Question 1

Exhibit 15-2  
-Refer to Exhibit 15-2.A(n)__________ in the money supply from S1 to S2 would have a tendency to __________ the opportunity cost of holding money.

Accepted Answer

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

Question 2

According to the Keynesian transmission mechanism (and assuming there is no liquidity trap and investment is not interest insensitive),if the money supply increases,the interest rate __________,investment spending __________ and the AD curve shifts to the __________.

Accepted Answer

A) falls;falls;left 
B) rises;rises;right 
C) falls;rises;left 
D) falls;rises;right 
E) rises;falls;right 
A) falls;falls;left 
B) rises;rises;right 
C) falls;rises;left 
D) falls;rises;right 
E) rises;falls;right

Question 3

The routes or channels that ripple effects created in the money market travel to impact the goods-and-services market are known as

Accepted Answer

A) the transmission lag. 
B) monetary policy. 
C) the liquidity trap. 
D) the transmission mechanism. 
A) the transmission lag. 
B) monetary policy. 
C) the liquidity trap. 
D) the transmission mechanism.

Question 4

The Keynesian transmission mechanism might get blocked if

Accepted Answer

A) investment is insensitive to changes in interest rates. 
B) the goods market is not in equilibrium. 
C) the money supply increases too quickly. 
D) interest rates are too high before they fall. 
A) investment is insensitive to changes in interest rates. 
B) the goods market is not in equilibrium. 
C) the money supply increases too quickly. 
D) interest rates are too high before they fall.

Question 5

Under a gold standard,if the market price of gold is below the official price of gold (set by the monetary authority),people will be more likely to sell gold __________________,which will cause the money supply to _______________ and the price level.to _______________.

Accepted Answer

A) to the monetary authority;fall;fall 
B) to the monetary authority;rise;rise 
C) in the gold market;fall;fall 
D) in the gold market;rise;rise 
A) to the monetary authority;fall;fall 
B) to the monetary authority;rise;rise 
C) in the gold market;fall;fall 
D) in the gold market;rise;rise

Question 6

To eliminate a recessionary gap the Fed typically uses __________ monetary policy,and to eliminate an inflationary gap the Fed typically uses __________ monetary policy.

Accepted Answer

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

Question 7

In the monetarist transmission mechanism,changes in the money market directly affect aggregate demand.

Accepted Answer

A) True 
 B)False

Question 8

Economists who propose a constant-money-growth-rate rule often argue that setting the annual growth rate in the money supply equal to the average annual growth rate in Real GDP

Accepted Answer

A) maintains price level stability over time. 
B) is a way to raise Real GDP. 
C) will cause the price level to fall over time. 
D) a and b 
E) a,b and c 
A) maintains price level stability over time. 
B) is a way to raise Real GDP. 
C) will cause the price level to fall over time. 
D) a and b 
E) a,b and c

Question 9

If people have only two ways of holding their wealth,money or bonds,a surplus in the money market implies a surplus in the bond market.

Accepted Answer

A) True 
 B)False

Question 10

Persons who argue that monetary and fiscal policy should be deliberately used to smooth out the business cycle are called

Accepted Answer

A) activists. 
B) disciples. 
C) nonactivists. 
D) controllers. 
A) activists. 
B) disciples. 
C) nonactivists. 
D) controllers.

Question 11

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

Accepted Answer

A) falls;rises;falls 
B) rises;remains unchanged;falls 
C) falls;remains unchanged;falls 
D) rises;rises;rises 
E) none of the above 
A) falls;rises;falls 
B) rises;remains unchanged;falls 
C) falls;remains unchanged;falls 
D) rises;rises;rises 
E) none of the above

Question 12

Describe the Keynesian transmission mechanism for a decrease in the money supply.Assuming that no liquidity trap exists,that investment is interest-sensitive,and that the economy is in the horizontal portion of the AS curve,what happens to Real GDP and the price level? How can you tell if this is a direct transmission mechanism or an indirect one?

Accepted Answer

When the money supply decreases,interest

Question 13

Economist Smith favors an activist monetary policy.He says that if the economy is going to be stabilized over time,it is necessary to fine-tune the money supply to the particular economic conditions that exist.What would economist Jones,who favors rules-based monetary policy,say to economist Smith?

Accepted Answer

A) Because of long lags,activist monetary policy is likely to be destabilizing rather than stabilizing. 
B) There have been times when activist monetary policy has worked well. 
C) There have been times when a constant-money-growth-rate rule has worked poorly. 
D) Flexibility is desirable when it comes to monetary policy. 
A) Because of long lags,activist monetary policy is likely to be destabilizing rather than stabilizing. 
B) There have been times when activist monetary policy has worked well. 
C) There have been times when a constant-money-growth-rate rule has worked poorly. 
D) Flexibility is desirable when it comes to monetary policy.

Question 14

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 15

If the money market is in the liquidity trap,it is operating in the __________ segment of the __________ demand curve.

Accepted Answer

A) vertical;investment 
B) vertical;money 
C) horizontal;investment 
D) horizontal;money 
A) vertical;investment 
B) vertical;money 
C) horizontal;investment 
D) horizontal;money

Question 16

Economists who believe that the economy is self-regulating are more likely to be nonactivists than activists.

Accepted Answer

A) True 
 B)False

Question 17

If the money market is in the liquidity trap,then people

Accepted Answer

A) do not want to hold money because its value is at its lowest. 
B) want to hold bonds because the interest rate is quite high. 
C) do not want to hold bonds because their price is likely to decrease. 
D) want to hold bonds because their price is high. 
E) a,b and d 
A) do not want to hold money because its value is at its lowest. 
B) want to hold bonds because the interest rate is quite high. 
C) do not want to hold bonds because their price is likely to decrease. 
D) want to hold bonds because their price is high. 
E) a,b and d

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 increases and the demand for money curve is downward sloping and investment is interest ____________,then Real GDP will ___________________.

Accepted Answer

A) sensitive;rise 
B) insensitive;remain unchanged 
C) sensitive;remain unchanged 
D) insensitive;rise 
E) a and b 
A) sensitive;rise 
B) insensitive;remain unchanged 
C) sensitive;remain unchanged 
D) insensitive;rise 
E) a and b

Question 19

Last year,Danielle bought a bond for $10,000 that promises to pay $1,150 a year.This year,a person who buys a bond for $10,000 receives $1,210 a year.If Danielle were to sell her (old)bond,its price would be approximately

Accepted Answer

A) $9,504. 
B) $10,522. 
C) $11,211. 
D) $9,115. 
A) $9,504. 
B) $10,522. 
C) $11,211. 
D) $9,115.

Question 20

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

Exam 15: Monetary Policy

Exhibit 15-2 -Refer to Exhibit 15-2.A(n)__________ in the money supply from S1 to S2 would have a tendency to __________ the opportunity cost of holding money.

According to the Keynesian transmission mechanism (and assuming there is no liquidity trap and investment is not interest insensitive),if the money supply increases,the interest rate __________,investment spending __________ and the AD curve shifts to the __________.

The routes or channels that ripple effects created in the money market travel to impact the goods-and-services market are known as

The Keynesian transmission mechanism might get blocked if

Under a gold standard,if the market price of gold is below the official price of gold (set by the monetary authority),people will be more likely to sell gold __________________,which will cause the money supply to _______________ and the price level.to _______________.

To eliminate a recessionary gap the Fed typically uses __________ monetary policy,and to eliminate an inflationary gap the Fed typically uses __________ monetary policy.

In the monetarist transmission mechanism,changes in the money market directly affect aggregate demand.

Economists who propose a constant-money-growth-rate rule often argue that setting the annual growth rate in the money supply equal to the average annual growth rate in Real GDP

If people have only two ways of holding their wealth,money or bonds,a surplus in the money market implies a surplus in the bond market.

Persons who argue that monetary and fiscal policy should be deliberately used to smooth out the business cycle are called

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

Economist Smith favors an activist monetary policy.He says that if the economy is going to be stabilized over time,it is necessary to fine-tune the money supply to the particular economic conditions that exist.What would economist Jones,who favors rules-based monetary policy,say to economist Smith?

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

If the money market is in the liquidity trap,it is operating in the __________ segment of the __________ demand curve.

Economists who believe that the economy is self-regulating are more likely to be nonactivists than activists.

If the money market is in the liquidity trap,then people

Last year,Danielle bought a bond for $10,000 that promises to pay $1,150 a year.This year,a person who buys a bond for $10,000 receives $1,210 a year.If Danielle were to sell her (old)bond,its price would be approximately

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

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand: Theory

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Macroeconomic Measurements, part I: Prices and Unemployment

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

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Exhibit 15-2 -Refer to Exhibit 15-2.A(n) in the money supply from S₁ to S₂ would have a tendency to the opportunity cost of holding money.

According to the Keynesian transmission mechanism (and assuming there is no liquidity trap and investment is not interest insensitive),if the money supply increases,the interest rate ,investment spending and the AD curve shifts to the __.

Under a gold standard,if the market price of gold is below the official price of gold (set by the monetary authority),people will be more likely to sell gold __________,which will cause the money supply to _ and the price level.to _________.

To eliminate a recessionary gap the Fed typically uses monetary policy,and to eliminate an inflationary gap the Fed typically uses monetary policy.

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

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

If the money market is in the liquidity trap,it is operating in the segment of the demand curve.