Question 1

If consumer and business sentiment were to increase dramatically, causing an expansionary gap:

Accepted Answer

A) Monetary policymakers could stabilize the economy by shifting their monetary policy reaction curve to the right 
B) Fiscal policymakers could stabilize aggregate demand by cutting income and business taxes 
C) Monetary policymakers would likely shift the monetary policy reaction curve to the left to shift the dynamic aggregate demand left 
D) Fiscal policymakers could stabilize aggregate demand by increasing government purchases 
A) Monetary policymakers could stabilize the economy by shifting their monetary policy reaction curve to the right 
B) Fiscal policymakers could stabilize aggregate demand by cutting income and business taxes 
C) Monetary policymakers would likely shift the monetary policy reaction curve to the left to shift the dynamic aggregate demand left 
D) Fiscal policymakers could stabilize aggregate demand by increasing government purchases

Question 2

In recent years the discussions of the causes of recessions have focused on monetary policy and higher oil prices as the likely causes.Discuss how we can get insight into the likely cause by focusing on macroeconomic variables.

Accepted Answer

If the recession was caused by monetary

Question 3

In which situation would policymakers be unable to neutralize the effect on the economy?

Accepted Answer

A) The federal government runs a deficit 
B) An increase in the price of oil 
C) Imports exceed exports 
D) Consumer confidence declines 
A) The federal government runs a deficit 
B) An increase in the price of oil 
C) Imports exceed exports 
D) Consumer confidence declines

Question 4

If monetary policymakers do not want the current inflation rate to increase, yet they observe increasing aggregate demand from higher government purchases, will they have to accept a higher inflation target? Explain.

Accepted Answer

Not necessarily.If the increase in aggre

Question 5

Policymakers can neutralize:

Accepted Answer

A) Supply shocks, but only in the short run 
B) Supply shocks, but only in the long run 
C) Supply shocks in both the short run and the long run 
D) Only demand shocks 
A) Supply shocks, but only in the short run 
B) Supply shocks, but only in the long run 
C) Supply shocks in both the short run and the long run 
D) Only demand shocks

Question 6

An increase in aggregate demand with no adjustment in monetary policy will result in:

Accepted Answer

A) An increase in potential output and higher inflation 
B) A decrease in potential output and higher inflation 
C) No change in potential output but higher inflation 
D) No change in inflation 
A) An increase in potential output and higher inflation 
B) A decrease in potential output and higher inflation 
C) No change in potential output but higher inflation 
D) No change in inflation

Question 7

If prices and wages are slow to adjust ("sticky," rather than flexible):

Accepted Answer

A) Inflation would adjust rapidly 
B) Output gaps would disappear quickly 
C) Inflation would adjust to output gaps sluggishly 
D) The short-run aggregate supply curve would not shift 
A) Inflation would adjust rapidly 
B) Output gaps would disappear quickly 
C) Inflation would adjust to output gaps sluggishly 
D) The short-run aggregate supply curve would not shift

Question 8

Stabilization policy refers to the use of:

Accepted Answer

A) Only fiscal policy 
B) Only monetary policy 
C) Either fiscal or monetary policy 
D) Policy to shift the long-run aggregate supply curve 
A) Only fiscal policy 
B) Only monetary policy 
C) Either fiscal or monetary policy 
D) Policy to shift the long-run aggregate supply curve

Question 9

Which of the following statements best describes the level of potential output in the U.S.?

Accepted Answer

A) It never changes year to year 
B) It is very erratic year to year 
C) It usually increases year to year 
D) It has been decreasing since 1999 
A) It never changes year to year 
B) It is very erratic year to year 
C) It usually increases year to year 
D) It has been decreasing since 1999

Question 10

Central bankers with a relatively steep monetary policy reaction curve will:

Accepted Answer

A) Move interest rates more aggressively when inflation rises, leading to more volatility in output 
B) Move interest rates more aggressively when inflation rises, leading to less volatility in output 
C) Move interest rates less aggressively when inflation rises, leading to more volatility in output 
D) Move interest rates less aggressively when inflation rises, leading to less volatility in output 
A) Move interest rates more aggressively when inflation rises, leading to more volatility in output 
B) Move interest rates more aggressively when inflation rises, leading to less volatility in output 
C) Move interest rates less aggressively when inflation rises, leading to more volatility in output 
D) Move interest rates less aggressively when inflation rises, leading to less volatility in output

Question 11

Policymakers can stabilize the economy by shifting:

Accepted Answer

A) The short-run aggregate supply curve 
B) The dynamic aggregate demand curve 
C) The long-run aggregate supply curve 
D) Neither the short-run aggregate supply curve nor the dynamic aggregate supply curve 
A) The short-run aggregate supply curve 
B) The dynamic aggregate demand curve 
C) The long-run aggregate supply curve 
D) Neither the short-run aggregate supply curve nor the dynamic aggregate supply curve

Question 12

Without a change in target inflation, anything that shifts the aggregate demand curve to the right will cause:

Accepted Answer

A) A temporary increase in output 
B) A permanent reduction in inflation 
C) A temporary increase in inflation 
D) A decrease in inflation in the long run 
A) A temporary increase in output 
B) A permanent reduction in inflation 
C) A temporary increase in inflation 
D) A decrease in inflation in the long run

Question 13

The period 1974-1975 is somewhat unique in U.S.economic history due to the fact that:

Accepted Answer

A) The output was growing rapidly and the inflation rate was falling 
B) Both the output and the inflation rate were falling 
C) Output was falling yet the inflation rate rose dramatically 
D) Output and the inflation rate were both rising 
A) The output was growing rapidly and the inflation rate was falling 
B) Both the output and the inflation rate were falling 
C) Output was falling yet the inflation rate rose dramatically 
D) Output and the inflation rate were both rising

Question 14

During the Vietnam War, monetary policy officials reacted to the increases in aggregate demand resulting from military expenditures by:

Accepted Answer

A) Not shifting the monetary policy reaction function 
B) Dramatically slowing money growth 
C) Shifting the monetary policy reaction curve to the left 
D) Keeping the same inflation target and raising the real interest rates 
A) Not shifting the monetary policy reaction function 
B) Dramatically slowing money growth 
C) Shifting the monetary policy reaction curve to the left 
D) Keeping the same inflation target and raising the real interest rates

Question 15

Globalization and trade:

Accepted Answer

A) Can be seen as a source of productivity enhancing technological progress 
B) Shifts both the short-run and long-run aggregate supply curves to the right 
C) Provide an opportunity to reduce inflation permanently 
D) All of the answers provided are correct 
A) Can be seen as a source of productivity enhancing technological progress 
B) Shifts both the short-run and long-run aggregate supply curves to the right 
C) Provide an opportunity to reduce inflation permanently 
D) All of the answers provided are correct

Question 16

Monetary policy has the following advantage(s) over fiscal policy:

Accepted Answer

A) It is less influenced by politics 
B) It can be implemented faster 
C) It can be fine-tuned 
D) All of the answers given are correct 
A) It is less influenced by politics 
B) It can be implemented faster 
C) It can be fine-tuned 
D) All of the answers given are correct

Question 17

Possible explanations that have been offered for the Great Moderation experienced in the United States during the 1990s include all of the following except:

Accepted Answer

A) Good fortune 
B) Economies that have become more flexible in absorbing shocks 
C) Calm financial markets 
D) Better understanding and use of monetary policy 
A) Good fortune 
B) Economies that have become more flexible in absorbing shocks 
C) Calm financial markets 
D) Better understanding and use of monetary policy

Question 18

Increases in productivity result in:

Accepted Answer

A) Higher inflation as output increases 
B) Lower inflation as output decreases 
C) Opportunities for policymakers to reduce their inflation target without inducing a recession 
D) None of the answers provided is correct 
A) Higher inflation as output increases 
B) Lower inflation as output decreases 
C) Opportunities for policymakers to reduce their inflation target without inducing a recession 
D) None of the answers provided is correct

Question 19

Which of the following statements is incorrect?

Accepted Answer

A) A fall in the central bank's target inflation rate shifts the monetary policy reaction curve to the left 
B) A decrease in the central bank's inflation target raises the real interest rate policymakers set at each level of output 
C) Shifts in the monetary policy reaction curve shift the dynamic aggregate demand curve in the same direction 
D) A fall in the central bank's target inflation rate causes the monetary policy reaction curve to flatten 
A) A fall in the central bank's target inflation rate shifts the monetary policy reaction curve to the left 
B) A decrease in the central bank's inflation target raises the real interest rate policymakers set at each level of output 
C) Shifts in the monetary policy reaction curve shift the dynamic aggregate demand curve in the same direction 
D) A fall in the central bank's target inflation rate causes the monetary policy reaction curve to flatten

Question 20

Almost all recessions identified by the NBER are characterized by:

Accepted Answer

A) Declining real GDP. 
B) Higher interest rates. 
C) Durations exceeding.two years. 
D) Higher rates of inflation. 
A) Declining real GDP. 
B) Higher interest rates. 
C) Durations exceeding.two years. 
D) Higher rates of inflation.

Exam 22: Understanding Business Cycle Fluctuations

If consumer and business sentiment were to increase dramatically, causing an expansionary gap:

In recent years the discussions of the causes of recessions have focused on monetary policy and higher oil prices as the likely causes.Discuss how we can get insight into the likely cause by focusing on macroeconomic variables.

In which situation would policymakers be unable to neutralize the effect on the economy?

If monetary policymakers do not want the current inflation rate to increase, yet they observe increasing aggregate demand from higher government purchases, will they have to accept a higher inflation target? Explain.

Policymakers can neutralize:

An increase in aggregate demand with no adjustment in monetary policy will result in:

If prices and wages are slow to adjust ("sticky," rather than flexible):

Stabilization policy refers to the use of:

Which of the following statements best describes the level of potential output in the U.S.?

Central bankers with a relatively steep monetary policy reaction curve will:

Policymakers can stabilize the economy by shifting:

Without a change in target inflation, anything that shifts the aggregate demand curve to the right will cause:

The period 1974-1975 is somewhat unique in U.S.economic history due to the fact that:

During the Vietnam War, monetary policy officials reacted to the increases in aggregate demand resulting from military expenditures by:

Globalization and trade:

Monetary policy has the following advantage(s) over fiscal policy:

Possible explanations that have been offered for the Great Moderation experienced in the United States during the 1990s include all of the following except:

Increases in productivity result in:

Which of the following statements is incorrect?

Almost all recessions identified by the NBER are characterized by:

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

Output, Inflation, and Monetary Policy

Modern Monetary Policy and the Challenges Facing Central Bankers

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