Question 1

If the demand for money is insensitive to the interest rate, then the most effective expansionary policy would be

Accepted Answer

A)  fiscal policy. 
B)  monetary policy. 
C)  neither fiscal nor monetary policy. 
D)  both fiscal and monetary policy.

Question 2

Both approaches-Keynesian and monetarist-are ways of analyzing

Accepted Answer

A)  aggregate supply. 
B)  aggregate demand. 
C)  the average price level. 
D)  government spending and expenditures.

Question 3

Which of the following is the order of fastest to slowest acting policy, once enacted, in affecting aggregate demand?

Accepted Answer

A)  Taxes, money, government spending 
B)  Taxes, government spending, money 
C)  Government spending, taxes, money 
D)  Government spending, money, taxes

Question 4

After September 11, 2001, a small group of economists argued that the economy's self-correcting mechanism would work to counteract the recessionary effects of the attack.

Accepted Answer

A) True 
 B)False

Question 5

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 6

Which of the following best describes the assumption that monetarists make regarding velocity?

Accepted Answer

A)  Velocity is fairly predictable in the short run and certainly in the long run. 
B)  It is not possible to predict velocity in the short or long run. 
C)  Velocity is variable in the long run but predictable in the short run. 
D)  Velocity is constant in the long run but variable in the short run.

Question 7

If you divide the amount of nominal GDP by the stock of money, you have computed the

Accepted Answer

A)  multiplier. 
B)  price level. 
C)  velocity of circulation. 
D)  inflation rate.

Question 8

Believers in a fixed-rule approach to stabilization policy propose that

Accepted Answer

A)  Congress should balance the high employment budget. 
B)  the Fed should keep the money supply growth constant. 
C)  the economy be stabilized by automatic mechanisms. 
D)  All of these responses are correct.

Question 9

If the velocity of circulation is 10 and the money supply is $250, the value of transactions will be $25.

Accepted Answer

A) True 
 B)False

Question 10

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 11

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 velocity was approximately

Accepted Answer

A)  −7.8 percent. 
B)  −5.0 percent. 
C)  −2.8 percent. 
D)  −2.2 percent. 
E)  −2.0 percent.

Question 12

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 13

Expansionary monetary policy increases bank reserves and the money supply, also decreases interest rates.

Accepted Answer

A) True 
 B)False

Question 14

Advocates of fixed rules believe that politicians focus more on reelection than on sound policy.

Accepted Answer

A) True 
 B)False

Question 15

The rapid speed with which the stimulus bill passed through both houses of Congress and was signed by the President could be used as an argument for

Accepted Answer

A)  activist fiscal policy. 
B)  activist monetary policy. 
C)  expansionary fiscal policy. 
D)  contractionary monetary policy.

Question 16

The primary goal of central bankers is to mitigate the consequences of bubbles, not to prevent bubbles.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is an example of active fiscal policy?

Accepted Answer

A)  Income tax revenues rise in an inflationary period. 
B)  Income tax revenues fall in a recession. 
C)  Congress passes a major tax increase in an inflationary period. 
D)  Unemployment benefits increase in a recession.

Question 18

The equation of exchange is an accounting identity, not an economic theory.

Accepted Answer

A) True 
 B)False

Question 19

The quantity theory of money builds on the equation of exchange. What specific assumptions are made that turn the equation of exchange from an accounting identity into an economic theory?

Accepted Answer

The answer of The quantity theory of money builds on...

Question 20

Since the 1970s, the velocity of money has

Accepted Answer

A)  behaved in a predictable fashion. 
B)  behaved in an erratic fashion. 
C)  decreased in value. 
D)  increased in a stable and predictable fashion.

Exam 31: The Debate Over Monetary and Fiscal Policy

If the demand for money is insensitive to the interest rate, then the most effective expansionary policy would be

Both approaches-Keynesian and monetarist-are ways of analyzing

Which of the following is the order of fastest to slowest acting policy, once enacted, in affecting aggregate demand?

After September 11, 2001, a small group of economists argued that the economy's self-correcting mechanism would work to counteract the recessionary effects of the attack.

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

Which of the following best describes the assumption that monetarists make regarding velocity?

If you divide the amount of nominal GDP by the stock of money, you have computed the

Believers in a fixed-rule approach to stabilization policy propose that

If the velocity of circulation is 10 and the money supply is $250, the value of transactions will be $25.

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

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 velocity was approximately

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

Expansionary monetary policy increases bank reserves and the money supply, also decreases interest rates.

Advocates of fixed rules believe that politicians focus more on reelection than on sound policy.

The rapid speed with which the stimulus bill passed through both houses of Congress and was signed by the President could be used as an argument for

The primary goal of central bankers is to mitigate the consequences of bubbles, not to prevent bubbles.

Which of the following is an example of active fiscal policy?

The equation of exchange is an accounting identity, not an economic theory.

The quantity theory of money builds on the equation of exchange. What specific assumptions are made that turn the equation of exchange from an accounting identity into an economic theory?

Since the 1970s, the velocity of money has