Question 1

According to the monetarists, the velocity of money is

Accepted Answer

A)  constant by definition. 
B)  highly variable and unpredictable. 
C)  constant as a matter of empirical proof. 
D)  not constant but predictable.

Question 2

The current debate about fiscal and monetary policy tends to focus on

Accepted Answer

A)  which policy is less destabilizing. 
B)  which policy is more effective. 
C)  whether the Fed can control the money supply. 
D)  which policy works more quickly.

Question 3

Some examples of conventional types of fiscal policy actions are changes in government purchases or in personal taxes.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

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

Question 5

When comparing the Keynesian approach and the monetarist approach, the only substantive difference is that

Accepted Answer

A)  the Keynesian equation leads to a prediction of real GDP, while the monetarist equation leads to a prediction of nominal GDP. 
B)  Keynesians concentrate on aggregate demand and monetarists concentrate on aggregate supply. 
C)  Keynesians approach aggregate demand by multiplying the money supply by velocity, while monetarists use the equilibrium conditions of the expenditure schedule. 
D)  Keynesian analysis suggests that money affects consumption first, while monetarist analysis suggests that money affects investment spending first.

Question 6

The main policy tool for manipulating consumer spending is

Accepted Answer

A)  personal income tax. 
B)  corporate income tax. 
C)  capital gains tax. 
D)  None of the above is correct.

Question 7

Monetarism is a mode of analysis that uses the equation of exchange to organize and analyze economic data.

Accepted Answer

A) True 
 B)False

Question 8

Economists who focus their analyses on the effects of a change in the money supply and velocity are called

Accepted Answer

A)  realists. 
B)  Keynesians. 
C)  supply siders. 
D)  monetarists.

Question 9

Believers in fixed rules maintain that

Accepted Answer

A)  with accurate forecasts, we can see inflation coming at least one year ahead of time. 
B)  the length of stabilization lags is not important because fiscal policy actions are taken quickly and the economy feels the effect on aggregate demand quickly. 
C)  we should forget about discretionary policy and put the economy on autopilot, relying instead on automatic stabilizers and the economy's self-correcting mechanism. 
D)  the economy's self-correcting mechanism is slow and not very reliable, even with automatic stabilizers.

Question 10

How do advocates of discretionary stabilization policy view frequent changes in spending and tax policy?

Accepted Answer

A)  The changes make the economy more difficult to forecast. 
B)  The changes make life more difficult and hectic for Congress and the Fed. 
C)  The changes smooth out the business cycle, making planning easier. 
D)  The changes cause more instability in the economy and make planning more difficult.

Question 11

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 12

Monetarists maintain that

Accepted Answer

A)  the best way to study the economy is with the expenditure schedule. 
B)  control over the money supply implies control over real GDP. 
C)  velocity is not constant but is fairly predictable. 
D)  All of these responses are correct.

Question 13

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 14

Which of the following is a reason that the Fed does not traditionally attempt to limit asset price bubbles?

Accepted Answer

A)  The Fed's actions could do more harm than good. 
B)  It is nearly impossible to determine if a bubble exists before it bursts. 
C)  The Fed's policies cannot be targeted at only one sector of the economy. 
D)  All of these responses are correct.

Question 15

How do critics of discretionary stabilization policy view frequent changes in spending and tax policy?

Accepted Answer

A)  The changes make the economy smoother, although it may not look that way to individual firms. 
B)  The changes make life more difficult and hectic for Congress and the Fed. 
C)  The changes smooth out the business cycle, making planning easier. 
D)  The changes cause more instability in the economy and make planning more difficult.

Question 16

In what year did the housing bubble burst?

Accepted Answer

A)  2000 
B)  2006 
C)  2008 
D)  There was no such event.

Question 17

During the financial crisis of 2007-2009, why did the Federal Reserve begin to utilize various types of unconventional monetary policy?

Accepted Answer

A)  The federal funds rate had already been increased as much as possible. 
B)  The discount rate had already been increased as much as possible. 
C)  The federal funds rate had already been reduced to zero. 
D)  The discount rate had already been reduced to zero.

Question 18

As the price level rises, the demand for money

Accepted Answer

A)  decreases because interest rates also increase. 
B)  decreases because consumers buy fewer goods and services. 
C)  increases because more money is needed for each transaction. 
D)  increases because investment spending will also increase.

Question 19

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 20

How will an increase in the efficiency of the payments mechanism effect velocity?

Accepted Answer

A)  Velocity will decrease. 
B)  Velocity will increase. 
C)  Velocity will remain constant. 
D)  Velocity is unrelated to payments.

Exam 31: The Debate Over Monetary and Fiscal Policy