Question 1

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

Question 2

An individual buys a bond for $1,000 and sells it one year later for $1,050.What is the annual interest rate return that this individual has received on this bond?

Accepted Answer

A) 5.0 percent 
B) 50.0 percent 
C) 7.5 percent 
D) 4.0 percent 
E) 0.05 percent 
A) 5.0 percent 
B) 50.0 percent 
C) 7.5 percent 
D) 4.0 percent 
E) 0.05 percent

Question 3

Which scenario best explains the Keynesian transmission mechanism when the investment demand curve is vertical?

Accepted Answer

A) The interest rate falls,investment falls even more,the AD curve shifts rightward,but total expenditures do not change. 
B) The interest rate falls,investment rises,total expenditures rise,and the AD curve shifts rightward. 
C) The interest rate falls,investment falls instead of rising,and the AD curve ends up shifting leftward. 
D) The interest rate falls,but investment does not respond;there is no change in total expenditures and no shift in the AD curve. 
A) The interest rate falls,investment falls even more,the AD curve shifts rightward,but total expenditures do not change. 
B) The interest rate falls,investment rises,total expenditures rise,and the AD curve shifts rightward. 
C) The interest rate falls,investment falls instead of rising,and the AD curve ends up shifting leftward. 
D) The interest rate falls,but investment does not respond;there is no change in total expenditures and no shift in the AD curve.

Question 4

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 5

Exhibit 15-1  
-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 6

The quantity demanded of money is

Accepted Answer

A) inversely related to the interest rate. 
B) directly related to the interest rate. 
C) inversely related to the general price level. 
D) inversely related to GDP. 
E) a,c,and d 
A) inversely related to the interest rate. 
B) directly related to the interest rate. 
C) inversely related to the general price level. 
D) inversely related to GDP. 
E) a,c,and d

Question 7

If market interest rates increase,the prices of existing bonds will

Accepted Answer

A) decrease. 
B) not change. 
C) increase. 
D) decrease if Real GDP decreases and increase if Real GDP increases. 
A) decrease. 
B) not change. 
C) increase. 
D) decrease if Real GDP decreases and increase if Real GDP increases.

Question 8

According to the monetarist transmission mechanism,a decrease in the supply of money will result in

Accepted Answer

A) individuals initially holding excess bonds. 
B) individuals initially holding excess money. 
C) a leftward shift in the aggregate demand curve. 
D) a and c 
A) individuals initially holding excess bonds. 
B) individuals initially holding excess money. 
C) a leftward shift in the aggregate demand curve. 
D) a and c

Question 9

The quantity demanded of money decreases as the supply of money increases.

Accepted Answer

A) True 
 B)False

Question 10

Exhibit 15-3  
-Refer to Exhibit 15-3.The economy is currently at point 5.If contractionary monetary policy is implemented,and prices are flexible,the economy will likely move to point ______ in the short run.

Accepted Answer

A) 1 
B) 3 
C) 2 
D) 4 
E) none of the above 
A) 1 
B) 3 
C) 2 
D) 4 
E) none of the above

Question 11

Persons who argue against the deliberate use of fiscal and monetary policies to smooth out the business cycle are referred to as

Accepted Answer

A) nonactivists. 
B) fine-tuners. 
C) activists. 
D) b and c 
E) none of the above 
A) nonactivists. 
B) fine-tuners. 
C) activists. 
D) b and c 
E) none of the above

Question 12

In the Keynesian transmission mechanism,if investment is completely interest-insensitive,then an increase in the money supply will

Accepted Answer

A) cause total expenditures and aggregate demand to increase. 
B) cause total expenditures and aggregate demand to decrease. 
C) have no impact on total expenditures and aggregate demand. 
D) cause total expenditures to increase and aggregate demand to decrease. 
E) cause total expenditures to decrease and aggregate demand to increase. 
A) cause total expenditures and aggregate demand to increase. 
B) cause total expenditures and aggregate demand to decrease. 
C) have no impact on total expenditures and aggregate demand. 
D) cause total expenditures to increase and aggregate demand to decrease. 
E) cause total expenditures to decrease and aggregate demand to increase.

Question 13

Exhibit 15-5​  
-Refer to Exhibit 15-5.At short-run equilibrium,this economy is in a(n)___________________ gap.An economist who believes that the economy is self-regulating would assert that _____________________________.

Accepted Answer

A) inflationary;the SRAS curve will shift leftward sufficiently to close the inflationary gap 
B) recessionary;the SRAS curve will shift rightward sufficiently to close the recessionary gap 
C) inflationary;the AD curve will shift leftward sufficiently to close the inflationary gap 
D) recessionary;the AD curve will shift rightward sufficiently to close the recessionary gap 
A) inflationary;the SRAS curve will shift leftward sufficiently to close the inflationary gap 
B) recessionary;the SRAS curve will shift rightward sufficiently to close the recessionary gap 
C) inflationary;the AD curve will shift leftward sufficiently to close the inflationary gap 
D) recessionary;the AD curve will shift rightward sufficiently to close the recessionary gap

Question 14

Suppose that there is a financial crisis,and people choose to spend less.As a result,velocity drops by 5 percent.According to market monetarists,if the GDP target growth rate is 3 percent,the Fed would need to increase the money supply by ______________ percent in order to achieve their GDP target.

Accepted Answer

A) 8 
B) 2 
C) 4 
D) 5 
A) 8 
B) 2 
C) 4 
D) 5

Question 15

Assume that because of a long policy lag,the Fed starts implementing expansionary monetary policy too late,i.e. ,at a time when the economy is already healing itself.As a result,the economy will probably move from an initial

Accepted Answer

A) recessionary gap to an even deeper recessionary gap. 
B) recessionary gap to an inflationary gap. 
C) inflationary gap to the natural level of Real GDP. 
D) inflationary gap to a recessionary gap. 
A) recessionary gap to an even deeper recessionary gap. 
B) recessionary gap to an inflationary gap. 
C) inflationary gap to the natural level of Real GDP. 
D) inflationary gap to a recessionary gap.

Question 16

Suppose that an individual can hold her wealth in only two forms: money and bonds.A _______________ in the bond market would then imply that there is a ________________ in the money market.

Accepted Answer

A) surplus;surplus 
B) shortage;shortage 
C) surplus;shortage 
D) shortage;surplus 
E) c and d 
A) surplus;surplus 
B) shortage;shortage 
C) surplus;shortage 
D) shortage;surplus 
E) c and d

Question 17

Under a gold standard,if the market price of gold is above 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 18

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 19

The price of holding money balances is equal to the

Accepted Answer

A) price of bonds that could have been purchased with those money balances. 
B) price of goods and services that could have been purchased with those money balances. 
C) the interest rate that could have been earned had those money balances been invested in an interest-bearing alternative (e.g. ,a bond). 
D) any of the above 
A) price of bonds that could have been purchased with those money balances. 
B) price of goods and services that could have been purchased with those money balances. 
C) the interest rate that could have been earned had those money balances been invested in an interest-bearing alternative (e.g. ,a bond). 
D) any of the above

Question 20

If the interest rate is below the equilibrium interest rate,then the quantity __________ of money exceeds the quantity __________ of money,and there is a __________ of money.

Accepted Answer

A) supplied;demanded;shortage 
B) supplied;demanded;surplus 
C) demanded;supplied;shortage 
D) demanded;supplied;surplus 
A) supplied;demanded;shortage 
B) supplied;demanded;surplus 
C) demanded;supplied;shortage 
D) demanded;supplied;surplus

Exam 15: Monetary Policy

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?

An individual buys a bond for $1,000 and sells it one year later for $1,050.What is the annual interest rate return that this individual has received on this bond?

Which scenario best explains the Keynesian transmission mechanism when the investment demand curve is vertical?

Monetarists believe that changes in the supply of money

Exhibit 15-1 -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.

The quantity demanded of money is

If market interest rates increase,the prices of existing bonds will

According to the monetarist transmission mechanism,a decrease in the supply of money will result in

The quantity demanded of money decreases as the supply of money increases.

Exhibit 15-3 -Refer to Exhibit 15-3.The economy is currently at point 5.If contractionary monetary policy is implemented,and prices are flexible,the economy will likely move to point ______ in the short run.

Persons who argue against the deliberate use of fiscal and monetary policies to smooth out the business cycle are referred to as

In the Keynesian transmission mechanism,if investment is completely interest-insensitive,then an increase in the money supply will

Exhibit 15-5​ -Refer to Exhibit 15-5.At short-run equilibrium,this economy is in a(n)___________________ gap.An economist who believes that the economy is self-regulating would assert that _____________________________.

Suppose that there is a financial crisis,and people choose to spend less.As a result,velocity drops by 5 percent.According to market monetarists,if the GDP target growth rate is 3 percent,the Fed would need to increase the money supply by ______________ percent in order to achieve their GDP target.

Assume that because of a long policy lag,the Fed starts implementing expansionary monetary policy too late,i.e. ,at a time when the economy is already healing itself.As a result,the economy will probably move from an initial

Suppose that an individual can hold her wealth in only two forms: money and bonds.A _______________ in the bond market would then imply that there is a ________________ in the money market.

Under a gold standard,if the market price of gold is above 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 _______________.

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

The price of holding money balances is equal to the

If the interest rate is below the equilibrium interest rate,then the quantity __________ of money exceeds the quantity __________ of money,and there is a __________ of money.

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

Exhibit 15-5 -Refer to Exhibit 15-5.At short-run equilibrium,this economy is in a(n)_ gap.An economist who believes that the economy is self-regulating would assert that ___________.

Suppose that an individual can hold her wealth in only two forms: money and bonds.A _ in the bond market would then imply that there is a __ in the money market.

Under a gold standard,if the market price of gold is above 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 _________.

If the interest rate is below the equilibrium interest rate,then the quantity of money exceeds the quantity of money,and there is a __ of money.