changes in firms' expectations of inflation.

Question 10

An increase in the real interest rate causes

Accepted Answer

A) the IS curve to shift to the right. 
B) the IS curve to shift to the left. 
C) a movement up the IS curve. 
D) a movement down the IS curve. 
A) the IS curve to shift to the right. 
B) the IS curve to shift to the left. 
C) a movement up the IS curve. 
D) a movement down the IS curve.

Question 11

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

Accepted Answer

A) induced effect. 
B) autonomous effect. 
C) multiplier effect. 
D) consumption effect 
A) induced effect. 
B) autonomous effect. 
C) multiplier effect. 
D) consumption effect

Question 12

Which of the following statements about potential GDP is false?

Accepted Answer

A) The Fed's goal is to have equilibrium GDP close to potential GDP. 
B) When GDP is at potential, cyclical unemployment is zero. 
C) It occurs when firms are producing at their maximum level of output. 
D) It occurs when firms are producing with a workforce of normal size working normal hours. 
A) The Fed's goal is to have equilibrium GDP close to potential GDP. 
B) When GDP is at potential, cyclical unemployment is zero. 
C) It occurs when firms are producing at their maximum level of output. 
D) It occurs when firms are producing with a workforce of normal size working normal hours.

Question 13

Which of the following would NOT cause a shift in the IS curve?

Accepted Answer

A) an increase in the domestic real interest rate 
B) an increase in consumer confidence 
C) a decrease in the expected future profitability of capital 
D) a decrease in government purchases 
A) an increase in the domestic real interest rate 
B) an increase in consumer confidence 
C) a decrease in the expected future profitability of capital 
D) a decrease in government purchases

Question 14

The bank lending channel

Accepted Answer

A) emphasizes the role of interest rates in the money supply process. 
B) emphasizes the importance of borrowers' net worth to the decision of lenders to grant loans. 
C) emphasizes the behavior of bank-dependent borrowers. 
D) is another name for the interest rate channel. 
A) emphasizes the role of interest rates in the money supply process. 
B) emphasizes the importance of borrowers' net worth to the decision of lenders to grant loans. 
C) emphasizes the behavior of bank-dependent borrowers. 
D) is another name for the interest rate channel.

Question 15

What is potential GDP? What happens to unemployment when GDP is at its potential?

Accepted Answer

Potential GDP is the level of real GDP a

Question 16

All of the following help provide the basis for the Fed controlling the real interest rate in the IS-MP model EXCEPT

Accepted Answer

A) the Fed controls the federal funds rate through open market operations. 
B) if expected future inflation remains stable, changes in nominal interest rates reflect changes in real interest rates. 
C) short-term and long-term interest rates tend to move together. 
D) the Fed's increased use of TIPS in conducting monetary policy. 
A) the Fed controls the federal funds rate through open market operations. 
B) if expected future inflation remains stable, changes in nominal interest rates reflect changes in real interest rates. 
C) short-term and long-term interest rates tend to move together. 
D) the Fed's increased use of TIPS in conducting monetary policy.

Question 17

Suppose the stock market crashes resulting in a significant decline in the wealth of consumers. Make use of the IS-MP model to illustrate the impact this has on the economy. How is the Fed likely to respond? Show the impact of the change in monetary policy on the graph of the IS-MP model.

Accepted Answer

The decline in wealth causes the IS curv

Question 18

In a simple model of the economy, if the MPC is 0.8, the multiplier will equal

Accepted Answer

A) 0)2 
B) 0)8 
C) 1)25 
D) 5 
A) 0)2 
B) 0)8 
C) 1)25 
D) 5

Which of the following statements is correct?

According to the Phillips Curve, which of the following may have taken place if both the unemployment rate and inflation have risen?

Which of the following does NOT lead to an increase in potential GDP?

How is the economy likely to respond when AE (sales)exceed production?

The aggregate expenditure line is upward sloping since as GDP increases,

In the bank lending channel, an important reason for output increases in the short run after an expansionary monetary policy is that

At any point along the LM curve,

The MP curve represents

Economists who have studied the Phillips curve have concluded that it can shift due to all of the following EXCEPT

An increase in the real interest rate causes

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

Which of the following statements about potential GDP is false?

Which of the following would NOT cause a shift in the IS curve?

The bank lending channel

What is potential GDP? What happens to unemployment when GDP is at its potential?

All of the following help provide the basis for the Fed controlling the real interest rate in the IS-MP model EXCEPT

Suppose the stock market crashes resulting in a significant decline in the wealth of consumers. Make use of the IS-MP model to illustrate the impact this has on the economy. How is the Fed likely to respond? Show the impact of the change in monetary policy on the graph of the IS-MP model.

In a simple model of the economy, if the MPC is 0.8, the multiplier will equal

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

Which of the following statements is correct?

According to the Phillips Curve, which of the following may have taken place if both the unemployment rate and inflation have risen?

Which of the following does NOT lead to an increase in potential GDP?

How is the economy likely to respond when AE (sales)exceed production?

The aggregate expenditure line is upward sloping since as GDP increases,

In the bank lending channel, an important reason for output increases in the short run after an expansionary monetary policy is that

At any point along the LM curve,

The MP curve represents

Economists who have studied the Phillips curve have concluded that it can shift due to all of the following EXCEPT

An increase in the real interest rate causes

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

Which of the following statements about potential GDP is false?

Which of the following would NOT cause a shift in the IS curve?

The bank lending channel

What is potential GDP? What happens to unemployment when GDP is at its potential?

All of the following help provide the basis for the Fed controlling the real interest rate in the IS-MP model EXCEPT

Suppose the stock market crashes resulting in a significant decline in the wealth of consumers. Make use of the IS-MP model to illustrate the impact this has on the economy. How is the Fed likely to respond? Show the impact of the change in monetary policy on the graph of the IS-MP model.

In a simple model of the economy, if the MPC is 0.8, the multiplier will equal

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