question
The average number of times that a dollar is spent in buying the total amount of final goods and services produced during a given time period is known as
A. gross national product. B. velocity.
C. the money multiplier. D. the spending multiplier.
A. gross national product. B. velocity.
C. the money multiplier. D. the spending multiplier.
answer
B
question
If the money supply is $600 and nominal income is $3,000, the velocity of money is
A. 1/50. B. 1/5. C. 5.
D. 50.
A. 1/50. B. 1/5. C. 5.
D. 50.
answer
C
question
The equation of exchange is
A. M+V=P+Y. B. M+Y=V+P. C.M P=V Y. D. M V=P Y.
A. M+V=P+Y. B. M+Y=V+P. C.M P=V Y. D. M V=P Y.
answer
D
question
For the classical economists, the quantity theory of money provided an explanation of movements in the price level. Changes in the price level result
A. primarily from changes in the quantity of money.
B. from changes in factors other than the quantity of money.
C. only partially from changes in the quantity of money.
D. from proportional changes in the quantity of money.
A. primarily from changes in the quantity of money.
B. from changes in factors other than the quantity of money.
C. only partially from changes in the quantity of money.
D. from proportional changes in the quantity of money.
answer
D
question
Methods of financing government spending are described by an expression called the government budget constraint, which states the following:
A. DEFICIT=(G − T)= MB − BONDS. B. DEFICIT=(G − T)= MB+ BONDS. C. DEFICIT = (G − T) = MB/ BONDS. D. DEFICIT=(G − T)= BONDS − MB.
A. DEFICIT=(G − T)= MB − BONDS. B. DEFICIT=(G − T)= MB+ BONDS. C. DEFICIT = (G − T) = MB/ BONDS. D. DEFICIT=(G − T)= BONDS − MB.
answer
B
question
Keynes hypothesized that the transactions component of money demand was primarily determined by the level of
A. velocity.
B. interest rates.
C. income.
D. stock market prices.
A. velocity.
B. interest rates.
C. income.
D. stock market prices.
answer
C
question
Because Keynes assumed that the expected return on money was zero, he argued that people would
A. never hold money as a store of wealth.
B. never hold money.
C. hold money as a store of wealth when the expected return on bonds was negative.
D. hold money as a store of wealth only when forced to by government policy.
A. never hold money as a store of wealth.
B. never hold money.
C. hold money as a store of wealth when the expected return on bonds was negative.
D. hold money as a store of wealth only when forced to by government policy.
answer
D
question
Keynes's model of the demand for money suggests that velocity is
A. positively related to interest rates. B. constant.
C. negatively related to interest rates. D. positively related to bond values
A. positively related to interest rates. B. constant.
C. negatively related to interest rates. D. positively related to bond values
answer
A
question
Assume that disposable income equals $1000 and the mpc equals 0.6. If total consumption equal $800, then autonomous consumption is equal to
A. $0.
B. $200. C. $800. D. $1000.
A. $0.
B. $200. C. $800. D. $1000.
answer
B
question
What does the IS curve show?
A. It shows equilibrium points in the goods market—the combinations of planned investment spending and net exports.
B. It shows equilibrium points in the goods market—the combinations of the real interest rate and net exports.
C. It shows equilibrium points in the goods market—the combinations of planned expenditure and equilibrium output.
D. It shows equilibrium points in the goods market—the combinations of the real interest rate and equilibrium output.
A. It shows equilibrium points in the goods market—the combinations of planned investment spending and net exports.
B. It shows equilibrium points in the goods market—the combinations of the real interest rate and net exports.
C. It shows equilibrium points in the goods market—the combinations of planned expenditure and equilibrium output.
D. It shows equilibrium points in the goods market—the combinations of the real interest rate and equilibrium output.
answer
D
question
Why does it slope downward?
A. As the real interest rate falls, consumption expenditure, planned investment spending, and net exports rise, which in turn lowers planned expenditure. Aggregate output must be lower for it to equal planned expenditure and satisfy goods market equilibrium. Hence, the IS curve is downward-sloping.
B. As the real interest rate rises, consumption expenditure, planned investment spending, and net exports rise, which in turn increases planned expenditure. Aggregate output must be higher for it to equal planned expenditure and satisfy goods market equilibrium. Hence, the IS curve is downward-sloping.
C. As the real interest rate rises, consumption expenditure, planned investment spending, and net exports fall, which in turn lowers planned expenditure. Aggregate output must be lower for it to equal planned expenditure and satisfy goods market equilibrium. Hence, the IS curve is downward-sloping.
D. None of the above are correct.
A. As the real interest rate falls, consumption expenditure, planned investment spending, and net exports rise, which in turn lowers planned expenditure. Aggregate output must be lower for it to equal planned expenditure and satisfy goods market equilibrium. Hence, the IS curve is downward-sloping.
B. As the real interest rate rises, consumption expenditure, planned investment spending, and net exports rise, which in turn increases planned expenditure. Aggregate output must be higher for it to equal planned expenditure and satisfy goods market equilibrium. Hence, the IS curve is downward-sloping.
C. As the real interest rate rises, consumption expenditure, planned investment spending, and net exports fall, which in turn lowers planned expenditure. Aggregate output must be lower for it to equal planned expenditure and satisfy goods market equilibrium. Hence, the IS curve is downward-sloping.
D. None of the above are correct.
answer
C
question
Everything else held constant, if aggregate output is to the ________ of the IS curve, then there is an excess ________ of goods which will cause aggregate output to rise.
A. left; supply
B. right; supply
C. left; demand
D. right; demand
A. left; supply
B. right; supply
C. left; demand
D. right; demand
answer
C
question
When interest rates rise in the United States (with the price level fixed), the value of the dollar ________, domestic goods become ________ expensive, and net exports ________.
A. rises; less; fall
B. falls; more; rise
C. falls; less; fall
D. rises; more; fall
A. rises; less; fall
B. falls; more; rise
C. falls; less; fall
D. rises; more; fall
answer
D
question
When the interest rate rises, ________.
A. planned investment falls
B. planned investment will be unaffected C. equilibrium income increases
D. planned investment rises
A. planned investment falls
B. planned investment will be unaffected C. equilibrium income increases
D. planned investment rises
answer
A
question
What is the real interest rate?
A. The nominal interest rate.
B. Expected inflation.
C. The nominal interest rate minus expected inflation.
D. The nominal interest rate plus expected inflation.
A. The nominal interest rate.
B. Expected inflation.
C. The nominal interest rate minus expected inflation.
D. The nominal interest rate plus expected inflation.
answer
C
question
Why can the Fed control the real interest rate in the short run but not in the long run?
A. Inflation and prices are sticky in the short run. Hence, when a change in the Fed's monetary policy causes the nominal interest rate to change, the real interest rate does not change. In the long run, actual and expected inflation change in response to changes in monetary policy, leaving the real interest rate unaffected.
B. It adjusts for inflation in the short run. Hence, when a change in the Fed's monetary policy causes the nominal interest rate to change, the real interest rate also changes. In the long run, actual and expected inflation does not change in response to changes in monetary policy.
C. It adjusts for inflation, and prices are sticky in the short run. Hence, when a change in the Fed's monetary policy causes the nominal interest rate to change, the real interest rate also changes in the same direction. In the long run, actual and expected inflation change in response to changes in monetary policy, leaving the real interest rate unaffected.
D. None of the above are correct.
A. Inflation and prices are sticky in the short run. Hence, when a change in the Fed's monetary policy causes the nominal interest rate to change, the real interest rate does not change. In the long run, actual and expected inflation change in response to changes in monetary policy, leaving the real interest rate unaffected.
B. It adjusts for inflation in the short run. Hence, when a change in the Fed's monetary policy causes the nominal interest rate to change, the real interest rate also changes. In the long run, actual and expected inflation does not change in response to changes in monetary policy.
C. It adjusts for inflation, and prices are sticky in the short run. Hence, when a change in the Fed's monetary policy causes the nominal interest rate to change, the real interest rate also changes in the same direction. In the long run, actual and expected inflation change in response to changes in monetary policy, leaving the real interest rate unaffected.
D. None of the above are correct.
answer
c
question
. When the inflation rate increases, what happens to the fed funds rate? Operationally, how does the Fed adjust the fed funds rate?
A. The Fed can adjust the fed funds rate either up or down, depending on the autonomous component of the real interest rate.
B. The Fed adjusts the fed funds rate up through open market sales of bonds.
C. The Fed does not adjust the fed funds rate, as it is the real interest rate that should be adjusted.
D. The Fed adjusts the fed funds rate down to provide more reserves to the banking system.
A. The Fed can adjust the fed funds rate either up or down, depending on the autonomous component of the real interest rate.
B. The Fed adjusts the fed funds rate up through open market sales of bonds.
C. The Fed does not adjust the fed funds rate, as it is the real interest rate that should be adjusted.
D. The Fed adjusts the fed funds rate down to provide more reserves to the banking system.
answer
B
question
Why is it necessary for the MP curve to have an upward slope?
A. An upward-sloping MP curve keeps inflation from spinning out of control.
B. If the MP curve has an upward slope, it indicates an increase in output and a decrease in unemployment.
C. If the MP curve has an upward slope, then more liquidity will occur in the banking system. D. An upward-sloping MP curve encourages consumer and business spending.
A. An upward-sloping MP curve keeps inflation from spinning out of control.
B. If the MP curve has an upward slope, it indicates an increase in output and a decrease in unemployment.
C. If the MP curve has an upward slope, then more liquidity will occur in the banking system. D. An upward-sloping MP curve encourages consumer and business spending.
answer
A
question
"The Fed decreased the fed funds rate in late 2007, even though inflation was increasing. This demonstrates a violation of the Taylor principle." Is this statement true, false, or uncertain? Explain your answer.
A. False. It was the autonomous component of the fed funds rate that was decreased through an autonomous monetary policy easing. The Fed's distaste for inflation did not change and remained positive.
B. True. Under the Taylor principle, the fed funds rate should have been raised by more than any rise in expected inflation.
C. Uncertain. Although the responsiveness of the real interest rate to the inflation rate declined, which could be a violation of the Taylor principle, the real interest rate increased.
A. False. It was the autonomous component of the fed funds rate that was decreased through an autonomous monetary policy easing. The Fed's distaste for inflation did not change and remained positive.
B. True. Under the Taylor principle, the fed funds rate should have been raised by more than any rise in expected inflation.
C. Uncertain. Although the responsiveness of the real interest rate to the inflation rate declined, which could be a violation of the Taylor principle, the real interest rate increased.
answer
A
question
What would be the effect of a decrease in U.S. net exports on the aggregate demand curve?
A. The aggregate demand curve shifts to the right.
B. The slope of the aggregate demand curve decreases.
C. The aggregate demand curve does not shift.
D. The aggregate demand curve shifts to the left.
A. The aggregate demand curve shifts to the right.
B. The slope of the aggregate demand curve decreases.
C. The aggregate demand curve does not shift.
D. The aggregate demand curve shifts to the left.
answer
D
question
Would a decrease in net exports affect the monetary policy curve?
A. Yes, the monetary policy curve shifts to the left.
B. Yes, the monetary policy curve shifts to the right.
C. Yes, the slope of the monetary policy curve decreases.
D. No, the monetary policy curve does not shift.
A. Yes, the monetary policy curve shifts to the left.
B. Yes, the monetary policy curve shifts to the right.
C. Yes, the slope of the monetary policy curve decreases.
D. No, the monetary policy curve does not shift.
answer
D
question
What is the aggregate demand curve?
A. It is the relationship between the inflation rate and the real interest rate.
B. It is the relationship between the inflation rate and aggregate output when the goods market is in equilibrium.
C. It traces out the points at which the goods market is in equilibrium.
D. It is the relationship between the inflation rate and net exports.
A. It is the relationship between the inflation rate and the real interest rate.
B. It is the relationship between the inflation rate and aggregate output when the goods market is in equilibrium.
C. It traces out the points at which the goods market is in equilibrium.
D. It is the relationship between the inflation rate and net exports.
answer
B
question
Why does the aggregate demand curve slope downward?
A. A rise in inflation works through the increase in real interest rates to increase the equilibrium quantity of aggregate output.
B. A decrease in inflation works through the increase in real interest rates to reduce the equilibrium quantity of aggregate output.
C. A rise in inflation works through the decrease in real interest rates to reduce the equilibrium quantity of aggregate output.
D. A rise in inflation works through the increase in real interest rates to reduce the equilibrium quantity of aggregate output.
A. A rise in inflation works through the increase in real interest rates to increase the equilibrium quantity of aggregate output.
B. A decrease in inflation works through the increase in real interest rates to reduce the equilibrium quantity of aggregate output.
C. A rise in inflation works through the decrease in real interest rates to reduce the equilibrium quantity of aggregate output.
D. A rise in inflation works through the increase in real interest rates to reduce the equilibrium quantity of aggregate output.
answer
D
question
Consider an economy described by the following:
C = $3.25 trillion I = $1.3 trillion G = $3.5 trillion
T = $3 trillion NX = $1.5 trillion
f=1
mpc = 0.8 d = 0.3 x = 0.1
= 1 r = 1
The expression for the MP curve is:
A. r=1+1 . B. r=1+0.8 . C. r=2+0.8 . D. r=2+1 .
C = $3.25 trillion I = $1.3 trillion G = $3.5 trillion
T = $3 trillion NX = $1.5 trillion
f=1
mpc = 0.8 d = 0.3 x = 0.1
= 1 r = 1
The expression for the MP curve is:
A. r=1+1 . B. r=1+0.8 . C. r=2+0.8 . D. r=2+1 .
answer
A
question
Consider an economy described by the following:
C = $3.25 trillion I = $1.3 trillion G = $3.5 trillion
T = $3 trillion NX = $1.5 trillion
f=1
mpc = 0.8 d = 0.3 x = 0.1
= 1 r = 1
The expression for the AD curve is:
A. Y=32.25−1.3 . B. Y=25.8−1.3 . C. Y=25.8−2 .
D. Y=32.25−2 .
C = $3.25 trillion I = $1.3 trillion G = $3.5 trillion
T = $3 trillion NX = $1.5 trillion
f=1
mpc = 0.8 d = 0.3 x = 0.1
= 1 r = 1
The expression for the AD curve is:
A. Y=32.25−1.3 . B. Y=25.8−1.3 . C. Y=25.8−2 .
D. Y=32.25−2 .
answer
D
question
If government spending increases while taxes are raised to balance the budget, which of the following is true?
A. Two components of aggregate demand will increase.
B. Two components of aggregate demand will decrease.
C. One component of aggregate demand will increase and another will decrease.
A. Two components of aggregate demand will increase.
B. Two components of aggregate demand will decrease.
C. One component of aggregate demand will increase and another will decrease.
answer
C
question
Everything else held constant, an appreciation of the domestic currency will cause the IS curve to shift to the ________ and aggregate demand will ________.
A. right; increase
B. right; decrease
C. left; increase
D. left; decrease
A. right; increase
B. right; decrease
C. left; increase
D. left; decrease
answer
D
question
Everything else held constant, a depreciation of the domestic currency will cause the IS curve to shift to the ________ and aggregate demand will ________.
A. right; increase
B. left; decrease
C. right; decrease
D. left; increase
A. right; increase
B. left; decrease
C. right; decrease
D. left; increase
answer
A
question
Everything else held constant, a decrease in government spending will cause the IS curve to shift to the ________ and aggregate demand will ________.
A. right; increase
B. left; decrease
C. left; increase
D. right; decrease
A. right; increase
B. left; decrease
C. left; increase
D. right; decrease
answer
B
question
Suppose that a new Fed chair is appointed, and his or her approach to monetary policy can be summarized by the following statement: "I care only about increasing employment; inflation has been at very low levels for quite some time; my priority is to ease monetary policy to promote employment."
How would you expect the monetary policy curve to be affected, if at all?
A. The MP curve will shift downward because decreasing unemployment results in a tightening of monetary policy.
B. The MP curve will shift downward because decreasing unemployment results in a loosening of monetary policy.
C. The MP curve will shift upward because decreasing unemployment results in a tightening of monetary policy.
D. The MP curve will shift upward because decreasing unemployment results in a loosening of monetary policy.
How would you expect the monetary policy curve to be affected, if at all?
A. The MP curve will shift downward because decreasing unemployment results in a tightening of monetary policy.
B. The MP curve will shift downward because decreasing unemployment results in a loosening of monetary policy.
C. The MP curve will shift upward because decreasing unemployment results in a tightening of monetary policy.
D. The MP curve will shift upward because decreasing unemployment results in a loosening of monetary policy.
answer
B
question
What would be the effect on the aggregate demand curve?
A. The AD curve will not change.
B. The AD curve will shift to the right.
C. The AD curve will shift to the left.
D. The slope of the AD curve will increase.
A. The AD curve will not change.
B. The AD curve will shift to the right.
C. The AD curve will shift to the left.
D. The slope of the AD curve will increase.
answer
B
question
How does a tightening or easing of monetary policy by the Fed affect the aggregate demand curve?
A. Tightening of monetary policy shifts the aggregate demand curve to the right, while easing of monetary policy shifts the aggregate demand curve to the left.
B. Tightening of monetary policy shifts the aggregate demand curve to the left, while easing of monetary policy shifts the aggregate demand curve to the right.
C. Tightening or easing of monetary policy does not shift the aggregate demand curve.
D. None of the above are correct.
A. Tightening of monetary policy shifts the aggregate demand curve to the right, while easing of monetary policy shifts the aggregate demand curve to the left.
B. Tightening of monetary policy shifts the aggregate demand curve to the left, while easing of monetary policy shifts the aggregate demand curve to the right.
C. Tightening or easing of monetary policy does not shift the aggregate demand curve.
D. None of the above are correct.
answer
B
question
If government spending increases while taxes are raised to balance the budget, which of the following is true?
A. Two components of aggregate demand will decrease.
B. One component of aggregate demand will increase and another will decrease.
C. Two components of aggregate demand will increase.
A. Two components of aggregate demand will decrease.
B. One component of aggregate demand will increase and another will decrease.
C. Two components of aggregate demand will increase.
answer
B
question
What relationship does the aggregate supply curve describe?
A. It describes the relationship between the total quantity of output supplied and the unemployment rate.
B. It describes the relationship between the total quantity of output supplied and the inflation rate.
C. It describes the relationship between the total quantity of money supplied and the inflation rate.
D. It describes the relationship between the total quantity of money supplied and the interest rate.
A. It describes the relationship between the total quantity of output supplied and the unemployment rate.
B. It describes the relationship between the total quantity of output supplied and the inflation rate.
C. It describes the relationship between the total quantity of money supplied and the inflation rate.
D. It describes the relationship between the total quantity of money supplied and the interest rate.
answer
B
question
The long-run aggregate supply curve is:
A. vertical because the output an economy can produce increases as does the inflation rate in the long run.
B. upward-sloping because the output an economy can produce increases as does the inflation rate in the long run.
C. upward-sloping because changes in labor, capital, and technology (not the inflation rate) change the output an economy can produce over the long run.
D. vertical because changes in labor, capital, and technology (not the inflation rate) change the output an economy can produce over the long run.
A. vertical because the output an economy can produce increases as does the inflation rate in the long run.
B. upward-sloping because the output an economy can produce increases as does the inflation rate in the long run.
C. upward-sloping because changes in labor, capital, and technology (not the inflation rate) change the output an economy can produce over the long run.
D. vertical because changes in labor, capital, and technology (not the inflation rate) change the output an economy can produce over the long run.
answer
D
question
Which of the following would cause the long-run aggregate supply curve to shift rightward?
A. An increase in available technology.
B. A decrease in the total amount of capital in the economy.
C. A decrease in the total amount of labor supplied in the economy.
D. Both B and C are correct.
E. All of the above are correct.
A. An increase in available technology.
B. A decrease in the total amount of capital in the economy.
C. A decrease in the total amount of labor supplied in the economy.
D. Both B and C are correct.
E. All of the above are correct.
answer
A
question
Suppose the inflation rate remains relatively constant, and output decreases and the unemployment rate increases. This is possible if:
A. both the aggregate supply and demand curves shift horizontally to the left by the same amount.
B. the aggregate supply curve shifts to the left and the aggregate demand curve shifts to the right.
C. the aggregate supply curve shifts to the left and the aggregate demand curve remains the same.
D. both the aggregate supply and demand curves shift horizontally to the right by the same amount.
A. both the aggregate supply and demand curves shift horizontally to the left by the same amount.
B. the aggregate supply curve shifts to the left and the aggregate demand curve shifts to the right.
C. the aggregate supply curve shifts to the left and the aggregate demand curve remains the same.
D. both the aggregate supply and demand curves shift horizontally to the right by the same amount.
answer
A
question
The Federal Reserve pursued inherently recessionary policies in the early 1980s to:
A. lower real interest rates and thus increase spending.
B. decrease the unemployment rate, which was well above the natural rate level.
C. lower the inflation rate, which had spun out of control.
D. increase aggregate demand and output in order to curb inflation.
A. lower real interest rates and thus increase spending.
B. decrease the unemployment rate, which was well above the natural rate level.
C. lower the inflation rate, which had spun out of control.
D. increase aggregate demand and output in order to curb inflation.
answer
C
question
Everything else held constant, an autonomous monetary policy tightening ________ aggregate ________.
A. decreases; demand
B. decreases; supply
C. increases; supply
D. increases; demand
A. decreases; demand
B. decreases; supply
C. increases; supply
D. increases; demand
answer
A
question
Everything else held constant, an increase in financial frictions ________ aggregate ________.
A. decreases; supply
B. decreases; demand
C. increases; demand
D. increases; supply
A. decreases; supply
B. decreases; demand
C. increases; demand
D. increases; supply
answer
B
question
Everything else held constant, an increase in government spending ________ aggregate ________.
A. increases; demand
B. decreases; supply
C. decreases; demand
D. increases; supply
A. increases; demand
B. decreases; supply
C. decreases; demand
D. increases; supply
answer
A
question
Everything else held constant, an increase in net exports ________ aggregate ________.
A. decreases; demand
B. decreases; supply
C. increases; demand
D. increases; supply
A. decreases; demand
B. decreases; supply
C. increases; demand
D. increases; supply
answer
C
question
Everything else held constant, aggregate demand increases when
A. planned investment spending increases.
B. taxes increase.
C. net exports decrease.
D. the money supply decreases.
A. planned investment spending increases.
B. taxes increase.
C. net exports decrease.
D. the money supply decreases.
answer
A
question
The quantity theory of money is a theory of how
A. interest rates are determined.
B. the money supply is determined.
C. the real value of aggregate income is determined.
D. the nominal value of aggregate income is determined.
A. interest rates are determined.
B. the money supply is determined.
C. the real value of aggregate income is determined.
D. the nominal value of aggregate income is determined.
answer
D
question
If the money supply is $500 and nominal income is $3,000, the velocity of money is
A. 1/60. B. 1/6. C. 6.
D. 60.
A. 1/60. B. 1/6. C. 6.
D. 60.
answer
C
question
If the money supply is $20 trillion and velocity is 2, then nominal GDP is
A. $2 trillion.
B. $10 trillion.
C. $20 trillion.
D. $40 trillion.
A. $2 trillion.
B. $10 trillion.
C. $20 trillion.
D. $40 trillion.
answer
D
question
Methods of financing government spending are described by an expression called the government budget constraint, which states the following:
A. the government budget deficit must equal the difference between the change in the monetary base and the change in government bonds held by the Treasury.
B. the government budget deficit must equal the difference between the change in the monetary base and the change in government bonds held by the public.
C. the government budget deficit must equal the difference between the change in the monetary base and the change in government bonds held by the Fed.
D. the government budget deficit must equal the sum of the change in the monetary base and the change in government bonds held by the public.
A. the government budget deficit must equal the difference between the change in the monetary base and the change in government bonds held by the Treasury.
B. the government budget deficit must equal the difference between the change in the monetary base and the change in government bonds held by the public.
C. the government budget deficit must equal the difference between the change in the monetary base and the change in government bonds held by the Fed.
D. the government budget deficit must equal the sum of the change in the monetary base and the change in government bonds held by the public.
answer
D
question
If the deficit is financed by selling bonds to the ________, the money supply will ________, increasing aggregate demand, and leading to a rise in the price level.
A. public; fall
B. central bank; rise
C. central bank; fall
D. public; rise
A. public; fall
B. central bank; rise
C. central bank; fall
D. public; rise
answer
B
question
f the consumption function is C = 20 + 0.5YD, then an increase in disposable income by $100 will result in an increase in consumer expenditure by
A. $25. B. $70. C. $50. D. $100.
A. $25. B. $70. C. $50. D. $100.
answer
C
question
Equilibrium output is reduced by an increase in
A. government spending.
B. net exports.
C. taxes.
D. planned investment.
A. government spending.
B. net exports.
C. taxes.
D. planned investment.
answer
C
question
Aggregate output is ________ related to autonomous consumer expenditure, and is ________ related to planned investment spending.
A. positively; positively
B. negatively; negatively
C. negatively; positively
D. positively; negatively
A. positively; positively
B. negatively; negatively
C. negatively; positively
D. positively; negatively
answer
A
question
Keynes believed that changes in autonomous spending were dominated by unstable fluctuations in ________, which are influenced by emotional waves of optimism and pessimism—factors he referred to as "animal spirits."
A. actual investment spending
B. planned investment spending
C. unplanned investment spending
D. autonomous consumer expenditures
A. actual investment spending
B. planned investment spending
C. unplanned investment spending
D. autonomous consumer expenditures
answer
B
question
"When the stock market rises, investment is increasing." Is this statement true, false, or uncertain? Explain your answer.
A. True. The buying and selling of stocks will increase income, so new production must occur.
B. False. When the stock market rises, less borrowing is likely to occur, thus decreasing investment.
C. False. The buying and selling of stocks represents transfers of existing assets, and new production does not occur.
D. Uncertain. Investment spending is most likely influenced by emotional waves of optimism or pessimism and not changes in the stock market.
A. True. The buying and selling of stocks will increase income, so new production must occur.
B. False. When the stock market rises, less borrowing is likely to occur, thus decreasing investment.
C. False. The buying and selling of stocks represents transfers of existing assets, and new production does not occur.
D. Uncertain. Investment spending is most likely influenced by emotional waves of optimism or pessimism and not changes in the stock market.
answer
C
question
What are the four components of planned expenditure?
A. Consumption expenditure, planned investment spending, government purchases, and imports.
B. Consumption expenditure, planned investment spending, government purchases, and exports.
C. Consumption expenditure, planned investment spending, government purchases, and net exports.
D. Consumption expenditure, fixed investment spending, inventory investment spending, and taxes.
A. Consumption expenditure, planned investment spending, government purchases, and imports.
B. Consumption expenditure, planned investment spending, government purchases, and exports.
C. Consumption expenditure, planned investment spending, government purchases, and net exports.
D. Consumption expenditure, fixed investment spending, inventory investment spending, and taxes.
answer
C
question
Why did Keynesian analysis emphasize this concept?
A. Keynes viewed the total amount of output demanded in the economy as being the same as planned expenditure. This is true when the planned expenditure on goods and services is less than the actual amount of goods and services produced.
B. Keynes believed that planned expenditure is the amount that households, businesses, the government, and foreigners actually do spend, which equals the total amount of output produced in the economy.
C. Keynes viewed the total amount of output demanded in the economy as being the same as planned expenditure. This is true when the planned expenditure on goods and services is more than the actual amount of goods and services produced.
D. Keynes viewed the total amount of output demanded in the economy as being the same as planned expenditure. This is true when the planned expenditure on goods and services is equal to the actual amount of goods and services produced.
A. Keynes viewed the total amount of output demanded in the economy as being the same as planned expenditure. This is true when the planned expenditure on goods and services is less than the actual amount of goods and services produced.
B. Keynes believed that planned expenditure is the amount that households, businesses, the government, and foreigners actually do spend, which equals the total amount of output produced in the economy.
C. Keynes viewed the total amount of output demanded in the economy as being the same as planned expenditure. This is true when the planned expenditure on goods and services is more than the actual amount of goods and services produced.
D. Keynes viewed the total amount of output demanded in the economy as being the same as planned expenditure. This is true when the planned expenditure on goods and services is equal to the actual amount of goods and services produced.
answer
D
question
When the inflation rate increases, what happens to the fed funds rate? Operationally, how does the Fed adjust the fed funds rate?
A. The Fed can adjust the fed funds rate either up or down, depending on the autonomous component of the real interest rate.
B. The Fed adjusts the fed funds rate down to provide more reserves to the banking system.
C. The Fed adjusts the fed funds rate up through open market sales of bonds.
D. The Fed does not adjust the fed funds rate, as it is the real interest rate that should be adjusted.
A. The Fed can adjust the fed funds rate either up or down, depending on the autonomous component of the real interest rate.
B. The Fed adjusts the fed funds rate down to provide more reserves to the banking system.
C. The Fed adjusts the fed funds rate up through open market sales of bonds.
D. The Fed does not adjust the fed funds rate, as it is the real interest rate that should be adjusted.
answer
C
question
What is the real interest rate?
A. The nominal interest rate.
B. The nominal interest rate minus expected inflation.
C. Expected inflation.
D. The nominal interest rate plus expected inflation.
A. The nominal interest rate.
B. The nominal interest rate minus expected inflation.
C. Expected inflation.
D. The nominal interest rate plus expected inflation.
answer
B
question
Why can the Fed control the real interest rate in the short run but not in the long run?
A. It adjusts for inflation, and prices are sticky in the short run. Hence, when a change in the Fed's monetary policy causes the nominal interest rate to change, the real interest rate also changes in the same direction. In the long run, actual and expected inflation change in response to changes in monetary policy, leaving the real interest rate unaffected.
B. Inflation and prices are sticky in the short run. Hence, when a change in the Fed's monetary policy causes the nominal interest rate to change, the real interest rate does not change. In the long run, actual and expected inflation change in response to changes in monetary policy, leaving the real interest rate unaffected.
C. It adjusts for inflation in the short run. Hence, when a change in the Fed's monetary policy causes the nominal interest rate to change, the real interest rate also changes. In the long run, actual and expected inflation does not change in response to changes in monetary policy.
D. None of the above are correct.
A. It adjusts for inflation, and prices are sticky in the short run. Hence, when a change in the Fed's monetary policy causes the nominal interest rate to change, the real interest rate also changes in the same direction. In the long run, actual and expected inflation change in response to changes in monetary policy, leaving the real interest rate unaffected.
B. Inflation and prices are sticky in the short run. Hence, when a change in the Fed's monetary policy causes the nominal interest rate to change, the real interest rate does not change. In the long run, actual and expected inflation change in response to changes in monetary policy, leaving the real interest rate unaffected.
C. It adjusts for inflation in the short run. Hence, when a change in the Fed's monetary policy causes the nominal interest rate to change, the real interest rate also changes. In the long run, actual and expected inflation does not change in response to changes in monetary policy.
D. None of the above are correct.
answer
A
question
Why is it necessary for the MP curve to have an upward slope?
A. If the MP curve has an upward slope, it indicates an increase in output and a decrease in unemployment.
B. An upward-sloping MP curve keeps inflation from spinning out of control.
C. An upward-sloping MP curve encourages consumer and business spending.
D. If the MP curve has an upward slope, then more liquidity will occur in the banking system.
A. If the MP curve has an upward slope, it indicates an increase in output and a decrease in unemployment.
B. An upward-sloping MP curve keeps inflation from spinning out of control.
C. An upward-sloping MP curve encourages consumer and business spending.
D. If the MP curve has an upward slope, then more liquidity will occur in the banking system.
answer
B
question
How does an autonomous tightening or easing of monetary policy by the Fed affect the MP curve?
A. When the Fed decides to raise the real interest rate at any given inflation rate, the MP curve shifts upward. Monetary policy easing, a decision to lower the real interest rate at any given inflation rate, shifts the MP curve downward.
B. When the Fed decides to lower the real interest rate at any given inflation rate, the MP curve shifts upward. Monetary policy easing, a decision to raise the real interest rate at any given inflation rate, shifts the MP curve downward.
C. When the Fed decides to raise the real interest rate at any given inflation rate, the MP curve shifts downward. Monetary policy easing, a decision to lower the real interest rate at any given inflation rate, shifts the MP curve upward.
D. None of the above are correct.
A. When the Fed decides to raise the real interest rate at any given inflation rate, the MP curve shifts upward. Monetary policy easing, a decision to lower the real interest rate at any given inflation rate, shifts the MP curve downward.
B. When the Fed decides to lower the real interest rate at any given inflation rate, the MP curve shifts upward. Monetary policy easing, a decision to raise the real interest rate at any given inflation rate, shifts the MP curve downward.
C. When the Fed decides to raise the real interest rate at any given inflation rate, the MP curve shifts downward. Monetary policy easing, a decision to lower the real interest rate at any given inflation rate, shifts the MP curve upward.
D. None of the above are correct.
answer
A
question
What is the monetary policy curve?
A. It indicates the relationship between net exports and the real interest rate.
B. It indicates the relationship between consumption expenditure and the real interest rate.
C. It traces out the points at which the goods market is in equilibrium.
D. It indicates the relationship between the inflation rate and the real interest rate.
A. It indicates the relationship between net exports and the real interest rate.
B. It indicates the relationship between consumption expenditure and the real interest rate.
C. It traces out the points at which the goods market is in equilibrium.
D. It indicates the relationship between the inflation rate and the real interest rate.
answer
d
question
Why does the monetary policy curve slope upward? (Check all that apply.)
A. Monetary policymakers will follow the Taylor principle and respond aggressively to a decrease in the inflation rate by raising nominal interest rates by an even greater amount so that the real interest rate also rises.
B. When inflation increases, the supply of real money balances declines. This increases the equilibrium nominal interest rate in the money market, which also increases the real interest rate in the short run.
C. Monetary policymakers will follow the Taylor principle and respond aggressively to an increase in the inflation rate by raising nominal interest rates by an even greater amount so that the real interest rate also rises.
D. When inflation increases, the supply of real money balances increases. This increases the equilibrium nominal interest rate in the money market, which also increases the real interest rate in the short run.
A. Monetary policymakers will follow the Taylor principle and respond aggressively to a decrease in the inflation rate by raising nominal interest rates by an even greater amount so that the real interest rate also rises.
B. When inflation increases, the supply of real money balances declines. This increases the equilibrium nominal interest rate in the money market, which also increases the real interest rate in the short run.
C. Monetary policymakers will follow the Taylor principle and respond aggressively to an increase in the inflation rate by raising nominal interest rates by an even greater amount so that the real interest rate also rises.
D. When inflation increases, the supply of real money balances increases. This increases the equilibrium nominal interest rate in the money market, which also increases the real interest rate in the short run.
answer
B,C
question
If government spending increases while taxes are raised to balance the budget, which of the following is true?
A. Two components of aggregate demand will increase.
B. One component of aggregate demand will increase and another will decrease.
C. Two components of aggregate demand will decrease.
A. Two components of aggregate demand will increase.
B. One component of aggregate demand will increase and another will decrease.
C. Two components of aggregate demand will decrease.
answer
B
question
How does a tightening or easing of monetary policy by the Fed affect the aggregate demand curve?
A. Tightening or easing of monetary policy does not shift the aggregate demand curve.
B. Tightening of monetary policy shifts the aggregate demand curve to the left, while easing of monetary policy shifts the aggregate demand curve to the right.
C. Tightening of monetary policy shifts the aggregate demand curve to the right, while easing of monetary policy shifts the aggregate demand curve to the left.
D. None of the above are correct.
A. Tightening or easing of monetary policy does not shift the aggregate demand curve.
B. Tightening of monetary policy shifts the aggregate demand curve to the left, while easing of monetary policy shifts the aggregate demand curve to the right.
C. Tightening of monetary policy shifts the aggregate demand curve to the right, while easing of monetary policy shifts the aggregate demand curve to the left.
D. None of the above are correct.
answer
B
question
What would be the effect of a decrease in U.S. net exports on the aggregate demand curve?
A. The aggregate demand curve shifts to the left.
B. The slope of the aggregate demand curve decreases.
C. The aggregate demand curve does not shift.
D. The aggregate demand curve shifts to the right.
A. The aggregate demand curve shifts to the left.
B. The slope of the aggregate demand curve decreases.
C. The aggregate demand curve does not shift.
D. The aggregate demand curve shifts to the right.
answer
A
question
Would a decrease in net exports affect the monetary policy curve?
A. No, the monetary policy curve does not shift.
B. Yes, the slope of the monetary policy curve decreases.
C. Yes, the monetary policy curve shifts to the left.
D. Yes, the monetary policy curve shifts to the right.
A. No, the monetary policy curve does not shift.
B. Yes, the slope of the monetary policy curve decreases.
C. Yes, the monetary policy curve shifts to the left.
D. Yes, the monetary policy curve shifts to the right.
answer
A
question
"The depreciation of the dollar from December 2008 to December 2009 had a positive effect on aggregate demand in the U.S." Is this statement true, false, or uncertain? Explain your answer.
A. True, since a cheaper dollar increases net exports, a component of aggregate demand.
B. False, since the dollar's value in foreign exchange markets has no bearing upon aggregate demand.
C. False, since a dollar depreciation harms U.S. competitiveness in world markets.
D. Uncertain, since many other variables were changing at the same time.
A. True, since a cheaper dollar increases net exports, a component of aggregate demand.
B. False, since the dollar's value in foreign exchange markets has no bearing upon aggregate demand.
C. False, since a dollar depreciation harms U.S. competitiveness in world markets.
D. Uncertain, since many other variables were changing at the same time.
answer
A
question
The aggregate demand curve slopes downward because a rise in inflation leads:
A. the fiscal policy authorities to impose contractionary fiscal measures.
B. the monetary policy authorities to raise real interest rates.
C. the monetary policy authorities to impose credit controls.
D. consumers and businesses to increase autonomous expenditures.
A. the fiscal policy authorities to impose contractionary fiscal measures.
B. the monetary policy authorities to raise real interest rates.
C. the monetary policy authorities to impose credit controls.
D. consumers and businesses to increase autonomous expenditures.
answer
B
question
The short-run aggregate supply curve slopes upward because an increase in output relative to potential output:
A. creates tight labor and product markets that cause inflation to rise.
B. leads to unstable markets and higher inflation.
C. induces aggregate demand to increase, increasing inflation.
D. causes markets to have excess supplies, putting upward pressure on inflation.
A. creates tight labor and product markets that cause inflation to rise.
B. leads to unstable markets and higher inflation.
C. induces aggregate demand to increase, increasing inflation.
D. causes markets to have excess supplies, putting upward pressure on inflation.
answer
A
question
If a pill were invented that made workers twice as productive but their wages did not change, what would happen to the position of the short-run aggregate supply curve?
A. Short-run aggregate supply will shift rightward.
B. Short-run aggregate supply will not change.
C. Short-run aggregate supply will shift leftward.
D. The effect on short-run aggregate supply cannot be determined without further information.
A. Short-run aggregate supply will shift rightward.
B. Short-run aggregate supply will not change.
C. Short-run aggregate supply will shift leftward.
D. The effect on short-run aggregate supply cannot be determined without further information.
answer
A
question
What would happen to the position of the long-run aggregate supply curve?
A. Long-run aggregate supply will not change.
B. Long-run aggregate supply will shift leftward.
C. Long-run aggregate supply will shift rightward.
D. The effect on long-run aggregate supply cannot be determined without further information.
A. Long-run aggregate supply will not change.
B. Long-run aggregate supply will shift leftward.
C. Long-run aggregate supply will shift rightward.
D. The effect on long-run aggregate supply cannot be determined without further information.
answer
C
question
Suppose the inflation rate remains relatively constant, and output decreases and the unemployment rate increases. This is possible if:
A. the aggregate supply curve shifts to the left and the aggregate demand curve remains the same.
B. both the aggregate supply and demand curves shift horizontally to the left by the same amount.
C. both the aggregate supply and demand curves shift horizontally to the right by the same amount.
D. the aggregate supply curve shifts to the left and the aggregate demand curve shifts to the right.
A. the aggregate supply curve shifts to the left and the aggregate demand curve remains the same.
B. both the aggregate supply and demand curves shift horizontally to the left by the same amount.
C. both the aggregate supply and demand curves shift horizontally to the right by the same amount.
D. the aggregate supply curve shifts to the left and the aggregate demand curve shifts to the right.
answer
B
question
Which of the following is an example of a "good" supply shock?
A. The termination of U.S. wage and price controls in 1973 and 1974.
B. Changes in the health care industry in the late 1990s.
C. The bursting of the "tech bubble" in March 2000.
D. All of the above are correct.
A. The termination of U.S. wage and price controls in 1973 and 1974.
B. Changes in the health care industry in the late 1990s.
C. The bursting of the "tech bubble" in March 2000.
D. All of the above are correct.
answer
B
question
If huge budget deficits cause the public to think that there will be higher inflation in the future, what will happen to the position of the short-run aggregate supply
A . Short-run aggregate supply will not change.
B. Short-run aggregate supply will shift rightward.
C. Short-run aggregate supply will shift leftward.
D. The effect on short-run aggregate supply cannot be determined without further information.
A . Short-run aggregate supply will not change.
B. Short-run aggregate supply will shift rightward.
C. Short-run aggregate supply will shift leftward.
D. The effect on short-run aggregate supply cannot be determined without further information.
answer
C
question
If huge budget deficits cause the public to think that there will be higher inflation in the near future but have no effect on buisness and or consumer optimism, what will happen to the position of the aggregate demand curve?
A. Aggregate Demand will Not Change
B. Aggregate Demand will shift rightward
C. Aggregate Demand will shift leftward
A. Aggregate Demand will Not Change
B. Aggregate Demand will shift rightward
C. Aggregate Demand will shift leftward
answer
A
question
A negative supply shock that raises production costs will cause the
A. aggregate demand curve to shift right.
B. aggregate supply curve to shift up.
C. aggregate supply curve to shift down.
D. aggregate demand curve to shift left.
A. aggregate demand curve to shift right.
B. aggregate supply curve to shift up.
C. aggregate supply curve to shift down.
D. aggregate demand curve to shift left.
answer
B
question
An upward shift in aggregate supply initially causes
A. the inflation rate to fall and output to fall.
B. the inflation rate to fall and output to rise.
C. the inflation rate to rise and output to fall.
D. the inflation rate to rise and output to rise.
A. the inflation rate to fall and output to fall.
B. the inflation rate to fall and output to rise.
C. the inflation rate to rise and output to fall.
D. the inflation rate to rise and output to rise.
answer
C
question
An upward shift in aggregate supply ultimately causes
A. the inflation rate to rise and output to rise.
B. the inflation rate to fall and output to rise.
C. the inflation rate to remain unchanged and output to remain unchanged.
D. the inflation rate to rise and output to remain unchanged.
A. the inflation rate to rise and output to rise.
B. the inflation rate to fall and output to rise.
C. the inflation rate to remain unchanged and output to remain unchanged.
D. the inflation rate to rise and output to remain unchanged.
answer
C
question
When the natural rate of unemployment decreases,
A. inflation and output are lower in the long run
B. Inflation and output are higher in the long run
C. Inflation is higher, and output is lower in the long run
D. Inlfation is lower, and output is higher in the long run
A. inflation and output are lower in the long run
B. Inflation and output are higher in the long run
C. Inflation is higher, and output is lower in the long run
D. Inlfation is lower, and output is higher in the long run
answer
D
question
In the long term, a permanent negative supply shock leads to
A. a decline in both output and in inflation
B. no change in output and a rise in inflation
C. a decline in output and a rise in inflation
A. a decline in both output and in inflation
B. no change in output and a rise in inflation
C. a decline in output and a rise in inflation
answer
C
question
Monetary policy has so many different channels through which it can operate. This is a disadvantage because:
A. if the policy is rendered ineffective through any one particular channel, there are other channels through w same policy can still impact the economy.
B. so many channels can cause the central bank to be "responsibly irresponsible."
C. it can increase uncertainty over the effects of any given policy.
D. it raises short term real interest rates, meaning traditional monetary policy is ineffective.
A. if the policy is rendered ineffective through any one particular channel, there are other channels through w same policy can still impact the economy.
B. so many channels can cause the central bank to be "responsibly irresponsible."
C. it can increase uncertainty over the effects of any given policy.
D. it raises short term real interest rates, meaning traditional monetary policy is ineffective.
answer
C
question
What does the Lucas critique say about the limitations of our current understanding of the way the economy works?
A. Even though expectations are important, it is impossible to predict what the public's expectations may be and therefore expectations should never be included in econometric models.
B. Data from past events always serve as a solid foundation for predicting what will happen in the future.
C. Econometric models that do not incorporate rational expectations ignore any effects of changing expectations, and thus are unreliable for evaluating policy options.
D. Only econometric models account for the effects of changing expectations, and thus only econometric models are reliable for evaluating policy options.
A. Even though expectations are important, it is impossible to predict what the public's expectations may be and therefore expectations should never be included in econometric models.
B. Data from past events always serve as a solid foundation for predicting what will happen in the future.
C. Econometric models that do not incorporate rational expectations ignore any effects of changing expectations, and thus are unreliable for evaluating policy options.
D. Only econometric models account for the effects of changing expectations, and thus only econometric models are reliable for evaluating policy options.
answer
C
question
The credit market channel of monetary transmission acts primarily through the effect of:
A. asymmetric information on lending and balance sheets.
B. interest rates on investment and consumption.
C. open market operations on the money supply.
D. stock prices on investment and consumption.
A. asymmetric information on lending and balance sheets.
B. interest rates on investment and consumption.
C. open market operations on the money supply.
D. stock prices on investment and consumption.
answer
A
question
"The more credible the policymakers who pursue an anti-inflation policy, the more successful that policy will be."
This statement is (1) .
(1) false uncertain
true
This statement is (1) .
(1) false uncertain
true
answer
TRUE
question
. How is constrained discretion different from discretion in monetary policy?
A. With constrained discretion, policymakers believe that rules should be followed, and judgment should only be used when economic models are incorrect.
B. Constrained discretion is a more transparent and disciplined type of discretion.
C. With constrained discretion, policymakers follow a set plan and stick to the plan to achieve desirable long-run outcomes.
D. Constrained discretion is a type of discretion that has fewer limits on monetary policy.
A. With constrained discretion, policymakers believe that rules should be followed, and judgment should only be used when economic models are incorrect.
B. Constrained discretion is a more transparent and disciplined type of discretion.
C. With constrained discretion, policymakers follow a set plan and stick to the plan to achieve desirable long-run outcomes.
D. Constrained discretion is a type of discretion that has fewer limits on monetary policy.
answer
B
question
The wealth effect and household liquidity effect are different because:
A. under the wealth effect, an increase in real interest rates leads to higher spending on housing, whereas th household liquidity effect leads to higher consumption spending.
B. full implementation of the household liquidity effect is impossible without government intervention.
C. the wealth effect increases moral hazard, whereas the household liquidity effect helps to solve adverse selection.
D. under the wealth effect, people are less willing to spend when wealth is lower, while the household liquidi indicates a substitution effect between more and less liquid assets.
A. under the wealth effect, an increase in real interest rates leads to higher spending on housing, whereas th household liquidity effect leads to higher consumption spending.
B. full implementation of the household liquidity effect is impossible without government intervention.
C. the wealth effect increases moral hazard, whereas the household liquidity effect helps to solve adverse selection.
D. under the wealth effect, people are less willing to spend when wealth is lower, while the household liquidi indicates a substitution effect between more and less liquid assets.
answer
D
question
If the public expects the Fed to pursue a policy that is likely to raise short-term interest rates permanently to 12%, but the Fed does not go through with this policy change, what will happen to long-term interest rates?
A. Long-term interest rates will fall.
B. Long-term rates will be equal to 12%.
C. Long-term interest rates will rise.
D. Long-term rates will change such that they are equal to actual short-term rates.
A. Long-term interest rates will fall.
B. Long-term rates will be equal to 12%.
C. Long-term interest rates will rise.
D. Long-term rates will change such that they are equal to actual short-term rates.
answer
A
question
Why might the bank lending channel be less effective than it once was?
A. There has been a worldwide decline in the traditional bank lending business.
B. Since the 2007-2009 recession, aggregate demand decreased, rendering the bank lending channel less effective.
C. With each economic boom, the bank lending channel becomes less effective.
D. The Fed has more control over the behavior of banks in response to policy changes.
A. There has been a worldwide decline in the traditional bank lending business.
B. Since the 2007-2009 recession, aggregate demand decreased, rendering the bank lending channel less effective.
C. With each economic boom, the bank lending channel becomes less effective.
D. The Fed has more control over the behavior of banks in response to policy changes.
answer
A
question
A "conservative" central banker:
A. has a strong aversion to inflation.
B. uses conventional econometric models for his or her policy evaluation.
C. will risk inflation to reduce unemployment.
D. is more tempted to pursue overly expansionary monetary policy.
A. has a strong aversion to inflation.
B. uses conventional econometric models for his or her policy evaluation.
C. will risk inflation to reduce unemployment.
D. is more tempted to pursue overly expansionary monetary policy.
answer
A
question
Why does the credit view imply that monetary policy has a greater effect on small businesses rather than large firms?
A. Small businesses have less property and thus suffer less from negative changes in stock prices.
B. Small businesses are less export oriented than large firms, which are highly affected through the net exports channel.
C. Small businesses are more flexible than larger firms and thus are more easily affected by government policy.
D. Small businesses are more dependent on the availability of bank loans than large firms.
A. Small businesses have less property and thus suffer less from negative changes in stock prices.
B. Small businesses are less export oriented than large firms, which are highly affected through the net exports channel.
C. Small businesses are more flexible than larger firms and thus are more easily affected by government policy.
D. Small businesses are more dependent on the availability of bank loans than large firms.
answer
D
question
What is the significance of the Lucas critique of econometric policy evaluation?
A. It proves equations used in econometric models incorporate expectations correctly and may furnish valuable predictions with which to evaluate the effects of proposed policies.
B. It points out an econometric model based on past data may prove to be unreliable for evaluating policy options.
C. It confirms an econometric model based on past data is highly accurate for evaluating policy options.
D. It states the public's expectations about a policy have no impact on the success of the policy.
A. It proves equations used in econometric models incorporate expectations correctly and may furnish valuable predictions with which to evaluate the effects of proposed policies.
B. It points out an econometric model based on past data may prove to be unreliable for evaluating policy options.
C. It confirms an econometric model based on past data is highly accurate for evaluating policy options.
D. It states the public's expectations about a policy have no impact on the success of the policy.
answer
B
question
. Greater central bank independence can make the time-inconsistency problem worse because:
A. central bankers are not willing to deviate from long-run plans to accommodate a short-run objective, thereby raising expectations of future inflation.
B. there is less formal accountability by central banks to pursue stable inflation policies.
C. central banks are more transparent, and thus unable to pursue overly inflationary policies.
D. policymakers may abandon a policy of discretion and instead adopt a rules-based policy objective.
A. central bankers are not willing to deviate from long-run plans to accommodate a short-run objective, thereby raising expectations of future inflation.
B. there is less formal accountability by central banks to pursue stable inflation policies.
C. central banks are more transparent, and thus unable to pursue overly inflationary policies.
D. policymakers may abandon a policy of discretion and instead adopt a rules-based policy objective.
answer
B
question
Consider the following statement: "The cost of financing investment is related only to interest rates; therefore, the only way that monetary policy can affect investment spending is through its effects on interest rates."
Which of the following is a correct transmission channel that shows how monetary policy can affect investment, without relating investment to interest rates?
A. Expansionary monetary policy can increase the value of stocks, raising Tobin's q, and thus increasing investment.
B. Expansionary monetary policy can increase the value of stocks, lowering Tobin's q, and thus increasing investment.
C. Expansionary monetary policy can increase the value of stocks, raising household wealth, and thus increasing consumption.
D. Expansionary monetary policy can decrease the value of stocks, which lowers a firm's net worth, reducing the firm's ability to borrow and thus decreasing investment.
(1) true uncertain
false
Which of the following is a correct transmission channel that shows how monetary policy can affect investment, without relating investment to interest rates?
A. Expansionary monetary policy can increase the value of stocks, raising Tobin's q, and thus increasing investment.
B. Expansionary monetary policy can increase the value of stocks, lowering Tobin's q, and thus increasing investment.
C. Expansionary monetary policy can increase the value of stocks, raising household wealth, and thus increasing consumption.
D. Expansionary monetary policy can decrease the value of stocks, which lowers a firm's net worth, reducing the firm's ability to borrow and thus decreasing investment.
(1) true uncertain
false
answer
A
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