Question 1

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 2

In a closed economy,national saving equals

Accepted Answer

A)  C + I + G. 
B)  Y - C - G. 
C)  Y - C - I. 
D)  Y - G - I. 
A)  C + I + G. 
B)  Y - C - G. 
C)  Y - C - I. 
D)  Y - G - I.

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

What three parts of the economy are represented in the IS-MP model?

Accepted Answer

The IS curve,which represents equilibriu

Question 5

An increase in the expected profitability of investment will cause

Accepted Answer

A)  IS to shift right. 
B)  IS to shift left. 
C)  MP to shift upward. 
D)  MP to shift downward. 
A)  IS to shift right. 
B)  IS to shift left. 
C)  MP to shift upward. 
D)  MP to shift downward.

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

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 8

What is the multiplier effect?

Accepted Answer

The series of induced changes

Question 9

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 10

What effect would economic weakness in Europe due to a sovereign debt crisis have on the U.S.economy?

Accepted Answer

A)  IS shifts to the right 
B)  IS shifts to the left 
C)  potential GDP increases 
D)  potential GDP decreases 
A)  IS shifts to the right 
B)  IS shifts to the left 
C)  potential GDP increases 
D)  potential GDP decreases

Question 11

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 12

Use the following data to calculate equilibrium real GDP: C= .75Y,I = $2 trillion,G=$1 trillion and NX = -$0.5 trillion.

Accepted Answer

Y = 0.75Y + 2 + 1 -

Question 13

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 14

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.

Question 15

The balance sheet channel describes ways in which interest rate changes resulting from monetary policy affect

Accepted Answer

A)  the portfolio decisions of households. 
B)  the portfolio decisions of businesses. 
C)  borrowers' net worth. 
D)  lenders' net worth. 
A)  the portfolio decisions of households. 
B)  the portfolio decisions of businesses. 
C)  borrowers' net worth. 
D)  lenders' net worth.

Question 16

What unusual measures did the Fed take in trying to reduce the risk premium during the Financial Crisis of 2007-2009?

Accepted Answer

A)  buying mortgage-backed securities issued by Fannie Mae and Freddie Mac 
B)  reducing the federal funds rate multiple times 
C)  issuing its own securities 
D)  eliminating the discount rate on loans to member banks 
A)  buying mortgage-backed securities issued by Fannie Mae and Freddie Mac 
B)  reducing the federal funds rate multiple times 
C)  issuing its own securities 
D)  eliminating the discount rate on loans to member banks

Question 17

Lower interest rates which reduce the debt-servicing burden of households,thus increasing their net worth,is best described by the

Accepted Answer

A)  bank lending channel. 
B)  money channel. 
C)  financial market channel. 
D)  balance sheet channel. 
A)  bank lending channel. 
B)  money channel. 
C)  financial market channel. 
D)  balance sheet channel.

Question 18

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

Accepted Answer

If sales exceed production,not just for

Question 19

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 20

What limited the effectiveness of monetary policy during the Financial Crisis of 2007-2009?

Accepted Answer

During the financial crisis,the default

An increase in the real interest rate causes

In a closed economy,national saving equals

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

What three parts of the economy are represented in the IS-MP model?

An increase in the expected profitability of investment will cause

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

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

What is the multiplier effect?

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

What effect would economic weakness in Europe due to a sovereign debt crisis have on the U.S.economy?

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

Use the following data to calculate equilibrium real GDP: C= .75Y,I = $2 trillion,G=$1 trillion and NX = -$0.5 trillion.

Which of the following statements is correct?

A closed economy is one in which

The balance sheet channel describes ways in which interest rate changes resulting from monetary policy affect

What unusual measures did the Fed take in trying to reduce the risk premium during the Financial Crisis of 2007-2009?

Lower interest rates which reduce the debt-servicing burden of households,thus increasing their net worth,is best described by the

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

Which interest rates is most relevant in determining aggregate expenditures?

What limited the effectiveness of monetary policy during the Financial Crisis of 2007-2009?

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

Exam 18: Monetary Theory Ii: the Is-Mp Model

An increase in the real interest rate causes

In a closed economy,national saving equals

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

What three parts of the economy are represented in the IS-MP model?

An increase in the expected profitability of investment will cause

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

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

What is the multiplier effect?

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

What effect would economic weakness in Europe due to a sovereign debt crisis have on the U.S.economy?

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

Use the following data to calculate equilibrium real GDP: C= .75Y,I = $2 trillion,G=$1 trillion and NX = -$0.5 trillion.

Which of the following statements is correct?

A closed economy is one in which

The balance sheet channel describes ways in which interest rate changes resulting from monetary policy affect

What unusual measures did the Fed take in trying to reduce the risk premium during the Financial Crisis of 2007-2009?

Lower interest rates which reduce the debt-servicing burden of households,thus increasing their net worth,is best described by the

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

Which interest rates is most relevant in determining aggregate expenditures?

What limited the effectiveness of monetary policy during the Financial Crisis of 2007-2009?

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