Question 1

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. D

Question 2

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

Accepted Answer

A) indirect and long. 
B) direct and long. 
C) direct and short. 
D) indirect and short. 
A) indirect and long. 
B) direct and long. 
C) direct and short. 
D) indirect and short. C

Question 3

According to economist Arnold Kling's perspective on the economy,economic activity is best viewed by focusing on

Accepted Answer

A) aggregate demand. 
B) the actions of the Federal Reserve. 
C) changes in spending. 
D) specialization and trade. 
A) aggregate demand. 
B) the actions of the Federal Reserve. 
C) changes in spending. 
D) specialization and trade. D

Question 4

Which of the following statements is likely to be made by an economist who believes in activist monetary policy? (1)The more closely monetary policy can be 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) (1)and (5) 
D) (4)and (5) 
E) (1), (3),and (4) 
A) (1), (2),and (3) 
B) (1), (4),and (5) 
C) (1)and (5) 
D) (4)and (5) 
E) (1), (3),and (4)

Question 5

The economy is in the horizontal portion of the AS curve,there is no liquidity trap and investment is sensitive to changes in the interest rate.According to the Keynesian transmission mechanism,if the money supply drops the interest rate will __________,investment spending will __________,the AD curve will shift to the __________,and the price level will __________.

Accepted Answer

A) rise;fall;left;rise 
B) fall;rise;right;rise 
C) rise;fall;left;not change 
D) fall;fall;left;fall 
E) rise;rise;left;fall 
A) rise;fall;left;rise 
B) fall;rise;right;rise 
C) rise;fall;left;not change 
D) fall;fall;left;fall 
E) rise;rise;left;fall

Question 6

Last year,Bentley bought a bond for $1,000 that promises to pay $115 a year.This year,a person who buys a bond for $1,000 receives $125 a year.If Bentley were to sell his (old)bond,its price would be approximately

Accepted Answer

A) $920. 
B) $1,125. 
C) $1,087. 
D) $1,350. 
A) $920. 
B) $1,125. 
C) $1,087. 
D) $1,350.

Question 7

According to the Keynesian transmission mechanism,if the Fed conducts an open market sale of government securities,it may cause which of the following in the investment goods market?

Accepted Answer

A) a rightward shift in the investment demand curve 
B) a leftward shift in the investment demand curve 
C) a movement down and along a given investment demand curve 
D) a movement up and along a given investment demand curve 
A) a rightward shift in the investment demand curve 
B) a leftward shift in the investment demand curve 
C) a movement down and along a given investment demand curve 
D) a movement up and along a given investment demand curve

Question 8

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 9

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 10

If Real GDP increases at an annual rate of 4 percent and velocity increases at a rate of 1 percent per year,then rules-based monetary policy advocates who wish to maintain a stable price level would set the annual money supply growth rate at

Accepted Answer

A) 1 
B) 2 
C) 3 
D) 4 
E) 6 
A) 1 
B) 2 
C) 3 
D) 4 
E) 6

Question 11

If a country's rules-based monetary policy sets the annual money supply growth rate equal to the average annual growth rate of Real GDP,and velocity is a constant,then the price level

Accepted Answer

A) is also constant. 
B) rises in years when Real GDP rises. 
C) rises in years when Real GDP growth is less than average. 
D) rises in years when Real GDP growth is greater than average. 
A) is also constant. 
B) rises in years when Real GDP rises. 
C) rises in years when Real GDP growth is less than average. 
D) rises in years when Real GDP growth is greater than average.

Question 12

One argument in favor of activist monetary policy is that the economy does not always equilibrate quickly enough at Natural Real GDP.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A) increases;increases;more 
B) increases;decreases;more 
C) increases;decreases;less 
D) decreases;increases;more 
E) decreases;decreases;more 
A) increases;increases;more 
B) increases;decreases;more 
C) increases;decreases;less 
D) decreases;increases;more 
E) decreases;decreases;more

Question 14

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 15

Suppose that the bond market and the money market both start out in equilibrium,then the Federal Reserve decreases the money supply.The result will be a ______________ in the money market and a _________________ in the bond market,which will push bond prices _________________ and interest rates will ___________________ until a new equilibrium is reached.

Accepted Answer

A) surplus;shortage;up;fall 
B) shortage;surplus;down;rise 
C) surplus;shortage;down;rise 
D) shortage;surplus;down;fall 
A) surplus;shortage;up;fall 
B) shortage;surplus;down;rise 
C) surplus;shortage;down;rise 
D) shortage;surplus;down;fall

Question 16

Which best describes the Keynesian transmission mechanism when the money supply increases?

Accepted Answer

A) The interest rate rises;this in turn reduces investment spending,which in turn raises total expenditures and shifts the AD curve rightward. 
B) The interest rate falls;this in turn stimulates investment spending,which in turn raises total expenditures and shifts the AD curve leftward. 
C) The interest rate falls;this in turn stimulates investment spending,which in turn raises total expenditures and shifts the AD curve rightward. 
D) The interest rate falls;this in turn stimulates investment spending,which in turn lowers total expenditures and shifts the AD curve leftward. 
A) The interest rate rises;this in turn reduces investment spending,which in turn raises total expenditures and shifts the AD curve rightward. 
B) The interest rate falls;this in turn stimulates investment spending,which in turn raises total expenditures and shifts the AD curve leftward. 
C) The interest rate falls;this in turn stimulates investment spending,which in turn raises total expenditures and shifts the AD curve rightward. 
D) The interest rate falls;this in turn stimulates investment spending,which in turn lowers total expenditures and shifts the AD curve leftward.

Question 17

As the interest rate falls,the quantity supplied of money falls and the quantity demanded of money rises.

Accepted Answer

A) True 
 B)False

Question 18

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 19

Buddy bought a bond last year for $10,000.His bond pays $1,000 a year.This year a bond that sells for $10,000 pays $900 a year.If Buddy were to sell his (old)bond,its price would be approximately

Accepted Answer

A) $11,111. 
B) $10,120. 
C) $9,000. 
D) $12,000. 
E) $9,500. 
A) $11,111. 
B) $10,120. 
C) $9,000. 
D) $12,000. 
E) $9,500.

Question 20

The rules-based monetary policy reads: The annual growth rate in the money supply will be equal to the average annual growth rate in Real GDP minus the growth rate in velocity.If the average growth rate in Real GDP this year is 3 percent and the growth rate in velocity is 2 percent,then the money supply will increase by ______________ percent this year.

Accepted Answer

A) 1 
B) 2 
C) 3 
D) 4 
A) 1 
B) 2 
C) 3 
D) 4

Exam 15: Monetary Policy

Activists believe that

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

According to economist Arnold Kling's perspective on the economy,economic activity is best viewed by focusing on

Last year,Bentley bought a bond for $1,000 that promises to pay $115 a year.This year,a person who buys a bond for $1,000 receives $125 a year.If Bentley were to sell his (old)bond,its price would be approximately

According to the Keynesian transmission mechanism,if the Fed conducts an open market sale of government securities,it may cause which of the following in the investment goods market?

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

Which of the following statements is false?

If Real GDP increases at an annual rate of 4 percent and velocity increases at a rate of 1 percent per year,then rules-based monetary policy advocates who wish to maintain a stable price level would set the annual money supply growth rate at

If a country's rules-based monetary policy sets the annual money supply growth rate equal to the average annual growth rate of Real GDP,and velocity is a constant,then the price level

One argument in favor of activist monetary policy is that the economy does not always equilibrate quickly enough at Natural Real GDP.

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

Which best describes the Keynesian transmission mechanism when the money supply increases?

As the interest rate falls,the quantity supplied of money falls and the quantity demanded of money rises.

Buddy bought a bond last year for $10,000.His bond pays $1,000 a year.This year a bond that sells for $10,000 pays $900 a year.If Buddy were to sell his (old)bond,its price would be approximately

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand: Theory

Prices: Free, controlled, and Relative

Supply,demand,and Price: Applications

Macroeconomic Measurements, part I: Prices and Unemployment

Macroeconomic Measurements, part II: GDP and Real GDP

Aggregate Demand and Aggregate Supply

Classical Macroeconomics and the Self-Regulating Economy

Keynesian Macroeconomics and Economic Instability: a Critique of the Self-Regulating Economy

Fiscal Policy and the Federal Budget

Money,banking,and the Financial System

The Federal Reserve System

Money and the Economy

Expectations Theory and the Economy

Economic Growth: Resources, technology, ideas, and Institutions

The Financial Crisis of 2007-2009

Debates in Macroeconomics Over the Role and Effects of Government

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

Globalization and International Impacts on the Economy

The Economic Case for and Against Government: Five Topics Considered

Stocks, bonds, futures, and Options

Filters

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