Question 1

Which of the following statements is false?

Accepted Answer

A) Keynesians would not advocate an expansionary monetary policy to eliminate a recessionary gap if they believed that investment demand was interest-insensitive. 
B) Keynesians would not advocate an expansionary monetary policy to eliminate a recessionary gap if they believed the money market was in the liquidity trap. 
C) Keynesians would advocate an expansionary monetary policy to eliminate a recessionary gap if they believed investment spending was insensitive to changes in the interest rate. 
D) Keynesians believe that money wages are inflexible in the downward direction.

Question 2

If the interest rate increases,the opportunity cost of holding money __________,and the quantity demanded of money __________.

Accepted Answer

A) does not change;does not change 
B) increases;also increases 
C) decreases;increases 
D) increases;decreases 
E) decreases;also decreases

Question 3

Economist Jones favors a constant-money-growth-rate rule.She says that if the annual money supply growth rate each year is equal to the average annual growth rate in Real GDP,price stability will exist over time.What would economist Smith,who favors activist monetary policy,say to economist Jones?

Accepted Answer

A) Your analysis assumes that Real GDP is constant over time,and it is not. 
B) Your analysis assumes that velocity is constant,and it is not. 
C) Your analysis assumes that you can correctly define the money supply. 
D) b and c 
E) a,b and c

Question 4

Exhibit 15-1 
-Refer to Exhibit 15-1.A Keynesian would say that market forces work more quickly in taking the economy from point______________ than from point _______________.

Accepted Answer

A) A to point D;D to point C 
B) A to point D;A to point B 
C) D to point C;B to point A 
D) C to point D;C to point B

Question 5

Activists hold that

Accepted Answer

A) activist monetary policy is flexible. 
B) nonactivist monetary policy is inflexible. 
C) the economy does not always return quickly enough to full-employment output. 
D) a and b 
E) all of the above

Question 6

Which of the following events prompted the birth of market monetarism?

Accepted Answer

A) the Great Depression 
B) the Great Recession 
C) the 1907 Bankers' Panic 
D) the establishment of the European Union

Question 7

Suppose a constant-money-growth-rate rule of 3 percent is being considered.If it is estimated that average annual Real GDP growth is 3.5 percent and it turns out that velocity is rising by 2 percent a year on average,the rule would produce an average annual rate of inflation of __________ percent.

Accepted Answer

A) 1.5 
B) 2.5 
C) 3.0 
D) 5.5 
E) 2.0

Question 8

The money supply increased and the AD curve did not shift to the right.This is consistent with the

Accepted Answer

A) Keynesian transmission mechanism when there is either a liquidity trap or interest-insensitive investment. 
B) monetarist transmission mechanism when there is interest-insensitive investment. 
C) Keynesian transmission mechanism when there is a liquidity trap. 
D) monetarist transmission mechanism when there is a liquidity trap. 
E) c and d

Question 9

Which of the following statements is true?

Accepted Answer

A) Nonactivists argue that monetary and fiscal policies should be deliberately used to smooth out the business cycle. 
B) Fine-tuning consists of the usually frequent use of monetary policy to counteract even small undesirable movements in economy activity. 
C) Keynesians would be more likely to advocate contractionary monetary policy to correct an inflationary gap than expansionary monetary policy to correct a recessionary gap. 
D) b and c 
E) a,b and c

Question 10

Activists believe that

Accepted Answer

A) monetary policy should not be used to smooth out the business cycle. 
B) fiscal policy should not be used to smooth out the business cycle. 
C) the frequent use of fiscal or monetary policy is called for to smooth out the business cycle. 
D) rules should be established for the conduct of both monetary and fiscal policy.

Question 11

A change in the money supply will change investment when

Accepted Answer

A) the money supply is a function of the price level. 
B) investment is interest-sensitive. 
C) investment depends only on the level of GDP. 
D) investment is interest-insensitive. 
E) the supply for money is a function of the interest rate.

Question 12

The Keynesian transmission mechanism could be blocked by either interest-insensitive investment or by the liquidity trap.

Accepted Answer

A) True 
 B)False

Question 13

Advocates of a gold standard believe that long-term price stability would be more likely under a gold standard than under current Fed monetary policy.

Accepted Answer

A) True 
 B)False

Question 14

Exhibit 15-3 
-Refer to Exhibit 15-3.The economy is currently at point 7.If the economy self-regulates,it will end up at point __________,whereas if contractionary monetary policy is effective,it will end up at point __________.

Accepted Answer

A) 8;6 
B) 9;6 
C) 9;5 
D) 9;3 
E) 3;9

Question 15

Suppose that one year ago you purchased a $1,000 bond with an interest payment of $40 per year and,at the time,the interest rate was 4 percent.One year later the interest rate on bonds has increased to 5 percent,and you still hold the bond you purchased a year ago.If you were to sell your bond now,the price that you could sell it for would be

Accepted Answer

A) higher than it was when you bought it. 
B) lower than it was when you bought it. 
C) the same as it was when you bought it,that is,$1,000. 
D) lower or higher than it was when you bought it,but we cannot determine which.

Question 16

Suppose that a rules-based monetary policy proposal specifies that the money supply will grow 3 percent each year.If velocity grows 1 percent this year and Real GDP grows 2 percent,the price level will __________ by __________ percent.

Accepted Answer

A) rise;3 
B) fall;2 
C) rise;2 
D) rise;6 
E) fall;5

Question 17

When is it best to sell bonds?

Accepted Answer

A) When interest rates are expected to rise,because this means bond prices will rise. 
B) When interest rates are expected to fall,because this means bond prices will rise. 
C) When interest rates are expected to rise,because this means bond prices will fall. 
D) When interest rates are expected to fall,because this means bond prices will fall.

Question 18

The SRAS curve is upward sloping,there is a liquidity trap,and investment spending is sensitive to changes in the interest rate.According to the monetarist transmission mechanism,if the money supply increases the AD curve __________ and the price level __________.

Accepted Answer

A) does not change;does not change 
B) shifts to the left;falls 
C) shifts to the right;rises 
D) does not change;rises 
E) none of the above

Question 19

Exhibit 15-6​
​ 
-Refer to Exhibit 15-6.At Q1,this economy is in a(n)___________________ gap.An economist who believes that the economy is self-regulating would assert that the ________________ curve will shift rightward to push the economy to point _____________.

Accepted Answer

A) inflationary;SRAS;A 
B) recessionary;SRAS;A 
C) inflationary;AD;B 
D) recessionary;AD;B

Question 20

Interest rates and the price of old or existing bonds are

Accepted Answer

A) directly related. 
B) independent of each other. 
C) inversely related. 
D) sometimes directly related and sometimes inversely related. 
E) There is not enough information to answer the question.

Exam 15: Monetary Policy

Which of the following statements is false?

If the interest rate increases,the opportunity cost of holding money ,and the quantity demanded of money .

Economist Jones favors a constant-money-growth-rate rule.She says that if the annual money supply growth rate each year is equal to the average annual growth rate in Real GDP,price stability will exist over time.What would economist Smith,who favors activist monetary policy,say to economist Jones?

Exhibit 15-1 -Refer to Exhibit 15-1.A Keynesian would say that market forces work more quickly in taking the economy from point than from point _.

Activists hold that

Which of the following events prompted the birth of market monetarism?

Suppose a constant-money-growth-rate rule of 3 percent is being considered.If it is estimated that average annual Real GDP growth is 3.5 percent and it turns out that velocity is rising by 2 percent a year on average,the rule would produce an average annual rate of inflation of __________ percent.

The money supply increased and the AD curve did not shift to the right.This is consistent with the

Which of the following statements is true?

Activists believe that

A change in the money supply will change investment when

The Keynesian transmission mechanism could be blocked by either interest-insensitive investment or by the liquidity trap.

Advocates of a gold standard believe that long-term price stability would be more likely under a gold standard than under current Fed monetary policy.

Exhibit 15-3 -Refer to Exhibit 15-3.The economy is currently at point 7.If the economy self-regulates,it will end up at point ,whereas if contractionary monetary policy is effective,it will end up at point .

Suppose that a rules-based monetary policy proposal specifies that the money supply will grow 3 percent each year.If velocity grows 1 percent this year and Real GDP grows 2 percent,the price level will by percent.

When is it best to sell bonds?

The SRAS curve is upward sloping,there is a liquidity trap,and investment spending is sensitive to changes in the interest rate.According to the monetarist transmission mechanism,if the money supply increases the AD curve and the price level .

Exhibit 15-6 -Refer to Exhibit 15-6.At Q₁,this economy is in a(n) _______ gap.An economist who believes that the economy is self-regulating would assert that the curve will shift rightward to push the economy to point _.

Interest rates and the price of old or existing bonds are

Exam 15: Monetary Policy

Which of the following statements is false?

If the interest rate increases,the opportunity cost of holding money __________,and the quantity demanded of money __________.

Economist Jones favors a constant-money-growth-rate rule.She says that if the annual money supply growth rate each year is equal to the average annual growth rate in Real GDP,price stability will exist over time.What would economist Smith,who favors activist monetary policy,say to economist Jones?

Exhibit 15-1 -Refer to Exhibit 15-1.A Keynesian would say that market forces work more quickly in taking the economy from point______________ than from point _______________.

Activists hold that

Which of the following events prompted the birth of market monetarism?

Suppose a constant-money-growth-rate rule of 3 percent is being considered.If it is estimated that average annual Real GDP growth is 3.5 percent and it turns out that velocity is rising by 2 percent a year on average,the rule would produce an average annual rate of inflation of __________ percent.

The money supply increased and the AD curve did not shift to the right.This is consistent with the

Which of the following statements is true?

Activists believe that

A change in the money supply will change investment when

The Keynesian transmission mechanism could be blocked by either interest-insensitive investment or by the liquidity trap.

Advocates of a gold standard believe that long-term price stability would be more likely under a gold standard than under current Fed monetary policy.

Exhibit 15-3 -Refer to Exhibit 15-3.The economy is currently at point 7.If the economy self-regulates,it will end up at point __________,whereas if contractionary monetary policy is effective,it will end up at point __________.

Suppose that a rules-based monetary policy proposal specifies that the money supply will grow 3 percent each year.If velocity grows 1 percent this year and Real GDP grows 2 percent,the price level will __________ by __________ percent.

When is it best to sell bonds?

The SRAS curve is upward sloping,there is a liquidity trap,and investment spending is sensitive to changes in the interest rate.According to the monetarist transmission mechanism,if the money supply increases the AD curve __________ and the price level __________.

Exhibit 15-6​ ​ -Refer to Exhibit 15-6.At Q1,this economy is in a(n) ___________________ gap.An economist who believes that the economy is self-regulating would assert that the ________________ curve will shift rightward to push the economy to point _____________.

Interest rates and the price of old or existing bonds are

If the interest rate increases,the opportunity cost of holding money ,and the quantity demanded of money .

Exhibit 15-1 -Refer to Exhibit 15-1.A Keynesian would say that market forces work more quickly in taking the economy from point than from point _.

Exhibit 15-3 -Refer to Exhibit 15-3.The economy is currently at point 7.If the economy self-regulates,it will end up at point ,whereas if contractionary monetary policy is effective,it will end up at point .

Suppose that a rules-based monetary policy proposal specifies that the money supply will grow 3 percent each year.If velocity grows 1 percent this year and Real GDP grows 2 percent,the price level will by percent.

The SRAS curve is upward sloping,there is a liquidity trap,and investment spending is sensitive to changes in the interest rate.According to the monetarist transmission mechanism,if the money supply increases the AD curve and the price level .

Exhibit 15-6 -Refer to Exhibit 15-6.At Q₁,this economy is in a(n) _______ gap.An economist who believes that the economy is self-regulating would assert that the curve will shift rightward to push the economy to point _.