Question 1

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;falls

Question 2

The economy is in the horizontal portion of the AS curve,there is no liquidity trap and investment is sensitive to changes in the interest rate.According to the Keynesian transmission mechanism,if the money supply drops the interest rate will __________,investment spending will __________,the AD curve will shift to the __________,and the price level will __________.

Accepted Answer

A)   rise;fall;left;rise
B)   fall;rise;right;rise
C)   rise;fall;left;not change
D)   fall;fall;left;fall
E)   rise;rise;left;fall

Question 3

Exhibit 15-4
  Assume that people have only two choices when it comes to holding their wealth: in money or in bonds.
-Refer to Exhibit 15-4.In the row of this table containing blank (B) ,people are holding ______________ of their wealth in bonds and ________________ of their wealth in money.

Accepted Answer

A)   too much;too little
B)   too little;too much
C)   just the right amount;too little
D)   just the right amount;too much
E)   just the right amount;just the right amount

Question 4

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

Accepted Answer

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

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

According to the Keynesian transmission mechanism,an increase in the money supply will __________ the interest rate,causing a __________ in investment,which then __________ Real GDP.

Accepted Answer

A)   raise;fall;raises
B)   raise;rise;lowers
C)   raise;fall;lowers
D)   lower;fall;lowers
E)   lower;rise;raises

Question 7

Which of the following statements is false?

Accepted Answer

A)   Keynesians would not advocate an expansionary monetary policy to eliminate a recessionary gap if they believed that investment demand was interest-insensitive.
B)   Keynesians would not advocate an expansionary monetary policy to eliminate a recessionary gap if they believed the money market was in the liquidity trap.
C)   Keynesians would advocate an expansionary monetary policy to eliminate a recessionary gap if they believed investment spending was insensitive to changes in the interest rate.
D)   Keynesians believe that money wages are inflexible in the downward direction.

Question 8

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.

Question 9

Nonactivists favor

Accepted Answer

A)   the use of fiscal policies to manage the economy.
B)   the use of monetary polices to manage the economy.
C)   fine-tuning.
D)   rules for conducting monetary and fiscal policies.

Question 10

Under a constant growth rate of money rule of 4 percent in an economy in which Real GDP grows at an average rate of 3 percent and velocity is constant,the inflation rate is

Accepted Answer

A)   7 percent.
B)   -7 percent.
C)   1 percent.
D)   -1 percent.
E)   constant at zero.

Question 11

As the interest rate falls,the quantity

Accepted Answer

A)   demanded of money falls.
B)   demanded of money rises.
C)   supplied of money rises.
D)   supplied of money falls.

Question 12

Economist Smith favors an activist monetary policy.He says that if the economy is going to be stabilized over time,it is necessary to fine-tune the money supply to the particular economic conditions that exist.What would economist Jones,who favors rules-based monetary policy,say to economist Smith?

Accepted Answer

A)   Because of long lags,activist monetary policy is likely to be destabilizing rather than stabilizing.
B)   There have been times when activist monetary policy has worked well.
C)   There have been times when a constant-money-growth-rate rule has worked poorly.
D)   Flexibility is desirable when it comes to monetary policy.

Question 13

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 percent

Question 14

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.

Question 15

When an economist states that the monetarist transmission mechanism is "direct" it means that a change in the money supply creates a direct impact on the goods and services market.

Accepted Answer

A) True 
 B)False

Question 16

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 d

Question 17

Exhibit 15-1 
-Refer to Exhibit 15-l.A monetarist would claim that in a recessionary gap,the economy would move on its own from point

Accepted Answer

A)   B to point C.
B)   B to point A.
C)   A to point B.
D)   D to point C.

Question 18

Which of the following statements is false?

Accepted Answer

A)   Activists are more likely to advocate fine-tuning the economy than nonactivists.
B)   Activists believe that monetary and fiscal policies can be and should be deliberately used to smooth out the business cycle.
C)   Nonactivists believe that monetary and fiscal policies cannot and should not be deliberately used to (try to) smooth out the business cycle.
D)   Nonactivists favor rules-based monetary policy.
E)   none of the above

Question 19

Which of the following statements is true?

Accepted Answer

A)   Nonactivists argue that monetary and fiscal policies should be deliberately used to smooth out the business cycle.
B)   Fine-tuning consists of the usually frequent use of monetary policy to counteract even small undesirable movements in economy activity.
C)   Keynesians would be more likely to advocate contractionary monetary policy to correct an inflationary gap than expansionary monetary policy to correct a recessionary gap.
D)   b and c
E)   a,b and c

Question 20

The rules-based monetary policy reads: The money supply will increase 3 percent each year.If the average annual growth rate in Real GDP is 2 percent and velocity increases by 1 percent each year,it follows that

Accepted Answer

A)   the price level will,on average,rise 2 percent a year.
B)   the price level will rise 2 percent this year.
C)   in some years the price level will rise by more than in other years.
D)   in some years the price level may not change at all.
E)   a,c and d

Exam 15: Monetary Policy

Exhibit 15-4 Assume that people have only two choices when it comes to holding their wealth: in money or in bonds. -Refer to Exhibit 15-4.In the row of this table containing blank (B) ,people are holding of their wealth in bonds and __ of their wealth in money.

Correct Answer
verified

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

Correct Answer
verified

The rules-based monetary policy reads: The money supply will increase 3 percent each year.If the average annual growth rate in Real GDP is 2 percent and velocity increases by 1 percent each year,it follows that

Correct Answer
verified

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

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

When an economist states that the monetarist transmission mechanism is "direct" it means that a change in the money supply creates a direct impact on the goods and services market.

Correct Answer
verified

Correct Answer
verified

Economist Smith favors an activist monetary policy.He says that if the economy is going to be stabilized over time,it is necessary to fine-tune the money supply to the particular economic conditions that exist.What would economist Jones,who favors rules-based monetary policy,say to economist Smith?

Correct Answer
verified

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?

Correct Answer
verified

As the interest rate falls,the quantity

Correct Answer
verified

Nonactivists favor

Correct Answer
verified

Which of the following statements is true?

Correct Answer
verified

Which of the following statements is false?

Correct Answer
verified

Under a constant growth rate of money rule of 4 percent in an economy in which Real GDP grows at an average rate of 3 percent and velocity is constant,the inflation rate is

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

According to the Keynesian transmission mechanism,an increase in the money supply will the interest rate,causing a in investment,which then __ Real GDP.

Correct Answer
verified

Which of the following statements is false?

Correct Answer
verified

Exhibit 15-1 -Refer to Exhibit 15-l.A monetarist would claim that in a recessionary gap,the economy would move on its own from point

Correct Answer
verified

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

Correct Answer
verified

Exam 15: Monetary Policy

Exhibit 15-4 Assume that people have only two choices when it comes to holding their wealth: in money or in bonds. -Refer to Exhibit 15-4.In the row of this table containing blank (B) ,people are holding ______________ of their wealth in bonds and ________________ of their wealth in money.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The rules-based monetary policy reads: The money supply will increase 3 percent each year.If the average annual growth rate in Real GDP is 2 percent and velocity increases by 1 percent each year,it follows that

Correct AnswerverifiedShow Answer

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

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

When an economist states that the monetarist transmission mechanism is "direct" it means that a change in the money supply creates a direct impact on the goods and services market.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Economist Smith favors an activist monetary policy.He says that if the economy is going to be stabilized over time,it is necessary to fine-tune the money supply to the particular economic conditions that exist.What would economist Jones,who favors rules-based monetary policy,say to economist Smith?

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

As the interest rate falls,the quantity

Correct AnswerverifiedShow Answer

Nonactivists favor

Correct AnswerverifiedShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

Which of the following statements is false?

Correct AnswerverifiedShow Answer

Under a constant growth rate of money rule of 4 percent in an economy in which Real GDP grows at an average rate of 3 percent and velocity is constant,the inflation rate is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

According to the Keynesian transmission mechanism,an increase in the money supply will __________ the interest rate,causing a __________ in investment,which then __________ Real GDP.

Correct AnswerverifiedShow Answer

Which of the following statements is false?

Correct AnswerverifiedShow Answer

Exhibit 15-1 -Refer to Exhibit 15-l.A monetarist would claim that in a recessionary gap,the economy would move on its own from point

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Exhibit 15-4 Assume that people have only two choices when it comes to holding their wealth: in money or in bonds. -Refer to Exhibit 15-4.In the row of this table containing blank (B) ,people are holding of their wealth in bonds and __ of their wealth in money.

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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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
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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According to the Keynesian transmission mechanism,an increase in the money supply will the interest rate,causing a in investment,which then __ Real GDP.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified