Question 1

The quantity demanded of money falls as the

Accepted Answer

A)   interest rate falls.
B)   interest rate rises.
C)   supply of money rises.
D)   none of the above,since the quantity demanded of money is unrelated to the interest rateE) A) and B)
F) C) and D)

Question 2

The economy is in the horizontal portion of the AS curve,there is a liquidity trap,and investment spending is sensitive to changes in the interest rate.According to the Keynesian transmission mechanism,if the money supply increases the interest rate __________,investment spending __________,the AD curve __________ and the price level __________.

Accepted Answer

A)   falls;rises;shifts to the right;rises
B)   falls;rises;shifts to the right;remains unchanged
C)   does not change;does not change;does not change;does not change
D)   does not change;shifts to the left;does not change;rises
E)   rises;falls;left;fallsF) A) and E)
G) A) and C)

Question 3

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 decreasesF) A) and D)
G) C) and D)

Question 4

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) A) and C)
G) C) and D)

Question 5

Activists believe that

Accepted Answer

A)   there is sufficient flexibility in wages and prices to allow the economy to equilibrate at full-employment Real GDP in a reasonable period of time.
B)   discretionary fiscal policies do not work.
C)   discretionary monetary policies do not work.
D)   fine-tuning to smooth out the business cycle is feasible.E) All of the above
F) B) and C)

Question 6

According to Keynesians,__________ monetary policy will not remove the economy from a(an) __________ gap if __________.

Accepted Answer

A)   contractionary;recessionary;investment is interest-insensitive
B)   expansionary;recessionary;the economy is in the liquidity trap
C)   expansionary;inflationary;investment is interest-insensitive
D)   contractionary;inflationary;the economy has been in the inflationary gap for more than one year
E)   none of the aboveF) C) and D)
G) B) and E) B

Question 7

Exhibit 15-1 
-Refer to Exhibit 15-l.A Keynesian monetary policy to eliminate a recessionary gap can be portrayed as a move between points

Accepted Answer

A)   A and B.
B)   B and C.
C)   C and D.
D)   D and A.E) A) and B)
F) None of the above

Question 8

Assume the Keynesian transmission mechanism is operational and the economy is currently operating in the horizontal portion of the AS curve.If the money supply increases and the demand for money curve is downward sloping and investment is interest ____________,then Real GDP will ___________________.

Accepted Answer

A)   sensitive;rise
B)   insensitive;remain unchanged
C)   sensitive;remain unchanged
D)   insensitive;rise
E)   a and bF) B) and C)
G) C) and D) E

Question 9

Which scenario best explains the Keynesian transmission mechanism when the money supply increases while the money market is in a liquidity trap?

Accepted Answer

A)   The interest rate and investment are not affected;there is no shift in the AD curve.
B)   The interest rate falls,investment rises,total expenditures rise,and the AD curve shifts rightward.
C)   The interest rate falls,investment falls instead of rising,and the AD curve ends up shifting leftward.
D)   The interest rate falls,but investment does not respond;there is no change in total expenditures and no shift in the AD curve.E) All of the above
F) C) and D)

Question 10

Exhibit 15-1 
-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 B)
F) A) and C)

Question 11

The liquidity trap is the

Accepted Answer

A)   vertical portion of the demand curve for money.
B)   horizontal portion of the demand curve for money.
C)   vertical portion of the supply curve of money.
D)   horizontal portion of the supply curve of money.
E)   vertical portion of the demand curve for investment.F) None of the above
G) A) and B)

Question 12

Exhibit 15-2 1 to S2 would have a tendency to __________ the opportunity cost of holding money. A)  increase;raise B)  increase;lower C)  decrease;raise D)  decrease;lower" class="answers-bank-image d-inline" rel="preload" >
-Refer to Exhibit 15-2.A(n) __________ in the money supply from S1 to S2 would have a tendency to __________ the opportunity cost of holding money.

Accepted Answer

A)   increase;raise
B)   increase;lower
C)   decrease;raise
D)   decrease;lowerE) A) and B)
F) B) and C)

Question 13

From the Patterns of Sustainable Specialization and Trade (PSST) perspective,expansionary monetary and fiscal policies that are designed to boost aggregate demand

Accepted Answer

A)   will not work if the money market is in disequilibrium,and may end up making the economy worse.
B)   will not work unless alternative sources of energy are employed.
C)   may not work if buyers and sellers are out of sync with one another,and may end up making the economy worse.
D)   are always successful in pushing the economy to full-employment.E) B) and C)
F) A) and D)

Question 14

Economists who favor activist monetary policy often argue that

Accepted Answer

A)   during the mid-1970s,money supply growth rates were nearly constant and still the economy went through a recession.
B)   during the mid-1970s,activist monetary policy was applied and the economy was healthy and stable.
C)   activist monetary policy is inflexible and this is one of its virtues;the money supply doesn't change every year in response to political considerations.
D)   activist monetary policy is likely to be destabilizing most of the time,but still it is the better way to proceed.E) B) and C)
F) A) and C)

Question 15

If you believe the economy is self-regulating,you are more likely to be a(an) __________ than a(an) __________.

Accepted Answer

A)   nonactivist;activist
B)   Keynesian;monetarist
C)   activist;nonactivist
D)   advocate of fiscal policy;advocate of monetary policy
E)   b and dF) B) and C)
G) None of the above

Question 16

The Taylor Rule specifies that the federal funds rate target should be equal to

Accepted Answer

A)   0.5 ( inflation rate) + 1.5 (GDP gap) + 1
B)   1.5 (inflation rate) + 0.5 (GDP gap) + 1.
C)   interest rate - expected inflation rate.
D)   equilibrium federal funds rate + inflation rate +1E) All of the above
F) A) and B)

Question 17

The money supply decreased and the AD curve shifted to the left.This is consistent with the

Accepted Answer

A)   Keynesian transmission mechanism when there is neither a liquidity trap nor interest-insensitive investment.
B)   monetarist transmission mechanism.
C)   Keynesian transmission mechanism when there is a liquidity trap.
D)   Keynesian transmission mechanism with interest-insensitive investment.
E)   a and bF) C) and D)
G) B) and E) E

Question 18

Under conditions of a liquidity trap and interest-insensitive investment,Keynesians would be most likely to propose __________ policy to eliminate a recessionary gap.

Accepted Answer

A)   expansionary fiscal
B)   contractionary fiscal
C)   expansionary monetary
D)   contractionary monetaryE) C) and D)
F) B) and D)

Question 19

Exhibit 15-3 
-Refer to Exhibit 15-3.The economy is currently at point 5.If contractionary monetary policy is implemented,and prices are flexible,the economy will likely move to point ______ in the short run.

Accepted Answer

A)   1
B)   3
C)   2
D)   4
E)   none of the aboveF) A) and B)
G) C) and E)

Question 20

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) B) and E)
G) A) and D)

Exam 15: Monetary Policy

The quantity demanded of money falls as the

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

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

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Activists believe that

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According to Keynesians, monetary policy will not remove the economy from a(an) gap if __.

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B

Exhibit 15-1 -Refer to Exhibit 15-l.A Keynesian monetary policy to eliminate a recessionary gap can be portrayed as a move between points

Correct Answer
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Assume the Keynesian transmission mechanism is operational and the economy is currently operating in the horizontal portion of the AS curve.If the money supply increases and the demand for money curve is downward sloping and investment is interest ,then Real GDP will _______.

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E

Which scenario best explains the Keynesian transmission mechanism when the money supply increases while the money market is in a liquidity trap?

Correct Answer
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Exhibit 15-1 -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.

Correct Answer
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The liquidity trap is the

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Exhibit 15-2 -Refer to Exhibit 15-2.A(n) in the money supply from S₁ to S₂ would have a tendency to the opportunity cost of holding money.

Correct Answer
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From the Patterns of Sustainable Specialization and Trade (PSST) perspective,expansionary monetary and fiscal policies that are designed to boost aggregate demand

Correct Answer
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Economists who favor activist monetary policy often argue that

Correct Answer
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If you believe the economy is self-regulating,you are more likely to be a(an) than a(an) .

Correct Answer
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The Taylor Rule specifies that the federal funds rate target should be equal to

Correct Answer
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The money supply decreased and the AD curve shifted to the left.This is consistent with the

Correct Answer
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E

Under conditions of a liquidity trap and interest-insensitive investment,Keynesians would be most likely to propose __________ policy to eliminate a recessionary gap.

Correct Answer
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Exhibit 15-3 -Refer to Exhibit 15-3.The economy is currently at point 5.If contractionary monetary policy is implemented,and prices are flexible,the economy will likely move to point ______ in the short run.

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

Correct Answer
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Exam 15: Monetary Policy

The quantity demanded of money falls as the

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Activists believe that

Correct AnswerverifiedShow Answer

According to Keynesians,__________ monetary policy will not remove the economy from a(an) __________ gap if __________.

Correct AnswerverifiedB

Exhibit 15-1 -Refer to Exhibit 15-l.A Keynesian monetary policy to eliminate a recessionary gap can be portrayed as a move between points

Correct AnswerverifiedShow Answer

Correct AnswerverifiedE

Which scenario best explains the Keynesian transmission mechanism when the money supply increases while the money market is in a liquidity trap?

Correct AnswerverifiedShow Answer

Exhibit 15-1 -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.

Correct AnswerverifiedShow Answer

The liquidity trap is the

Correct AnswerverifiedShow Answer

Exhibit 15-2 -Refer to Exhibit 15-2.A(n) __________ in the money supply from S1 to S2 would have a tendency to __________ the opportunity cost of holding money.

Correct AnswerverifiedShow Answer

From the Patterns of Sustainable Specialization and Trade (PSST) perspective,expansionary monetary and fiscal policies that are designed to boost aggregate demand

Correct AnswerverifiedShow Answer

Economists who favor activist monetary policy often argue that

Correct AnswerverifiedShow Answer

If you believe the economy is self-regulating,you are more likely to be a(an) __________ than a(an) __________.

Correct AnswerverifiedShow Answer

The Taylor Rule specifies that the federal funds rate target should be equal to

Correct AnswerverifiedShow Answer

The money supply decreased and the AD curve shifted to the left.This is consistent with the

Correct AnswerverifiedE

Under conditions of a liquidity trap and interest-insensitive investment,Keynesians would be most likely to propose __________ policy to eliminate a recessionary gap.

Correct AnswerverifiedShow Answer

Exhibit 15-3 -Refer to Exhibit 15-3.The economy is currently at point 5.If contractionary monetary policy is implemented,and prices are flexible,the economy will likely move to point ______ in the short run.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

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According to Keynesians, monetary policy will not remove the economy from a(an) gap if __.

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B

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E

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Exhibit 15-2 -Refer to Exhibit 15-2.A(n) in the money supply from S₁ to S₂ would have a tendency to the opportunity cost of holding money.

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If you believe the economy is self-regulating,you are more likely to be a(an) than a(an) .

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E

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