Question 1

On a steeply sloped aggregate supply curve, monetary policy will affect primarily output.

Accepted Answer

A) True 
 B)False

Question 2

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 3

It is ____ to identify an asset bubble before it bursts ____ to identify an asset bubble after it bursts.

Accepted Answer

A)  simple; and also simple 
B)  simple; but difficult 
C)  difficult; but simple 
D)  difficult; and also difficult

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Which of the following would tend to decrease velocity?

Accepted Answer

A)  an increase in interest rates 
B)  more frequent paychecks 
C)  expected decreases in inflation 
D)  more efficient payment systems

Question 6

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 7

Which of the following is the formula for velocity?

Accepted Answer

A)  Velocity = nominal GDP/real GDP 
B)  Velocity = real GDP/M 
C)  Velocity = (P × Y)/(M × V) 
D)  Velocity = nominal GDP/M

Question 8

Velocity can be computed with the formula

Accepted Answer

A)  (Annual spending)/(Money supply). 
B)  (Annual income)/(Annual spending). 
C)  (Average income)/(Average spending). 
D)  (Money supply)/(Average income).

Question 9

During the financial crisis of 2007-2009 the interest rate spread on mortgage-backed securities over Treasury bills

Accepted Answer

A)  increased tremendously. 
B)  increased moderately. 
C)  decreased moderately. 
D)  decreased tremendously.

Question 10

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 11

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 12

An employee of Macro.com Corporation is paid $5,000 a month, which she spends regularly throughout the month until she has a zero balance in her checking account at the end of the month.If the corporation changes to a semi-monthly payroll schedule, how will the employee's average cash balance change? Assume she does not change her spending pattern when she is now paid twice a month.

Accepted Answer

A)  It changes from $5,000 to $2,500 per month. 
B)  It changes from $2,500 to $1,250 per month. 
C)  It changes from $1,250 to $625 per month. 
D)  It changes from $500 to $250 per month.

Question 13

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 14

If credit cards were suddenly ruled illegal and were no longer used, the most likely effect would be a decrease in the

Accepted Answer

A)  demand for money. 
B)  level of cash balances. 
C)  average checking account balance. 
D)  velocity of circulation.

Question 15

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 16

Whether prices or real GDP exhibit the greater response to increased aggregate demand depends on the degree of capacity utilization in the economy.

Accepted Answer

A) True 
 B)False

Question 17

Velocity is commonly calculated by which of the following formulas?

Accepted Answer

A)  (Value of money stock)/(Value of nominal GDP) 
B)  (Value of transactions)/(money stock) 
C)  (Value of financial transactions)/(GDP) 
D)  (Value of output)/(Value of input)

Question 18

In response to the Great Recession of 2007-2009, when did the Federal Reserve first cut the federal funds rate to zero?

Accepted Answer

A)  December 2007 
B)  June 2008 
C)  December 2008 
D)  January 2010

Question 19

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 20

Velocity can be calculated as the ratio of the value of transactions to

Accepted Answer

A)  the price level. 
B)  level of real GDP. 
C)  the money stock. 
D)  the inflation rate.

Exam 32: The Debate over Monetary and Fiscal Policy

On a steeply sloped aggregate supply curve, monetary policy will affect primarily output.

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?

It is to identify an asset bubble before it bursts to identify an asset bubble after it bursts.

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

Which of the following would tend to decrease velocity?

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

Which of the following is the formula for velocity?

Velocity can be computed with the formula

During the financial crisis of 2007-2009 the interest rate spread on mortgage-backed securities over Treasury bills

In the monetarist view, the money supply affects the economy

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

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

If credit cards were suddenly ruled illegal and were no longer used, the most likely effect would be a decrease in the

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

Whether prices or real GDP exhibit the greater response to increased aggregate demand depends on the degree of capacity utilization in the economy.

Velocity is commonly calculated by which of the following formulas?

In response to the Great Recession of 2007-2009, when did the Federal Reserve first cut the federal funds rate to zero?

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

Velocity can be calculated as the ratio of the value of transactions to