Question 1

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 2

Explain the importance of the shape of supply curve for undertaking stabilization policies.

Accepted Answer

The answer of Explain the importance of the shape of...

Question 3

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

Accepted Answer

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

Question 4

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 5

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 6

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 7

How do critics of stabilization policy view the "political business cycle"?

Accepted Answer

A)  They suggest shorter election cycles would improve stabilization. 
B)  They believe that politicians cause economic instability, due mainly to the election schedule. 
C)  They believe that the Fed can resist political pressure and stabilize the economy. 
D)  They believe that politicians do not know enough economics in order to stabilize the economy.

Question 8

If the Fed's monetary policy causes a substantial decrease in interest rates,what is the most likely impact on velocity?

Accepted Answer

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

Question 9

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 10

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 11

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 12

The differences between monetarist and Keynesian theories are more apparent than real.

Accepted Answer

A) True 
 B)False

Question 13

What is the effect on velocity if payments are made more often?

Accepted Answer

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

Question 14

Many economists maintain that

Accepted Answer

A)  the aggregate supply curve is nearly horizontal at low levels of real GDP. 
B)  the aggregate supply curve is nearly vertical at very high levels of real GDP. 
C)  any change in aggregate demand will have most of its effect on output when economic activity is low but on prices when the economy is near full employment. 
D)  All of the above are correct.

Question 15

The reason that velocity increases when interest rates rise is

Accepted Answer

A)  the Fed encourages banks to turn money in faster for recycling, which causes money to move faster. 
B)  the opportunity cost of saving increases, so people hold smaller cash balances. 
C)  home mortgage payments increase, so people write larger checks that reduces their checking account balances. 
D)  the opportunity cost of holding money increases, so average money balances decrease.

Question 16

In utilizing unconventional monetary policy in 2009,the Federal Reserve purchased

Accepted Answer

A)  real estate worth more than $2 trillion. 
B)  $800 billion in Treasury bills. 
C)  over $1 trillion in mortgage backed securities. 
D)  $600 billion in long-term Treasury bonds.

Question 17

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 18

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 19

As we approached the end of the millennium,many economic crackpots advised citizens to hold large quantities of cash in anticipation of Y2K disasters.What effect would this have had on velocity if many people had been foolish enough to follow this advice?

Accepted Answer

A)  It would have decreased. 
B)  It would have increased. 
C)  It would have remained constant. 
D)  Velocity is unrelated to cash balances.

Question 20

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.

Exam 15: The Debate over Monetary and Fiscal Policy