Question 1

If investment spending is relatively insensitive to changes in the interest rate,then the most effective expansionary policy would be

Accepted Answer

A)  a reduction in required reserves. 
B)  Fed purchases of government securities. 
C)  a personal income tax increase. 
D)  a personal income tax cut.

Question 2

How does government expenditure discourage some private investment?

Accepted Answer

The answer of How does government expenditure discourage some private...

Question 3

The optimal time for the implementation of contractionary fiscal policy would be

Accepted Answer

A)  before inflation accelerated. 
B)  after inflation accelerated. 
C)  after unemployment increased. 
D)  after the price level had risen significantly.

Question 4

Is the equation of exchange an economic model?

Accepted Answer

A)  Yes,it is a simple but powerful model. 
B)  No,economic models cannot be equations. 
C)  No,it is merely an arithmetic statement. 
D)  Yes,it is a cause-and-effect model.

Question 5

Monetarists have received this label because they emphasize the role of

Accepted Answer

A)  money supply in determining aggregate supply. 
B)  the money supply in determining nominal GDP. 
C)  the Fed in making monetary policy. 
D)  the money supply in determining interest rates and investment.

Question 6

In 2009,nominal GDP was $14,050 billion and M1 was $1,587 billion.Velocity was

Accepted Answer

A)  0.11. 
B)  8.85. 
C)  11.30. 
D)  14.25.

Question 7

Which one of the following will cause velocity to increase?

Accepted Answer

A)  a decrease in interest rates 
B)  increasing the efficiency of the payments system 
C)  switching from weekly to monthly payroll checks 
D)  an increase in the money supply

Question 8

Economists observed the following growth rates in the fourth quarter of 1995: real GDP = 2.8 percent; M1 = 7.8 percent; GDP Deflator = 2.2 percent.Given this data,the growth of nominal GDP was approximately

Accepted Answer

A)  12.8 percent. 
B)  10.0 percent. 
C)  5.6 percent. 
D)  5.0 percent. 
E)  0.6 percent.

Question 9

Following an anticapitalist coup,Freedonia forces all citizens to turn in and stop using all credit cards.What is the most likely effect of this on velocity?

Accepted Answer

A)  It will decrease. 
B)  It will increase. 
C)  It will remain constant. 
D)  Velocity is unrelated to credit cards.

Question 10

When the Fed decreases the money supply,interest rates

Accepted Answer

A)  rise,causing velocity to fall. 
B)  fall,causing velocity to fall. 
C)  rise,causing velocity to rise. 
D)  fall,causing velocity to rise.

Question 11

Which of the following will reduce the velocity of circulation of the money stock?

Accepted Answer

A)  The inflation rate increases. 
B)  The interest rate falls. 
C)  Credit cards are used more frequently. 
D)  More employees are paid once a week instead of once a month.

Question 12

If velocity remains relatively constant,changes in the money supply can have a predictable effect on nominal GDP.

Accepted Answer

A) True 
 B)False

Question 13

Scatter diagrams of money growth rates and inflation rates between 1982 and 2010 show a clear relationship of cause and effect.

Accepted Answer

A) True 
 B)False

Question 14

When will stabilization policy be most effective in combating inflation?

Accepted Answer

A)  when AS is flat 
B)  when AS is very steep 
C)  when AS has a moderately upward slope 
D)  when AS has a moderately downward slope

Question 15

The equation of exchange is written as

Accepted Answer

A)  M × V = P × Y. 
B)  M × P = V × Y. 
C)  M × Y = P × V. 
D)  M × Y = Y × P.

Question 16

Monetarists use the equation of exchange to predict the effects of changes in M on

Accepted Answer

A)  velocity. 
B)  nominal GDP. 
C)  real GDP. 
D)  the price level.

Question 17

The monetary stimulus enacted in the fall of 2001 provides support for those economists who favor

Accepted Answer

A)  stable money supply growth. 
B)  activist monetary policy. 
C)  rules-governed monetary policy. 
D)  fixed rates of growth for the money supply.

Question 18

Economists who believe that the economy has a strong self-correcting mechanism argued that,after September 11,2001,the economy needed

Accepted Answer

A)  a quick and expansionary fiscal policy stimulus. 
B)  a quick and expansionary monetary stimulus. 
C)  only a short time to return to equilibrium full employment. 
D)  President Bush to propose a large budget stimulus package.

Question 19

In the monetarist view,the money supply affects the economy

Accepted Answer

A)  through investment spending and government spending. 
B)  indirectly through interest rates. 
C)  directly,apart from interest rates. 
D)  by altering the size of the money multiplier.

Question 20

In 1996,if nominal GDP was about $8.5 thousand billion.The stock of money was

Accepted Answer

A)  about the same as this. 
B)  much less than this. 
C)  much more than this. 
D)  unrelated to this number.

Exam 15: The Debate Over Monetary and Fiscal Policy