Question 1

Keynesians are more likely to propose

Accepted Answer

A)  contractionary monetary policy to eliminate an inflationary gap than expansionary monetary policy to eliminate a recessionary gap.
B)  contractionary monetary policy to eliminate a recessionary gap than contractionary monetary policy to eliminate an inflationary gap.
C)  expansionary monetary policy to eliminate a recessionary gap than contractionary monetary policy to eliminate an inflationary gap.
D)  none of the above; instead, Keynesians are as likely to propose expansionary monetary policy to eliminate a recessionary gap as they are to propose contractionary monetary policy to eliminate an inflationary gap.E) B) and C)
F) A) and B)

Question 2

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.F) A) and B)
G) A) and C)

Question 3

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) C) and D)
F) All of the above

Question 4

The rules-based monetary policy that some nonactivists have proposed to maintain price stability reads this way:

Accepted Answer

A)  The annual growth rate in the money supply will equal the average annual growth rate in Real GDP minus the growth rate in velocity.
B)  The annual growth rate in the money supply will equal the average annual growth rate in Real GDP plus the growth rate in velocity.
C)  The annual growth rate in the money supply will equal the average annual growth rate in Real GDP divided by the growth rate in velocity.
D)  The annual growth rate in the money supply will equal the average annual growth rate in Real GDP times the growth rate in velocity.E) A) and B)
F) All of the above

Question 5

Under a constant growth rate of money rule of 2 percent in an economy in which Real GDP grows at an average rate of 1 percent and velocity is constant, the inflation rate is

Accepted Answer

A)  3 percent.
B)  -3 percent.
C)  1 percent.
D)  -1 percent.
E)  constant at zero.F) A) and D)
G) C) and E)

Question 6

Which of the following statements is likely to be made by an economist who does not believe in activist monetary policy? (1)  The more closely monetary policy can he designed to meet the particulars of a given economic environment, the better. (2)  Because of long and uncertain time lags, activist monetary policy may be destabilizing rather than stabilizing. (3)  There is sufficient flexibility in wages and prices in modern economies to allow the economy to equilibrate in reasonable speed at the natural level of Real GDP, (4)  The "same-for-all-seasons" monetary policy is the way to proceed. (5)  There is evidence that monetary policy in the mid-1970s caused a recession.

Accepted Answer

A)  (1) , (2) , and (3) 
B)  (1) , (4) , and (5) 
C)  (2) , (3) , and (4) 
D)  (3) , (4) , and (5) 
E)  (1)  onlyF) B) and E)
G) A) and D)

Question 7

Describe the Keynesian transmission mechanism for a decrease in the money supply. Assuming that no liquidity trap exists, that investment is interest-sensitive, and that the economy is in the horizontal portion of the AS curve, what happens to Real GDP and the price level? How can you tell if this is a direct transmission mechanism or an indirect one?

Accepted Answer

When the money supply decreases, interes...

Question 8

Equilibrium in the money market exists when

Accepted Answer

A)  at a given interest rate, excess supply of money is equal to the quantity demanded of money.
B)  at a given interest rate, excess demand for money is equal to the quantity demanded of money.
C)  the supply of money curve intersects the demand for money curve at the prevailing interest rate.
D)  b and cE) B) and D)
F) B) and C)

Question 9

As the opportunity cost of holding money decreases, the quantity demanded of money

Accepted Answer

A)  increases.
B)  decreases.
C)  remains unchanged.
D)  increases, then decreases.
E)  decreases, then increases.F) C) and D)
G) D) and E)

Question 10

Which scenario best explains the Keynesian transmission mechanism when the investment demand curve is vertical?

Accepted Answer

A)  The interest rate falls, investment falls even more, the AD curve shifts rightward, but total expenditures do not change.
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) B) and C)
F) A) and C)

Question 11

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.E) B) and C)
F) All of the above

Question 12

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) All of the above

Question 13

Under a gold standard, if the market price of gold is below the official price of gold (set by the monetary authority)  members of the public would likely buy gold _______________ and sell it __________________, causing the market price of gold to ____________________.

Accepted Answer

A)  from the monetary authority; in the gold market; fall
B)  from the monetary authority; in the gold market; rise
C)  in the gold market; to the monetary authority; fall
D)  in the gold market; to the monetary authority; riseE) None of the above
F) A) and D)

Question 14

Exhibit 15-1
 
-Refer to Exhibit 15-l. One argument against the use of activist monetary policy claims that it can destabilize the economy. For example, suppose we are in a recessionary gap. Expansionary monetary policy is implemented, but there are so many lags that by the time it has its effect, self-regulation has already closed the gap by itself. The end result is a movement from point

Accepted Answer

A)  B to point D.
B)  B to point C.
C)  B to point A.
D)  A to point C.
E)  C to point BF) All of the above
G) A) and E)

Question 15

One argument in favor of activist monetary policy is that the economy does not always equilibrate quickly enough at Natural Real GDP.

Accepted Answer

A) True 
 B)False

Question 16

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) B) and D)
F) All of the above

Question 17

The economy is in a recessionary gap and there is complete crowding out. Furthermore, there is no evidence that the economy is in a liquidity trap or that investment is interest-insensitive. This makes the case for the use of __________ policy stronger than it might be otherwise.

Accepted Answer

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

Question 18

The Taylor Rule provides policymakers with a target for

Accepted Answer

A)  the federal funds rate.
B)  the discount rate.
C)  the inflation rate.
D)  the unemployment rate.
E)  c and dF) A) and B)
G) A) and C)

Question 19

Suppose the money market is in the liquidity trap and the Fed increases the supply of money. Individuals would rather hold __________ than __________ because they expect that bond prices can go no __________.

Accepted Answer

A)  bonds; money; higher
B)  bonds; money; lower
C)  money; bonds; higher
D)  money; bonds; lowerE) B) and D)
F) A) and B)

Question 20

The demand for money rises. According to the Keynesian transmission mechanism, the interest rate __________, investment spending __________ (assuming it is interest-sensitive) , the AD curve shifts to the __________ and if the AS curve is horizontal, Real GDP __________.

Accepted Answer

A)  rises; falls; left; rises
B)  falls; rises; right; does not change
C)  rises; falls; right; rises
D)  falls; falls; left; does not change
E)  rises; falls; left; fallsF) A) and B)
G) B) and E)

Exam 15: Monetary Policy

Which scenario best explains the Keynesian transmission mechanism when the investment demand curve is vertical?

Correct Answer
verified

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

Correct Answer
verified

The rules-based monetary policy that some nonactivists have proposed to maintain price stability reads this way:

Correct Answer
verified

Interest rates and the price of old or existing bonds are

Correct Answer
verified

The economy is in a recessionary gap and there is complete crowding out. Furthermore, there is no evidence that the economy is in a liquidity trap or that investment is interest-insensitive. This makes the case for the use of __________ policy stronger than it might be otherwise.

Correct Answer
verified

Keynesians are more likely to propose

Correct Answer
verified

Activists believe that

Correct Answer
verified

Correct Answer
verified

Under a constant growth rate of money rule of 2 percent in an economy in which Real GDP grows at an average rate of 1 percent and velocity is constant, the inflation rate is

Correct Answer
verified

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
verified

Equilibrium in the money market exists when

Correct Answer
verified

The demand for money rises. According to the Keynesian transmission mechanism, the interest rate , investment spending (assuming it is interest-sensitive) , the AD curve shifts to the and if the AS curve is horizontal, Real GDP .

Correct Answer
verified

As the opportunity cost of holding money decreases, the quantity demanded of money

Correct Answer
verified

Suppose the money market is in the liquidity trap and the Fed increases the supply of money. Individuals would rather hold than because they expect that bond prices can go no __.

Correct Answer
verified

Under a gold standard, if the market price of gold is below the official price of gold (set by the monetary authority) members of the public would likely buy gold _ and sell it , causing the market price of gold to ________.

Correct Answer
verified

The Taylor Rule provides policymakers with a target for

Correct Answer
verified

Activists believe that

Correct Answer
verified

Correct Answer
verified
When the money supply decreases, interes...
View Answer

Correct Answer
verified

One argument in favor of activist monetary policy is that the economy does not always equilibrate quickly enough at Natural Real GDP.

Correct Answer
verified

Exam 15: Monetary Policy

Which scenario best explains the Keynesian transmission mechanism when the investment demand curve is vertical?

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

The rules-based monetary policy that some nonactivists have proposed to maintain price stability reads this way:

Correct AnswerverifiedShow Answer

Interest rates and the price of old or existing bonds are

Correct AnswerverifiedShow Answer

The economy is in a recessionary gap and there is complete crowding out. Furthermore, there is no evidence that the economy is in a liquidity trap or that investment is interest-insensitive. This makes the case for the use of __________ policy stronger than it might be otherwise.

Correct AnswerverifiedShow Answer

Keynesians are more likely to propose

Correct AnswerverifiedShow Answer

Activists believe that

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Under a constant growth rate of money rule of 2 percent in an economy in which Real GDP grows at an average rate of 1 percent and velocity is constant, the inflation rate is

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

Equilibrium in the money market exists when

Correct AnswerverifiedShow Answer

The demand for money rises. According to the Keynesian transmission mechanism, the interest rate __________, investment spending __________ (assuming it is interest-sensitive) , the AD curve shifts to the __________ and if the AS curve is horizontal, Real GDP __________.

Correct AnswerverifiedShow Answer

As the opportunity cost of holding money decreases, the quantity demanded of money

Correct AnswerverifiedShow Answer

Suppose the money market is in the liquidity trap and the Fed increases the supply of money. Individuals would rather hold __________ than __________ because they expect that bond prices can go no __________.

Correct AnswerverifiedShow Answer

Under a gold standard, if the market price of gold is below the official price of gold (set by the monetary authority) members of the public would likely buy gold _______________ and sell it __________________, causing the market price of gold to ____________________.

Correct AnswerverifiedShow Answer

The Taylor Rule provides policymakers with a target for

Correct AnswerverifiedShow Answer

Activists believe that

Correct AnswerverifiedShow Answer

Correct AnswerverifiedWhen the money supply decreases, interes...View AnswerShow Answer

Correct AnswerverifiedShow Answer

One argument in favor of activist monetary policy is that the economy does not always equilibrate quickly enough at Natural Real GDP.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
verified

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
verified

Correct Answer
verified

The demand for money rises. According to the Keynesian transmission mechanism, the interest rate , investment spending (assuming it is interest-sensitive) , the AD curve shifts to the and if the AS curve is horizontal, Real GDP .

Correct Answer
verified

Correct Answer
verified

Suppose the money market is in the liquidity trap and the Fed increases the supply of money. Individuals would rather hold than because they expect that bond prices can go no __.

Correct Answer
verified

Under a gold standard, if the market price of gold is below the official price of gold (set by the monetary authority) members of the public would likely buy gold _ and sell it , causing the market price of gold to ________.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
When the money supply decreases, interes...
View Answer

Correct Answer
verified

Correct Answer
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