Question 1

In terms of the AD-AS model, the new classical approach indicates that an expected decrease in the money supply will not affect output because

Accepted Answer

A) neither the AD nor SRAS curve will be affected. 
B) the AD curve will shift left, but the SRAS curve will not shift. 
C) the SRAS curve will shift down, but the AD curve will not be affected. 
D) the AD curve will shift left, and the SRAS will shift down by the same amount. 
A) neither the AD nor SRAS curve will be affected. 
B) the AD curve will shift left, but the SRAS curve will not shift. 
C) the SRAS curve will shift down, but the AD curve will not be affected. 
D) the AD curve will shift left, and the SRAS will shift down by the same amount.

Question 2

Available evidence suggests that

Accepted Answer

A) only expected changes in the money supply affect output. 
B) only unexpected changes in the money supply affect output. 
C) both expected and unexpected changes in the money supply affect output. 
D) neither expected nor unexpected changes in the money supply affect output. 
A) only expected changes in the money supply affect output. 
B) only unexpected changes in the money supply affect output. 
C) both expected and unexpected changes in the money supply affect output. 
D) neither expected nor unexpected changes in the money supply affect output.

Question 3

In the long run, the key reason that money is neutral is that

Accepted Answer

A) the federal budget is balanced. 
B) prices are flexible. 
C) business cycles have become much milder. 
D) the nominal interest rate must equal the real interest rate. 
A) the federal budget is balanced. 
B) prices are flexible. 
C) business cycles have become much milder. 
D) the nominal interest rate must equal the real interest rate.

Question 4

The existence of lags in the policymaking and implementation process has convinced new Keynesian economists that stabilization policy should

Accepted Answer

A) not be used. 
B) be used only to fine-tune the economy. 
C) be used only to fight major downturns in the economy. 
D) be used to fight inflations but not to fight recessions. 
A) not be used. 
B) be used only to fine-tune the economy. 
C) be used only to fight major downturns in the economy. 
D) be used to fight inflations but not to fight recessions.

Question 5

Which central bank holds press conferences to answer questions about its decisions regarding interest rates?

Accepted Answer

A) Federal Reserve 
B) Bank of England 
C) ECB 
D) Bank of Japan 
A) Federal Reserve 
B) Bank of England 
C) ECB 
D) Bank of Japan

Question 6

According to Milton Friedman and Anna Schwartz, the loss of output during the early 1930s in the United States was due to

Accepted Answer

A) high tax rates imposed by the federal government. 
B) the Fed's increasing of the required reserve ratio. 
C) the stock market crash of 1929. 
D) a wave of bank failures. 
A) high tax rates imposed by the federal government. 
B) the Fed's increasing of the required reserve ratio. 
C) the stock market crash of 1929. 
D) a wave of bank failures.

Question 7

The argument that changes in output cause changes in the money supply is known as

Accepted Answer

A) the liquidity effect. 
B) the money multiplier effect. 
C) reverse causation. 
D) direct causation. 
A) the liquidity effect. 
B) the money multiplier effect. 
C) reverse causation. 
D) direct causation.

Question 8

Which of the following schools of thought among economists believe that unexpected changes in the money supply can affect output in the short run?

Accepted Answer

A) Only new Keynesian 
B) Only new Keynesian and new classical 
C) Only new Keynesian and real business cycle 
D) New Keynesian, new classical, and real business cycle 
A) Only new Keynesian 
B) Only new Keynesian and new classical 
C) Only new Keynesian and real business cycle 
D) New Keynesian, new classical, and real business cycle

Question 9

What strategy did Yasushi Mieno, Governor of the Bank of Japan, believe was appropriate in the face of declining aggregate output in Japan in the early 1990s?

Accepted Answer

A) He decided to use an expansionary monetary policy. 
B) He decided to advise the Japanese government to use an expansionary fiscal policy, while keeping monetary policy neutral. 
C) He decided to rely on economic expansion in the United States to increase demand for Japanese products. 
D) He decided to wait for downward adjustment of the price level. 
A) He decided to use an expansionary monetary policy. 
B) He decided to advise the Japanese government to use an expansionary fiscal policy, while keeping monetary policy neutral. 
C) He decided to rely on economic expansion in the United States to increase demand for Japanese products. 
D) He decided to wait for downward adjustment of the price level.

Question 10

According to the real business cycle model, changes in the money supply will affect economic activity

Accepted Answer

A) in neither the short run nor the long run. 
B) in the short run, but not the long run. 
C) in the long run, but not the short run. 
D) in both the short run and the long run. 
A) in neither the short run nor the long run. 
B) in the short run, but not the long run. 
C) in the long run, but not the short run. 
D) in both the short run and the long run.

Question 11

Historical evidence suggests that the predictions of the real business cycle view are

Accepted Answer

A) accurate in the short run. 
B) inaccurate in the short run. 
C) inaccurate in the long run. 
D) inaccurate in both the short and long run. 
A) accurate in the short run. 
B) inaccurate in the short run. 
C) inaccurate in the long run. 
D) inaccurate in both the short and long run.

Question 12

Evaluate the following assertion: "The new Keynesian economists reject the misperception theory because they do not believe that households and businesses use all available information in forming their expectations of money growth or the price level."

Accepted Answer

This assertion is incorrect. The new Key

Question 13

The new Keynesian approach shares with the new classical approach

Accepted Answer

A) the assumption of rational expectations. 
B) the conclusion that money does not affect output in the short run. 
C) the conclusion that only unexpected changes in the money supply affect output in the short run. 
D) the assumption that the short aggregate supply curve is vertical. 
A) the assumption of rational expectations. 
B) the conclusion that money does not affect output in the short run. 
C) the conclusion that only unexpected changes in the money supply affect output in the short run. 
D) the assumption that the short aggregate supply curve is vertical.

Question 14

In the new Keynesian view, an increase in real money balances increases investment spending by

Accepted Answer

A) giving business firms more funds to invest. 
B) raising the real interest rate, which makes saving and investing more attractive. 
C) lowering the real interest rate, which reduces the opportunity cost of investing in new plant and equipment. 
D) allowing the government to increase its spending on bridges, highways, and other public works. 
A) giving business firms more funds to invest. 
B) raising the real interest rate, which makes saving and investing more attractive. 
C) lowering the real interest rate, which reduces the opportunity cost of investing in new plant and equipment. 
D) allowing the government to increase its spending on bridges, highways, and other public works.

Question 15

An increase in the money supply will result in a lower exchange rate because

Accepted Answer

A) the real interest rate on domestic assets will fall relative to the rates on foreign assets. 
B) the real interest rate on domestic assets will rise relative to the rates on foreign assets. 
C) it will lead to faster domestic growth, resulting in an increase in exports to other countries. 
D) it will lead to lower inflation, thereby increasing the demand for domestic currency. 
A) the real interest rate on domestic assets will fall relative to the rates on foreign assets. 
B) the real interest rate on domestic assets will rise relative to the rates on foreign assets. 
C) it will lead to faster domestic growth, resulting in an increase in exports to other countries. 
D) it will lead to lower inflation, thereby increasing the demand for domestic currency.

Question 16

According to the new Keynesian approach, changes in the money supply will affect output

Accepted Answer

A) only if they are expected. 
B) only if they are unexpected. 
C) whether they are expected or unexpected. 
D) only if they affect the price level. 
A) only if they are expected. 
B) only if they are unexpected. 
C) whether they are expected or unexpected. 
D) only if they affect the price level.

Question 17

An increase in the money supply will tend to raise stock prices and

Accepted Answer

A) reduce spending by consumers as they attempt to save in order to have the funds to buy more stock. 
B) increase spending by consumers as their wealth increases. 
C) decrease spending by firms as they cut back on buying new plant and equipment. 
D) decrease spending by firms as they cut back on inventory holdings. 
A) reduce spending by consumers as they attempt to save in order to have the funds to buy more stock. 
B) increase spending by consumers as their wealth increases. 
C) decrease spending by firms as they cut back on buying new plant and equipment. 
D) decrease spending by firms as they cut back on inventory holdings.

Question 18

Which of the following is NOT an explanation for short-run fluctuations in output in the real business cycle model?

Accepted Answer

A) A temporary shock to productivity 
B) A decline in the availability of oil 
C) An increase in the money supply 
D) A major increase in workplace safety regulations 
A) A temporary shock to productivity 
B) A decline in the availability of oil 
C) An increase in the money supply 
D) A major increase in workplace safety regulations

Question 19

During a business cycle expansion, output grows until it reaches

Accepted Answer

A) the physical maximum of production. 
B) the level at which inflation begins. 
C) a trough. 
D) a peak. 
A) the physical maximum of production. 
B) the level at which inflation begins. 
C) a trough. 
D) a peak.

Question 20

In the new Keynesian view, expected changes in monetary policy can affect output in the short run because

Accepted Answer

A) agents do not have rational expectations. 
B) prices are sticky. 
C) business firms rarely pay attention to policy announcements. 
D) they directly increase the funds available for businesses and consumers to spend. 
A) agents do not have rational expectations. 
B) prices are sticky. 
C) business firms rarely pay attention to policy announcements. 
D) they directly increase the funds available for businesses and consumers to spend.

Exam 26: Money and Output in the Short Run

In terms of the AD-AS model, the new classical approach indicates that an expected decrease in the money supply will not affect output because

Available evidence suggests that

In the long run, the key reason that money is neutral is that

The existence of lags in the policymaking and implementation process has convinced new Keynesian economists that stabilization policy should

Which central bank holds press conferences to answer questions about its decisions regarding interest rates?

According to Milton Friedman and Anna Schwartz, the loss of output during the early 1930s in the United States was due to

The argument that changes in output cause changes in the money supply is known as

Which of the following schools of thought among economists believe that unexpected changes in the money supply can affect output in the short run?

What strategy did Yasushi Mieno, Governor of the Bank of Japan, believe was appropriate in the face of declining aggregate output in Japan in the early 1990s?

According to the real business cycle model, changes in the money supply will affect economic activity

Historical evidence suggests that the predictions of the real business cycle view are

Evaluate the following assertion: "The new Keynesian economists reject the misperception theory because they do not believe that households and businesses use all available information in forming their expectations of money growth or the price level."

The new Keynesian approach shares with the new classical approach

In the new Keynesian view, an increase in real money balances increases investment spending by

An increase in the money supply will result in a lower exchange rate because

According to the new Keynesian approach, changes in the money supply will affect output

An increase in the money supply will tend to raise stock prices and

Which of the following is NOT an explanation for short-run fluctuations in output in the real business cycle model?

During a business cycle expansion, output grows until it reaches

In the new Keynesian view, expected changes in monetary policy can affect output in the short run because

Introducing Money and the Financial System

Money and the Payments System

Overview of the Financial System

Interest Rates and Rates of Return

The Theory of Portfolio Allocation

Determining Market Interest Rates

Risk Structure and Term Structure of Interest Rates

The Foreign-Exchange Market and Exchange Rates

Derivative Securities and Derivative Markets

Information and Financial Market Efficiency

Reducing Transactions Costs and Information Costs

What Financial Institutions Do

The Business of Banking

The Banking Industry

Banking Regulation: Crisis and Response

Banking in the International Economy

The Money Supply Process

Changes in the Monetary Base

Organization of Central Banks

Monetary Policy Tools

The Conduct of Monetary Policy

The International Financial System and Monetary Policy

The Demand for Money

Linking the Financial System and the Economy: the Is-Lm-Fe Model

Aggregate Demand and Aggregate Supply

Information Problems and Channels for Monetary Policy

Inflation: Causes and Consequences

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