Question 1

Economic fine-tuning is the (usually frequent)use of

Accepted Answer

A)  monetary policy that is based on a predetermined steady growth rate in the money supply to counteract even small undesirable movements in economic activity. 
B)  only fiscal policy to counteract even small undesirable movements in economic activity. 
C)  monetary and fiscal policies to counteract even small undesirable movements in economic activity. 
D)  fiscal policy that both balances the budget and counteracts even small undesirable movements in economic activity. 
A)  monetary policy that is based on a predetermined steady growth rate in the money supply to counteract even small undesirable movements in economic activity. 
B)  only fiscal policy to counteract even small undesirable movements in economic activity. 
C)  monetary and fiscal policies to counteract even small undesirable movements in economic activity. 
D)  fiscal policy that both balances the budget and counteracts even small undesirable movements in economic activity.

Question 2

Economists who favor activist monetary policy often argue that

Accepted Answer

A)  during the mid-1970s,money supply growth rates were nearly constant and still the economy went through a recession. 
B)  during the mid-1970s,activist monetary policy was applied and the economy was healthy and stable. 
C)  activist monetary policy is inflexible and this is one of its virtues; the money supply doesn't change every year in response to political considerations. 
D)  activist monetary policy is likely to be destabilizing most of the time,but still it is the better way to proceed. 
A)  during the mid-1970s,money supply growth rates were nearly constant and still the economy went through a recession. 
B)  during the mid-1970s,activist monetary policy was applied and the economy was healthy and stable. 
C)  activist monetary policy is inflexible and this is one of its virtues; the money supply doesn't change every year in response to political considerations. 
D)  activist monetary policy is likely to be destabilizing most of the time,but still it is the better way to proceed.

Question 3

-Refer to Exhibit 15-4.In the row of this table containing blank (A),people are holding ______________ of their wealth in bonds and ________________ of their wealth in money.

Accepted Answer

A)  too much; too little 
B)  too little; too much 
C)  just the right amount; too little 
D)  just the right amount; too much 
E)  just the right amount; just the right amount 
A)  too much; too little 
B)  too little; too much 
C)  just the right amount; too little 
D)  just the right amount; too much 
E)  just the right amount; just the right amount

Question 4

Assume the Keynesian transmission mechanism is operational and the economy is currently operating in the horizontal portion of the AS curve.If the money supply decreases and the demand for money curve is downward sloping and investment is interest-____________,then Real GDP will ___________________.

Accepted Answer

A)  sensitive; fall 
B)  insensitive; fall 
C)  sensitive; rise 
D)  insensitive; rise 
E)  sensitive; remain unchanged 
A)  sensitive; fall 
B)  insensitive; fall 
C)  sensitive; rise 
D)  insensitive; rise 
E)  sensitive; remain unchanged

Question 5

The rules-based monetary policy reads: The money supply will increase 3 percent each year.If the average annual growth rate in Real GDP is 2 percent and velocity increases by 1 percent each year,it follows that

Accepted Answer

A)  the price level will,on average,rise 2 percent a year. 
B)  the price level will rise 2 percent this year. 
C)  in some years the price level will rise by more than in other years. 
D)  in some years the price level may not change at all. 
E)  a,c and d 
A)  the price level will,on average,rise 2 percent a year. 
B)  the price level will rise 2 percent this year. 
C)  in some years the price level will rise by more than in other years. 
D)  in some years the price level may not change at all. 
E)  a,c and d

Question 6

As the interest rate falls,the quantity

Accepted Answer

A)  demanded of money falls. 
B)  demanded of money rises. 
C)  supplied of money rises. 
D)  supplied of money falls. 
A)  demanded of money falls. 
B)  demanded of money rises. 
C)  supplied of money rises. 
D)  supplied of money falls.

Question 7

Compared to the Keynesian transmission mechanism,the monetarist transmission mechanism is

Accepted Answer

A)  direct. 
B)  indirect. 
C)  inverse. 
D)  none of the above 
A)  direct. 
B)  indirect. 
C)  inverse. 
D)  none of the above

Question 8

According to the Keynesian transmission mechanism,an increase in the money supply causes a(n)__________ in the interest rate and a(n)__________ in investment,which in turn causes a(n)__________ in total expenditures and aggregate demand.

Accepted Answer

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

Question 9

The SRAS curve is upward sloping,there is a liquidity trap,and investment spending is sensitive to changes in the interest rate.According to the monetarist transmission mechanism,if the money supply increases the AD curve __________ and the price level __________.

Accepted Answer

A)  does not change; does not change 
B)  shifts to the left; falls 
C)  shifts to the right; rises 
D)  does not change; rises 
E)  none of the above 
A)  does not change; does not change 
B)  shifts to the left; falls 
C)  shifts to the right; rises 
D)  does not change; rises 
E)  none of the above

Question 10

A general definition of the "transmission mechanism" is: the routes or channels that ripple effects created in the

Accepted Answer

A)  market for goods and the services travel to affect the money market. 
B)  money market travel to affect the market for goods and services. 
C)  labor market travel to affect the market for goods and services. 
D)  market for goods and services travel to affect the labor market. 
E)  none of the above 
A)  market for goods and the services travel to affect the money market. 
B)  money market travel to affect the market for goods and services. 
C)  labor market travel to affect the market for goods and services. 
D)  market for goods and services travel to affect the labor market. 
E)  none of the above

Question 11

The money supply curve is usually horizontal.

Accepted Answer

A) True 
 B)False

Question 12

-Refer to Exhibit 15-2.If the interest rate is i1 and the relevant money supply curve is S2,then there is a

Accepted Answer

A)  shortage of money between points B and A. 
B)  surplus of money between points B and A. 
C)  surplus of money between points C and D. 
D)  shortage of money between points C and D. 
A)  shortage of money between points B and A. 
B)  surplus of money between points B and A. 
C)  surplus of money between points C and D. 
D)  shortage of money between points C and D.

Question 13

Equilibrium in the money market exists when

Accepted Answer

A)  at a given interest rate,excess supply of money is equal to the quantity demanded of money. 
B)  at a given interest rate,excess demand for money is equal to the quantity demanded of money. 
C)  the supply of money curve intersects the demand for money curve at the prevailing interest rate. 
D)  b and c 
A)  at a given interest rate,excess supply of money is equal to the quantity demanded of money. 
B)  at a given interest rate,excess demand for money is equal to the quantity demanded of money. 
C)  the supply of money curve intersects the demand for money curve at the prevailing interest rate. 
D)  b and c

Question 14

-Refer to Exhibit 15-6.Assume that the economy starts out producing Q1.An economist who believes that the economy is not self-regulating would assert that the government should use _________________ fiscal policy to close the existing ___________________ gap.

Accepted Answer

A)  expansionary; inflationary 
B)  expansionary; recessionary 
C)  contractionary; recessionary 
D)  contractionary; inflationary 
A)  expansionary; inflationary 
B)  expansionary; recessionary 
C)  contractionary; recessionary 
D)  contractionary; inflationary

Question 15

Assuming that the SRAS curve is upward sloping,which of the following statements represents a correct and sequentially accurate economic explanation?

Accepted Answer

A)  The demand for bonds falls,the price of bonds falls,the interest rate rises,investment spending declines,the AD curve shifts to the left,the price level declines and Real GDP decreases. 
B)  The demand for bonds rises,the price of bonds rises,the interest rate rises,investment spending declines,the AD curve shifts to the left,the price level declines and Real GDP decreases. 
C)  The supply of bonds rises,the price of bonds falls,the interest rate falls,investment spending rises,the AD curve shifts to the right,the price level declines and Real GDP decreases. 
D)  The supply of bonds falls,the price of bonds rises,the interest rate falls,investment spending rises,the AD curve shifts to the right,the price level declines and Real GDP increases. 
A)  The demand for bonds falls,the price of bonds falls,the interest rate rises,investment spending declines,the AD curve shifts to the left,the price level declines and Real GDP decreases. 
B)  The demand for bonds rises,the price of bonds rises,the interest rate rises,investment spending declines,the AD curve shifts to the left,the price level declines and Real GDP decreases. 
C)  The supply of bonds rises,the price of bonds falls,the interest rate falls,investment spending rises,the AD curve shifts to the right,the price level declines and Real GDP decreases. 
D)  The supply of bonds falls,the price of bonds rises,the interest rate falls,investment spending rises,the AD curve shifts to the right,the price level declines and Real GDP increases.

Question 16

What do Keynesians mean when they say that "you can't push on a string"?

Accepted Answer

A)  An increase in the supply of goods does not really create its own demand. 
B)  If the government reduces taxes in an attempt to increase household consumption,it will not always work. 
C)  An increase in the money supply will not always stimulate the economy. 
D)  If the government wants to get something done,the best way is not to force the issue,but to offer incentives. 
E)  If the government puts too much expansionary pressure on the economy,it will probably "overheat." 
A)  An increase in the supply of goods does not really create its own demand. 
B)  If the government reduces taxes in an attempt to increase household consumption,it will not always work. 
C)  An increase in the money supply will not always stimulate the economy. 
D)  If the government wants to get something done,the best way is not to force the issue,but to offer incentives. 
E)  If the government puts too much expansionary pressure on the economy,it will probably "overheat."

Question 17

Which of the following statements is false?

Accepted Answer

A)  Activists are more likely to advocate fine-tuning the economy than nonactivists. 
B)  Activists believe that monetary and fiscal policies can be and should be deliberately used to smooth out the business cycle. 
C)  Nonactivists believe that monetary and fiscal policies cannot and should not be deliberately used to (try to)smooth out the business cycle. 
D)  Nonactivists favor rules-based monetary policy. 
E)  none of the above 
A)  Activists are more likely to advocate fine-tuning the economy than nonactivists. 
B)  Activists believe that monetary and fiscal policies can be and should be deliberately used to smooth out the business cycle. 
C)  Nonactivists believe that monetary and fiscal policies cannot and should not be deliberately used to (try to)smooth out the business cycle. 
D)  Nonactivists favor rules-based monetary policy. 
E)  none of the above

Question 18

Which of the following may block the Keynesian transmission mechanism?

Accepted Answer

A)  the loanable funds market 
B)  aggregate demand 
C)  interest-insensitive investment 
D)  the liquidity trap 
E)  c and d 
A)  the loanable funds market 
B)  aggregate demand 
C)  interest-insensitive investment 
D)  the liquidity trap 
E)  c and d

Question 19

The predetermined-money-growth-rate rule states that the annual growth rate in the money supply will be constant at the average annual growth rate of Real GDP.

Accepted Answer

A) True 
 B)False

Question 20

Activists hold that

Accepted Answer

A)  activist monetary policy is flexible. 
B)  nonactivist monetary policy is inflexible. 
C)  the economy does not always return quickly enough to full-employment output. 
D)  a and b 
E)  all of the above 
A)  activist monetary policy is flexible. 
B)  nonactivist monetary policy is inflexible. 
C)  the economy does not always return quickly enough to full-employment output. 
D)  a and b 
E)  all of the above

Exam 15: The Distribution of Income and Poverty

Economic fine-tuning is the (usually frequent)use of

Economists who favor activist monetary policy often argue that

-Refer to Exhibit 15-4.In the row of this table containing blank (A),people are holding ______________ of their wealth in bonds and ________________ of their wealth in money.

The rules-based monetary policy reads: The money supply will increase 3 percent each year.If the average annual growth rate in Real GDP is 2 percent and velocity increases by 1 percent each year,it follows that

As the interest rate falls,the quantity

Compared to the Keynesian transmission mechanism,the monetarist transmission mechanism is

According to the Keynesian transmission mechanism,an increase in the money supply causes a(n)__________ in the interest rate and a(n)__________ in investment,which in turn causes a(n)__________ in total expenditures and aggregate demand.

The SRAS curve is upward sloping,there is a liquidity trap,and investment spending is sensitive to changes in the interest rate.According to the monetarist transmission mechanism,if the money supply increases the AD curve __________ and the price level __________.

A general definition of the "transmission mechanism" is: the routes or channels that ripple effects created in the

The money supply curve is usually horizontal.

-Refer to Exhibit 15-2.If the interest rate is i1 and the relevant money supply curve is S2,then there is a

Equilibrium in the money market exists when

-Refer to Exhibit 15-6.Assume that the economy starts out producing Q1.An economist who believes that the economy is not self-regulating would assert that the government should use _________________ fiscal policy to close the existing ___________________ gap.

Assuming that the SRAS curve is upward sloping,which of the following statements represents a correct and sequentially accurate economic explanation?

What do Keynesians mean when they say that "you can't push on a string"?

Which of the following statements is false?

Which of the following may block the Keynesian transmission mechanism?

The predetermined-money-growth-rate rule states that the annual growth rate in the money supply will be constant at the average annual growth rate of Real GDP.

Activists hold that

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

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Stocks,bonds,futures,and Options

Filters

-Refer to Exhibit 15-4.In the row of this table containing blank (A),people are holding of their wealth in bonds and __ of their wealth in money.

According to the Keynesian transmission mechanism,an increase in the money supply causes a(n) in the interest rate and a(n) in investment,which in turn causes a(n)__ in total expenditures and aggregate demand.

The SRAS curve is upward sloping,there is a liquidity trap,and investment spending is sensitive to changes in the interest rate.According to the monetarist transmission mechanism,if the money supply increases the AD curve and the price level .

-Refer to Exhibit 15-2.If the interest rate is i₁ and the relevant money supply curve is S₂,then there is a

-Refer to Exhibit 15-6.Assume that the economy starts out producing Q₁.An economist who believes that the economy is not self-regulating would assert that the government should use _ fiscal policy to close the existing ___ gap.