Question 1

A major advantage of monetary policy over fiscal policy is that monetary

Accepted Answer

A)  policy affects all sectors of the economy equally. 
B)  policy can be put into effect more quickly. 
C)  policy,once implemented,takes effect more quickly. 
D)  authorities see the need for policy more quickly.

Question 2

Which of the following lags makes stabilization policy more problematic?

Accepted Answer

A)  expenditure lags 
B)  recognition lags 
C)  policy lags 
D)  All of the above.

Question 3

One of the strongest arguments against active stabilization policy is

Accepted Answer

A)  that recognition lags make timely intervention very difficult. 
B)  the economy corrects itself very slowly. 
C)  the inability of economic theory to suggest appropriate policy. 
D)  the difficulty of obtaining agreement on monetary policy.

Question 4

Data indicate that the velocity of M1 is greater than the velocity of M2.

Accepted Answer

A) True 
 B)False

Question 5

According to the quantity theory of money,a decision on the part of all business firms currently paying employees on a monthly basis to begin paying on a weekly basis would be expected to

Accepted Answer

A)  increase velocity and increase nominal GDP. 
B)  increase velocity and decrease nominal GDP. 
C)  decrease velocity and increase nominal GDP. 
D)  decrease velocity and decrease nominal GDP.

Question 6

As individuals hold more of their financial assets in the form of money market accounts and mutual funds,the velocity of money will decrease.

Accepted Answer

A) True 
 B)False

Question 7

Are forecasts of economic activity accurate enough to permit "fine-tuning" of the economy?

Accepted Answer

A)  No,forecasting is so inaccurate that it should be abandoned. 
B)  No,forecasts are not accurate enough for this. 
C)  Yes,forecasts are accurate and reliable enough for this. 
D)  Yes,at least most of the time.

Question 8

Which of the following will increase the velocity of circulation?

Accepted Answer

A)  Interest rates increase. 
B)  The inflation rate decreases. 
C)  Federal banking legislation abolishes credit cards. 
D)  Employers decide to pay employees once a month instead of once a week.

Question 9

What role does ideology play in the debate on stabilization?

Accepted Answer

A)  A large role,because there are conservative and liberal economists. 
B)  A primary role,because there are no economic aspects to the debate at all. 
C)  A minor role,because economists are fairly uniform in their political views. 
D)  No role at all,because this is purely a technical question.

Question 10

What are some examples of the unconventional monetary policy from the Federal Reserve in response to the 2007-2009? Why were opponents concerned about these measures?

Accepted Answer

The answer of What are some examples of the unconventional...

Question 11

The major limitation of both the Keynesian approach and the monetarist approach is that both

Accepted Answer

A)  focus on the determination of interest rates to the exclusion of price levels. 
B)  study the determination of real GDP equilibrium without including the price level. 
C)  are ways of studying the aggregate demand curve,but to learn anything about the price level and output,the aggregate supply curve must be included in the analysis. 
D)  concentrate on interest rates without considering changes in consumption or net exports.

Question 12

Most economists think that it is impossible to prevent asset price bubbles.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following policies would a Keynesian expect to produce the largest increase in income?

Accepted Answer

A)  a reduction in government spending of $100 billion 
B)  an increase in transfer payments of $100 billion 
C)  an increase in government spending of $100 billion 
D)  a tax cut of $100 billion

Question 14

Both M1 and M2 are monetary values much larger than nominal GDP.

Accepted Answer

A) True 
 B)False

Question 15

In what year did the technology stock bubble burst?

Accepted Answer

A)  2000 
B)  2006 
C)  2007 
D)  2008

Question 16

The alternatives of the active versus passive view of stabilization policy are usually expressed as

Accepted Answer

A)  fiscal versus monetary policy. 
B)  internal versus external. 
C)  present value versus future value. 
D)  discretion versus rules.

Question 17

If you believe that velocity is constant and that the aggregate supply curve is horizontal,then the quantity theory of money would predict that a doubling of the money supply would cause a doubling of the

Accepted Answer

A)  price level and real output. 
B)  price level. 
C)  price level and no change in real output. 
D)  real output.

Question 18

The contemporary consensus with regard to stabilization policy is that

Accepted Answer

A)  fiscal policy is,for now,the "only game in town." 
B)  fiscal policy is more effective than monetary policy. 
C)  monetary policy is,for now,the "only game in town." 
D)  monetary policy is slightly more effective than fiscal policy.

Question 19

Critics of the unconventional monetary policies in 2009 and 2010 argued that by deciding which financial institutions would fail and which would not,the Fed was assuming authority that rightfully belonged to

Accepted Answer

A)  the FDIC. 
B)  the U.S.Treasury. 
C)  the President. 
D)  Congress.

Question 20

Government spending affects aggregate demand directly,and tax changes affect aggregate demand indirectly.Therefore,changes in

Accepted Answer

A)  taxes are ineffective in changing aggregate demand. 
B)  government spending affect aggregate demand more quickly than changes in taxes. 
C)  taxes are virtually useless as a stabilization tool. 
D)  government spending should be used with great caution.

Exam 15: The Debate Over Monetary and Fiscal Policy

A major advantage of monetary policy over fiscal policy is that monetary

Which of the following lags makes stabilization policy more problematic?

One of the strongest arguments against active stabilization policy is

Data indicate that the velocity of M1 is greater than the velocity of M2.

According to the quantity theory of money,a decision on the part of all business firms currently paying employees on a monthly basis to begin paying on a weekly basis would be expected to

As individuals hold more of their financial assets in the form of money market accounts and mutual funds,the velocity of money will decrease.

Are forecasts of economic activity accurate enough to permit "fine-tuning" of the economy?

Which of the following will increase the velocity of circulation?

What role does ideology play in the debate on stabilization?

What are some examples of the unconventional monetary policy from the Federal Reserve in response to the 2007-2009? Why were opponents concerned about these measures?

The major limitation of both the Keynesian approach and the monetarist approach is that both

Most economists think that it is impossible to prevent asset price bubbles.

Which of the following policies would a Keynesian expect to produce the largest increase in income?

Both M1 and M2 are monetary values much larger than nominal GDP.

In what year did the technology stock bubble burst?

The alternatives of the active versus passive view of stabilization policy are usually expressed as

If you believe that velocity is constant and that the aggregate supply curve is horizontal,then the quantity theory of money would predict that a doubling of the money supply would cause a doubling of the

The contemporary consensus with regard to stabilization policy is that

Critics of the unconventional monetary policies in 2009 and 2010 argued that by deciding which financial institutions would fail and which would not,the Fed was assuming authority that rightfully belonged to

Government spending affects aggregate demand directly,and tax changes affect aggregate demand indirectly.Therefore,changes in