Question 1

Exhibit 15-2
 2 and the relevant money supply curve is S1,then there is a A)  shortage of money between points B and A. B)  surplus of money between points B and A. C)  surplus of money between points C and D. D)  shortage of money between points C and D." class="answers-bank-image d-inline" rel="preload" >
-Refer to Exhibit 15-2. If the interest rate is i2 and the relevant money supply curve is S1,then there is a

Accepted Answer

A)   shortage of money between points B and A.
B)   surplus of money between points B and A.
C)   surplus of money between points C and D.
D)   shortage of money between points C and D.E) C) and D)
F) B) and C)

Question 2

Exhibit 15-l
 
-Refer to Exhibit 15-l.A Keynesian would say that natural market forces work so slowly in a recessionary gap in taking the economy between point __________ that an activist monetary policy is called for.

Accepted Answer

A)   B and point D
B)   B and point C
C)   C and point B
D)   B and point AE) A) and C)
F) B) and C)

Question 3

As the interest rate falls,the quantity supplied of money falls and the quantity demanded of money rises.

Accepted Answer

A) True 
 B)False

Question 4

Economists who believe that the economy is self-regulating are more likely to be nonactivists than activists.

Accepted Answer

A) True 
 B)False

Question 5

A rules-based monetary policy

Accepted Answer

A)   is advocated by activists.
B)   is advocated by nonactivists.
C)   could involve a predetermined steady growth rate in the money supply.
D)   b and c
E)   all of the aboveF) B) and C)
G) All of the above

Question 6

Assuming that the SRAS curve is upward sloping,which of the following statements represents a correct and sequentially accurate economic explanation?

Accepted Answer

A)   The demand for bonds falls, the price of bonds falls, the interest rate rises, investment spending declines, the AD curve shifts to the left, the price level declines and Real GDP decreases.
B)   The demand for bonds rises, the price of bonds rises, the interest rate rises, investment spending declines, the AD curve shifts to the left, the price level declines and Real GDP decreases.
C)   The supply of bonds rises, the price of bonds falls, the interest rate falls, investment spending rises, the AD curve shifts to the right, the price level declines and Real GDP decreases.
D)   The supply of bonds falls, the price of bonds rises, the interest rate falls, investment spending rises, the AD curve shifts to the right, the price level declines and Real GDP increases.E) A) and C)
F) B) and C)

Question 7

Nonactivists hold that

Accepted Answer

A)   activist monetary policies are likely to be destabilizing rather than stabilizing.
B)   economic fine-tuning is quite feasible.
C)   flexibility in wages and prices is sufficient to allow the economy to return at a reasonable speed to full-employment output.
D)   a and c
E)   all of the aboveF) A) and E)
G) B) and C)

Question 8

According to the monetarist transmission mechanism,a decrease in the money supply __________ aggregate demand.

Accepted Answer

A)   directly increases
B)   indirectly increases
C)   directly decreases
D)   indirectly decreases
E)   equals the increase inF) C) and D)
G) A) and E)

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

According to the Keynesian transmission mechanism,if the Fed conducts an open market sale of government securities,it may cause which of the following in the investment goods market?

Accepted Answer

A)   a rightward shift in the investment demand curve
B)   a leftward shift in the investment demand curve
C)   a movement down and along a given investment demand curve
D)   a movement up and along a given investment demand curveE) C) and D)
F) A) and C)

Question 11

According to the Keynesian transmission mechanism (and assuming there is no liquidity trap and investment is not interest insensitive) ,if the money supply increases,the interest rate __________,investment spending __________ and the AD curve shifts to the __________.

Accepted Answer

A)   falls; falls; left
B)   rises; rises; right
C)   falls; rises; left
D)   falls; rises; right
E)   rises; falls; rightF) B) and D)
G) B) and C)

Question 12

The Keynesian link between the money market and the goods and services market is __________.Changes in the money market must affect the __________ market before the goods and services market is affected.

Accepted Answer

A)   direct; credit
B)   indirect; labor
C)   indirect; investment goods
D)   direct; stock
E)   none of the aboveF) A) and E)
G) B) and E)

Question 13

People should buy bonds when they think that interest rates are as high as they will go.

Accepted Answer

A) True 
 B)False

Question 14

In the Keynesian transmission mechanism,if the money market is in the liquidity trap,an increase in the money supply will

Accepted Answer

A)   cause total expenditures and aggregate demand to increase.
B)   cause total expenditures and aggregate demand to decrease.
C)   have no impact on total expenditures and aggregate demand.
D)   cause total expenditures to increase and aggregate demand to decrease.
E)   cause total expenditures to decrease and aggregate demand to increase.F) A) and B)
G) B) and C)

Question 15

Assume that because of a long policy lag,the Fed starts implementing expansionary monetary policy too late,i.e.,at a time when the economy is already healing itself.As a result,the economy will probably move from an initial

Accepted Answer

A)   recessionary gap to an even deeper recessionary gap.
B)   recessionary gap to an inflationary gap.
C)   inflationary gap to the natural level of Real GDP.
D)   inflationary gap to a recessionary gap.E) None of the above
F) All of the above

Question 16

If Real GDP increases at an annual rate of 3 percent and velocity increases at a rate of 2 percent per year,then rules-based monetary policy advocates who wish to maintain a stable price level would set the annual money supply growth rate at

Accepted Answer

A)   -2 percent.
B)   0 percent.
C)   1 percent.
D)   6 percent.
E)   -1 percent.F) A) and D)
G) B) and D)

Question 17

Suppose that the bond market and the money market start out in equilibrium. Explain the process by which the interest rate and the price of bonds will change as a result of the Fed increasing the money supply.

Accepted Answer

When the Fed increases the money supply ...

Question 18

A person who opposes the deliberate use of fiscal and monetary policies is called a(n)

Accepted Answer

A)   Keynesian.
B)   fiscalist.
C)   nonactivist.
D)   activist.E) B) and C)
F) All of the above

Question 19

According to economist Arnold Kling's perspective on the economy,economic activity is best viewed by focusing on

Accepted Answer

A)   aggregate demand.
B)   the actions of the Federal Reserve.
C)   changes in spending.
D)   specialization and trade.E) A) and B)
F) A) and D)

Question 20

In the monetarist transmission mechanism,changes in the money market directly affect aggregate demand.

Accepted Answer

A) True 
 B)False

Exam 15: Monetary Policy

People should buy bonds when they think that interest rates are as high as they will go.

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In the monetarist transmission mechanism,changes in the money market directly affect aggregate demand.

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Assuming that the SRAS curve is upward sloping,which of the following statements represents a correct and sequentially accurate economic explanation?

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Exhibit 15-2 -Refer to Exhibit 15-2. If the interest rate is i2 and the relevant money supply curve is S1,then there is a

Correct AnswerverifiedShow Answer

According to economist Arnold Kling's perspective on the economy,economic activity is best viewed by focusing on

Correct AnswerverifiedShow Answer

If Real GDP increases at an annual rate of 3 percent and velocity increases at a rate of 2 percent per year,then rules-based monetary policy advocates who wish to maintain a stable price level would set the annual money supply growth rate at

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As the interest rate falls,the quantity supplied of money falls and the quantity demanded of money rises.

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Assume that because of a long policy lag,the Fed starts implementing expansionary monetary policy too late,i.e.,at a time when the economy is already healing itself.As a result,the economy will probably move from an initial

Correct AnswerverifiedShow Answer

In the Keynesian transmission mechanism,if the money market is in the liquidity trap,an increase in the money supply will

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Exhibit 15-l -Refer to Exhibit 15-l.A Keynesian would say that natural market forces work so slowly in a recessionary gap in taking the economy between point __________ that an activist monetary policy is called for.

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Suppose that the bond market and the money market start out in equilibrium. Explain the process by which the interest rate and the price of bonds will change as a result of the Fed increasing the money supply.

Correct AnswerverifiedWhen the Fed increases the money supply ...View AnswerShow Answer

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

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According to the Keynesian transmission mechanism (and assuming there is no liquidity trap and investment is not interest insensitive) ,if the money supply increases,the interest rate __________,investment spending __________ and the AD curve shifts to the __________.

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A person who opposes the deliberate use of fiscal and monetary policies is called a(n)

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A rules-based monetary policy

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Economists who believe that the economy is self-regulating are more likely to be nonactivists than activists.

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According to the monetarist transmission mechanism,a decrease in the money supply __________ aggregate demand.

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Nonactivists hold that

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The Keynesian link between the money market and the goods and services market is __________.Changes in the money market must affect the __________ market before the goods and services market is affected.

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According to the Keynesian transmission mechanism,if the Fed conducts an open market sale of government securities,it may cause which of the following in the investment goods market?

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Exhibit 15-2 -Refer to Exhibit 15-2. If the interest rate is i₂ and the relevant money supply curve is S₁,then there is a

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When the Fed increases the money supply ...
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According to the Keynesian transmission mechanism (and assuming there is no liquidity trap and investment is not interest insensitive) ,if the money supply increases,the interest rate ,investment spending and the AD curve shifts to the __.

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The Keynesian link between the money market and the goods and services market is .Changes in the money market must affect the market before the goods and services market is affected.

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