Question 1

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) C) and D)
F) A) and C)

Question 2

Last year,Leah bought a bond for $1,000 that promises to pay $40 a year.This year,a person who buys a bond for $1,000 receives $45 a year.If Leah were to sell her (old) bond,its price would be approximately

Accepted Answer

A)   $889.
B)   $846.
C)   $905.
D)   $1,125.
E)   $1,273.F) A) and E)
G) B) and C)

Question 3

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

Question 4

The supply of bonds rises,ceteris paribus,and the price of bonds __________.This __________ the interest rate and __________ the quantity demanded of money.

Accepted Answer

A)   rises; raises; lowers
B)   falls; lowers; raises
C)   rises; lowers; lowers
D)   falls; raises; lowers
E)   falls; lowers; lowersF) A) and B)
G) C) and E)

Question 5

According to the Taylor Rule: if the inflation rate is 2% and the GDP gap is 3%,what does the federal funds rate target equal?

Accepted Answer

A)   9.5 percent
B)   7.5 percent
C)   5.5 percent
D)   8.5 percentE) C) and D)
F) A) and D)

Question 6

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 dF) C) and E)
G) C) and D)

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

Changes in the money market have an impact upon the bond market.

Accepted Answer

A) True 
 B)False

Question 9

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

Question 10

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 11

The liquidity trap refers to the

Accepted Answer

A)   assumption that the money supply curve is vertical as a result of the Fed's control.
B)   problem that occurs when interest rates reach such high levels that no individuals want to hold their wealth in the form of money.
C)   situation that occurs when an excess supply of money results in people holding more money than they desire.
D)   possibility that interest rates drop so low that people willingly hold all the additions to the money supply,rather than use it to buy bonds.E) A) and C)
F) All of the above

Question 12

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) None of the above
G) A) and E)

Question 13

One criticism of monetary policy based on a predetermined steady growth rate in money supply is that

Accepted Answer

A)   wages and prices are sufficiently flexible to allow the economy to restore the natural level of Real GDP on its own.
B)   the total lag in monetary policy may be too long to allow for effective monetary policy.
C)   changes in velocity,if not accounted for,can then be a source of price instability.
D)   a and b
E)   all of the aboveF) B) and C)
G) B) and D)

Question 14

If the investment demand curve is vertical,a decrease in the interest rate will __________ investment,and therefore aggregate demand will __________.

Accepted Answer

A)   increase; increase
B)   decrease; increase
C)   decrease; decrease
D)   decrease; remain unchanged
E)   not affect; remain unchangedF) B) and C)
G) A) and B)

Question 15

The supply curve of bonds is graphed as a vertical line.

Accepted Answer

A) True 
 B)False

Question 16

According to Keynesian economists,monetary policy is __________ effective at changing the price level and Real GDP.

Accepted Answer

A)   always
B)   sometimes
C)   never
D)   There is no Keynesian position with respect to monetary policy.E) None of the above
F) A) and B)

Question 17

Persons who argue against the deliberate use of fiscal and monetary policies to smooth out the business cycle are referred to as

Accepted Answer

A)   nonactivists.
B)   fine-tuners.
C)   activists.
D)   b and c
E)   none of the aboveF) A) and B)
G) C) and D)

Question 18

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 B)
G) All of the above

Question 19

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 D)
G) B) and C)

Question 20

The demand-for-money curve illustrates the __________ relationship between the quantity demanded of money and __________.

Accepted Answer

A)   inverse; the interest rate
B)   direct; GDP.
C)   direct; the interest rate
D)   inverse; GDPE) None of the above
F) A) and C)

Exam 15: The Distribution of Income and Poverty

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

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

The supply of bonds rises,ceteris paribus,and the price of bonds __________.This __________ the interest rate and __________ the quantity demanded of money.

Correct AnswerverifiedShow Answer

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

One criticism of monetary policy based on a predetermined steady growth rate in money supply is that

Correct AnswerverifiedShow Answer

Changes in the money market have an impact upon the bond market.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Persons who argue against the deliberate use of fiscal and monetary policies to smooth out the business cycle are referred to as

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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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The supply curve of bonds is graphed as a vertical line.

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The liquidity trap refers to the

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According to the Taylor Rule: if the inflation rate is 2% and the GDP gap is 3%,what does the federal funds rate target equal?

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The demand-for-money curve illustrates the __________ relationship between the quantity demanded of money and __________.

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Last year,Leah bought a bond for $1,000 that promises to pay $40 a year.This year,a person who buys a bond for $1,000 receives $45 a year.If Leah were to sell her (old) bond,its price would be approximately

Correct AnswerverifiedShow Answer

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

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

Correct AnswerverifiedShow Answer

According to Keynesian economists,monetary policy is __________ effective at changing the price level and Real GDP.

Correct AnswerverifiedShow Answer

A rules-based monetary policy

Correct AnswerverifiedShow Answer

If the investment demand curve is vertical,a decrease in the interest rate will __________ investment,and therefore aggregate demand will __________.

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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 AnswerverifiedShow Answer

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The supply of bonds rises,ceteris paribus,and the price of bonds .This the interest rate and __ the quantity demanded of money.

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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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The demand-for-money curve illustrates the relationship between the quantity demanded of money and .

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If the investment demand curve is vertical,a decrease in the interest rate will investment,and therefore aggregate demand will .

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