Question 1

Nonactivists argue against the use of discretionary monetary policy and rules-based monetary policy.

Accepted Answer

A) True 
 B)False

Question 2

According to the Keynesian transmission mechanism,an increase in the money supply will __________ the interest rate,causing a __________ in investment,which then __________ Real GDP.

Accepted Answer

A)  raise; fall; raises 
B)  raise; rise; lowers 
C)  raise; fall; lowers 
D)  lower; fall; lowers 
E)  lower; rise; raises 
A)  raise; fall; raises 
B)  raise; rise; lowers 
C)  raise; fall; lowers 
D)  lower; fall; lowers 
E)  lower; rise; raises

Question 3

The price of old (or existing)bonds and interest rates have an inverse relationship.

Accepted Answer

A) True 
 B)False

Question 4

The quantity demanded of money falls as the

Accepted Answer

A)  interest rate falls. 
B)  interest rate rises. 
C)  supply of money rises. 
D)  none of the above,since the quantity demanded of money is unrelated to the interest rate 
A)  interest rate falls. 
B)  interest rate rises. 
C)  supply of money rises. 
D)  none of the above,since the quantity demanded of money is unrelated to the interest rate

Question 5

-Refer to Exhibit 15-2.A(n)__________ in the money supply from S1 to S2 would have a tendency to __________ the amount of investment,assuming investment is sensitive to changes in the interest rate.

Accepted Answer

A)  decrease; raise 
B)  decrease; lower 
C)  increase; raise 
D)  increase; lower 
A)  decrease; raise 
B)  decrease; lower 
C)  increase; raise 
D)  increase; lower

Question 6

-Refer to Exhibit 15-l.A Keynesian would say that natural market forces work so slowly in a recessionary gap in taking the economy between point __________ that an activist monetary policy is called for.

Accepted Answer

A)  B and point D 
B)  B and point C 
C)  C and point B 
D)  B and point A 
A)  B and point D 
B)  B and point C 
C)  C and point B 
D)  B and point A

Question 7

Activists believe that

Accepted Answer

A)  there is sufficient flexibility in wages and prices to allow the economy to equilibrate at full-employment Real GDP in a reasonable period of time. 
B)  discretionary fiscal policies do not work. 
C)  discretionary monetary policies do not work. 
D)  fine-tuning to smooth out the business cycle is feasible. 
A)  there is sufficient flexibility in wages and prices to allow the economy to equilibrate at full-employment Real GDP in a reasonable period of time. 
B)  discretionary fiscal policies do not work. 
C)  discretionary monetary policies do not work. 
D)  fine-tuning to smooth out the business cycle is feasible.

Question 8

Which of the following might break the link in the Keynesian transmission mechanism between the expansionary monetary policy and the goods-and-services market?

Accepted Answer

A)  a downward-sloping investment demand curve 
B)  a vertical money supply curve 
C)  a belief on the part of individuals that bond prices are extraordinarily low 
D)  all of the above 
E)  none of the above 
A)  a downward-sloping investment demand curve 
B)  a vertical money supply curve 
C)  a belief on the part of individuals that bond prices are extraordinarily low 
D)  all of the above 
E)  none of the above

Question 9

Explain how,according to the theory of PSST (patterns of specialization and sustainable trade),economic activity can decline in the face of unchanged aggregate demand.Give a hypothetical example to help support your answer.

Accepted Answer

With a specialized labor force,there can

Question 10

Which of the following statements is likely to be made by an economist who does not believe in activist monetary policy? (1)The more closely monetary policy can he designed to meet the particulars of a given economic environment,the better.(2)Because of long and uncertain time lags,activist monetary policy may be destabilizing rather than stabilizing.(3)There is sufficient flexibility in wages and prices in modern economies to allow the economy to equilibrate in reasonable speed at the natural level of Real GDP,(4)The "same-for-all-seasons" monetary policy is the way to proceed.(5)There is evidence that monetary policy in the mid-1970s caused a recession.

Accepted Answer

A)  (1),(2),and (3) 
B)  (1),(4),and (5) 
C)  (2),(3),and (4) 
D)  (3),(4),and (5) 
E)  (1)only 
A)  (1),(2),and (3) 
B)  (1),(4),and (5) 
C)  (2),(3),and (4) 
D)  (3),(4),and (5) 
E)  (1)only

Question 11

-Refer to Exhibit 15-l.A monetarist would claim that in a recessionary gap,the economy would move on its own from point

Accepted Answer

A)  B to point C. 
B)  B to point A. 
C)  A to point B. 
D)  D to point C. 
A)  B to point C. 
B)  B to point A. 
C)  A to point B. 
D)  D to point C.

Question 12

The object of inflation targeting is for a country's central bank to try to keep the inflation rate near

Accepted Answer

A)  the country's historical average economic growth rate. 
B)  some predetermined level. 
C)  the country's historical average inflation rate. 
D)  the country's historical average unemployment rate. 
A)  the country's historical average economic growth rate. 
B)  some predetermined level. 
C)  the country's historical average inflation rate. 
D)  the country's historical average unemployment rate.

Question 13

Interest rates and the price of old or existing bonds are

Accepted Answer

A)  directly related. 
B)  independent of each other. 
C)  inversely related. 
D)  sometimes directly related and sometimes inversely related. 
E)  There is not enough information to answer the question. 
A)  directly related. 
B)  independent of each other. 
C)  inversely related. 
D)  sometimes directly related and sometimes inversely related. 
E)  There is not enough information to answer the question.

Question 14

As the interest rate increases,the opportunity cost of holding money __________ and individuals choose to hold __________ money.

Accepted Answer

A)  rises; more 
B)  falls; less 
C)  rises; less 
D)  falls; more 
A)  rises; more 
B)  falls; less 
C)  rises; less 
D)  falls; more

Question 15

The money supply decreased and the AD curve shifted to the left.This is consistent with the

Accepted Answer

A)  Keynesian transmission mechanism when there is neither a liquidity trap nor interest-insensitive investment. 
B)  monetarist transmission mechanism. 
C)  Keynesian transmission mechanism when there is a liquidity trap. 
D)  Keynesian transmission mechanism with interest-insensitive investment. 
E)  a and b 
A)  Keynesian transmission mechanism when there is neither a liquidity trap nor interest-insensitive investment. 
B)  monetarist transmission mechanism. 
C)  Keynesian transmission mechanism when there is a liquidity trap. 
D)  Keynesian transmission mechanism with interest-insensitive investment. 
E)  a and b

Question 16

Monetarists believe that changes in the supply of money

Accepted Answer

A)  do not affect aggregate demand. 
B)  affect aggregate demand through the loanable funds market only. 
C)  affect only the investment component of aggregate demand. 
D)  affect aggregate demand directly. 
A)  do not affect aggregate demand. 
B)  affect aggregate demand through the loanable funds market only. 
C)  affect only the investment component of aggregate demand. 
D)  affect aggregate demand directly.

Question 17

If a liquidity trap exists,people are likely to be thinking that

Accepted Answer

A)  bond prices are so low that they have nowhere to go but up; given this,now is a good time to be holding bonds. 
B)  bond prices are so high that they have nowhere to go but down; given this,it is better not to be holding bonds. 
C)  bond prices will soon rise so it is better to get out of bonds now. 
D)  interest rates will soon fall. 
A)  bond prices are so low that they have nowhere to go but up; given this,now is a good time to be holding bonds. 
B)  bond prices are so high that they have nowhere to go but down; given this,it is better not to be holding bonds. 
C)  bond prices will soon rise so it is better to get out of bonds now. 
D)  interest rates will soon fall.

Question 18

Describe the monetary policy known as inflation targeting.What are the three major issues that surround this practice?

Accepted Answer

Inflation targeting requires that the Fe

Question 19

When an economist states that the monetarist transmission mechanism is "direct" it means that a change in the money supply creates a direct impact on the goods and services market.

Accepted Answer

A) True 
 B)False

Question 20

According to the Taylor Rule,if the inflation rate is 3 percent and the GDP gap is 2 percent,what does the federal funds rate target equal?

Accepted Answer

A)  8.5 percent 
B)  5.5 percent 
C)  3.5 percent 
D)  6.5 percent 
A)  8.5 percent 
B)  5.5 percent 
C)  3.5 percent 
D)  6.5 percent

Exam 15: The Distribution of Income and Poverty

Nonactivists argue against the use of discretionary monetary policy and rules-based monetary policy.

According to the Keynesian transmission mechanism,an increase in the money supply will __________ the interest rate,causing a __________ in investment,which then __________ Real GDP.

The price of old (or existing)bonds and interest rates have an inverse relationship.

The quantity demanded of money falls as the

-Refer to Exhibit 15-2.A(n)__________ in the money supply from S1 to S2 would have a tendency to __________ the amount of investment,assuming investment is sensitive to changes in the interest rate.

-Refer to Exhibit 15-l.A Keynesian would say that natural market forces work so slowly in a recessionary gap in taking the economy between point __________ that an activist monetary policy is called for.

Activists believe that

Which of the following might break the link in the Keynesian transmission mechanism between the expansionary monetary policy and the goods-and-services market?

Explain how,according to the theory of PSST (patterns of specialization and sustainable trade),economic activity can decline in the face of unchanged aggregate demand.Give a hypothetical example to help support your answer.

-Refer to Exhibit 15-l.A monetarist would claim that in a recessionary gap,the economy would move on its own from point

The object of inflation targeting is for a country's central bank to try to keep the inflation rate near

Interest rates and the price of old or existing bonds are

As the interest rate increases,the opportunity cost of holding money __________ and individuals choose to hold __________ money.

The money supply decreased and the AD curve shifted to the left.This is consistent with the

Monetarists believe that changes in the supply of money

If a liquidity trap exists,people are likely to be thinking that

Describe the monetary policy known as inflation targeting.What are the three major issues that surround this practice?

When an economist states that the monetarist transmission mechanism is "direct" it means that a change in the money supply creates a direct impact on the goods and services market.

According to the Taylor Rule,if the inflation rate is 3 percent and the GDP gap is 2 percent,what does the federal funds rate target equal?

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand: Theory

Prices: Free,controlled,and Relative

Supply,demand,and Price: Applications

Elasticity

Consumer Choice: Maximizing Utility and Behavioral Economics

Production and Costs

Perfect Competition

Monopoly

Monopolistic Competition, oligopoly, and Game Theory

Government and Product Markets: Antitrust and Regulation

Factor Markets: With Emphasis on the Labor Market

Wages,union,and Labor

Interest,rent,and Profit

Market Failure: Externalities, public Goods, and Asymmetric Information

Public Choice and Special-Interest-Group Politics

Building Theories to Explain Everyday Life: From Observations to Questions to Theories to Predictions

International Trade

International Finance

The Economic Case for and Against Government: Five Topics Considered

Stocks,bonds,futures,and Options

Stocks,bonds,futures,and Options

Filters

According to the Keynesian transmission mechanism,an increase in the money supply will the interest rate,causing a in investment,which then __ Real GDP.

-Refer to Exhibit 15-2.A(n) in the money supply from S₁ to S₂ would have a tendency to the amount of investment,assuming investment is sensitive to changes in the interest rate.

As the interest rate increases,the opportunity cost of holding money and individuals choose to hold money.