Question 1

If the aggregate price level adjusts slowly over time,then an expansionary monetary policy lowers ________.

Accepted Answer

A)  only the short-term nominal interest rate 
B)  only the short-term real interest rate 
C)  both the short-term nominal and real interest rates 
D)  the short-term nominal, the short-term real, and the long-term real interest rates

Question 2

What structural evidence lead early Keynesians to believe that monetary policy does not matter?

Accepted Answer

The answer of What structural evidence lead early Keynesians to...

Question 3

Early Keynesians believed that monetary policy ________.

Accepted Answer

A)  affected aggregate demand solely through its effect on nominal interest rates 
B)  did not affect aggregate demand through nominal interest rates 
C)  affected aggregate demand through many channels 
D)  affected real output directly

Question 4

If the particular channels through which changes in the money supply affect aggregate income are diverse and continually changing,the best evidence of monetary policy's effect is likely to come from ________.

Accepted Answer

A)  reduced-form models 
B)  structural models 
C)  median-voter models 
D)  indirect models

Question 5

If monetary policy can influence ________ prices and conditions in ________ markets,then it can affect spending through channels other than the traditional interest-rate channel.

Accepted Answer

A)  asset; labor 
B)  asset; credit 
C)  commodity; labor 
D)  commodity; credit

Question 6

Evidence that is based on a variable having its effect on another variable through channels rather than a direct effect is known as ________.

Accepted Answer

A)  indirect-model evidence 
B)  organizational-model evidence 
C)  reduced-form evidence 
D)  structural-model evidence

Question 7

Predicting the impact of institutional change on the effectiveness of monetary policy is best done with a ________.

Accepted Answer

A)  structural model 
B)  reduced-form model 
C)  black-box model 
D)  scientific model

Question 8

When Keynesians argue that "correlation does not necessarily imply causation," they are probably criticizing ________.

Accepted Answer

A)  structural-model evidence 
B)  reduced-form evidence 
C)  indirect-model evidence 
D)  black-box evidence

Question 9

An expansionary monetary policy raises firms' cash flows by ________ interest rates.

Accepted Answer

A)  lowering real 
B)  lowering nominal 
C)  raising real 
D)  raising nominal

Question 10

Tobin's q theory suggests that monetary policy may affect investment spending through its impact on ________.

Accepted Answer

A)  stock prices 
B)  interest rates 
C)  bond prices 
D)  cash flow

Question 11

Milton Friedman and Anna Schwartz showed that monetary policy during the Great Depression had ________.

Accepted Answer

A)  been quite inflationary 
B)  never been more contractionary 
C)  been more expansionary than in the 1920s 
D)  been essentially neutral

Question 12

What do you know about the reduced-form evidence in describing the transmission mechanism of monetary policy? provide a brief description.

Accepted Answer

The answer of What do you know about the reduced-form...

Question 13

Periods of price deflation,such as the Great Depression,are characterized by ________.

Accepted Answer

A)  low nominal rates but high real rates of interest 
B)  low nominal and real interest rates 
C)  real rates of interest lower than the nominal rate of interest 
D)  high nominal and real rates of interest

Question 14

If a contractionary monetary policy lowers the price level by more than expected,it raises the real value of consumer debt.This reduces consumer expenditure through ________.

Accepted Answer

A)  the bank lending channel 
B)  Tobin's q 
C)  the traditional interest-rate channel 
D)  the household liquidity effect

Question 15

Analysis of the transmission mechanisms of monetary policy provides four basic lessons for a central bank's conduct of monetary policy.These lessons include:

Accepted Answer

A)  Rising interest rates indicate a tightening of monetary policy, whereas falling interest rates indicate an easing of monetary policy. 
B)  Monetary policy can be highly effective in reviving a weak economy even if short-term interest rates are already near zero. 
C)  Avoiding fluctuations in the level of unemployment is an important objective of monetary policy, thus providing a rationale for interest-rate stability as the primary long-run goal for monetary policy. 
D)  Other asset prices beside those on short-term debt instruments do not contain important information about the stance of monetary policy because they are not important elements in various monetary policy transmission mechanisms.

Question 16

Most Keynesians currently believe that ________.

Accepted Answer

A)  monetary policy does matter 
B)  monetary policy is irrelevant 
C)  fiscal policy does matter 
D)  Both A and C

Question 17

Movements of ________ interest rates indicate that,contrary to the early Keynesians' beliefs,monetary policy was ________ during the Great Depression.

Accepted Answer

A)  nominal; tight 
B)  nominal; easy 
C)  real; tight 
D)  real; easy

Question 18

Tobin's q is defined as the market value of firms ________ the replacement cost of capital.

Accepted Answer

A)  times 
B)  minus 
C)  plus 
D)  divided by

Question 19

Timing evidence is valid only if it is known that the first event is ________.

Accepted Answer

A)  endogenous 
B)  exogenous 
C)  a leading indicator of the second event 
D)  a lagging indicator of the second event

Question 20

What is the statistical evidence of early monetarists on the importance of money?

Accepted Answer

The answer of What is the statistical evidence of early...

Exam 27: Transmission Mechanisms of Monetary Policy