Question 1

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 2

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 3

Which of the following policies would a Keynesian expect to produce the largest decrease in income?

Accepted Answer

A) a reduction in government spending of $100 billion 
B) a decrease in transfer payments of $100 billion 
C) an increase in government spending of $100 billion 
D) a tax increase of $100 billion

Question 4

A major advantage of monetary policy over fiscal policy is that monetary

Accepted Answer

A) policy affects all sectors of the economy equally. 
B) policy can be put into effect more quickly. 
C) policy, once implemented, takes effect more quickly. 
D) authorities see the need for policy more quickly.

Question 5

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 the above are correct.

Question 6

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 7

Which of the following is an example of a company whose stock showed evidence of a price bubble?

Accepted Answer

A) Facebook 
B) Google 
C) Amazon 
D) all of the above

Question 8

In 2007-2009, the Fed cut interest rates to limit the international financial crisis.What is the 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 interest rates.

Question 9

Advocates of activist policy making point to the swift response of the Fed after September 11, 2001, as an example of effective policy making.

Accepted Answer

A) True 
 B)False

Question 10

Policy lags are typically much shorter for monetary policy than for fiscal policy.

Accepted Answer

A) True 
 B)False

Question 11

If the Fed's monetary policy causes a substantial increase 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 12

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 13

____ is a school of economic thought which uses equation of exchange to analyze the macro economic data.

Accepted Answer

A) Mercantilism 
B) Monetarism 
C) Supply side economics 
D) Keynesianism

Question 14

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 15

The velocity of circulation is the

Accepted Answer

A) speed at which the multiplier takes effect. 
B) speed at which money circulates. 
C) speed at which tax cuts get spent. 
D) rate at which money creation takes place.

Question 16

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 17

Attempts to keep the economy always within a hair's breadth of full employment is called

Accepted Answer

A) shock absorption. 
B) lagging. 
C) fine tuning. 
D) crowding out.

Question 18

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 19

During the financial crisis of 2007-2009, both fiscal and monetary policy turned more expansionary.

Accepted Answer

A) True 
 B)False

Question 20

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.

Exam 32: The Debate Over Monetary and Fiscal Policy

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

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

Which of the following policies would a Keynesian expect to produce the largest decrease in income?

A major advantage of monetary policy over fiscal policy is that monetary

Monetarists maintain that

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

Which of the following is an example of a company whose stock showed evidence of a price bubble?

In 2007-2009, the Fed cut interest rates to limit the international financial crisis.What is the effect of this on velocity?

Advocates of activist policy making point to the swift response of the Fed after September 11, 2001, as an example of effective policy making.

Policy lags are typically much shorter for monetary policy than for fiscal policy.

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

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

____ is a school of economic thought which uses equation of exchange to analyze the macro economic data.

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

The velocity of circulation is the

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

Attempts to keep the economy always within a hair's breadth of full employment is called

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

During the financial crisis of 2007-2009, both fiscal and monetary policy turned more expansionary.

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