Question 1

The low point in a business cycle is known as the

Accepted Answer

A) lower limit. 
B) zero point. 
C) trough. 
D) peak. 
A) lower limit. 
B) zero point. 
C) trough. 
D) peak.

Question 2

According to the real business cycle model, the economy's short-run aggregate supply curve is

Accepted Answer

A) affected by monetary policy but not fiscal policy. 
B) flatter than the long-run aggregate supply curve. 
C) horizontal. 
D) vertical. 
A) affected by monetary policy but not fiscal policy. 
B) flatter than the long-run aggregate supply curve. 
C) horizontal. 
D) vertical.

Question 3

Milton Friedman and Anna Schwartz believe that their evidence indicates that money growth causes output fluctuations because they discovered that

Accepted Answer

A) nominal interest rates move inversely with changes in the money supply. 
B) the Fed always responds passively to changes in money demand. 
C) in many episodes, money changed as a result of a previous change in output. 
D) in many episodes, money changes preceded output changes and were independent of them. 
A) nominal interest rates move inversely with changes in the money supply. 
B) the Fed always responds passively to changes in money demand. 
C) in many episodes, money changed as a result of a previous change in output. 
D) in many episodes, money changes preceded output changes and were independent of them.

Question 4

According to the real business cycle model, in the economy's short run equilibrium,

Accepted Answer

A) inflation must be zero. 
B) output is as the full employment level. 
C) productivity must be zero. 
D) the supply of money must be constant. 
A) inflation must be zero. 
B) output is as the full employment level. 
C) productivity must be zero. 
D) the supply of money must be constant.

Question 5

Which of the following statements is correct?

Accepted Answer

A) Monetary expansions precede business cycle peaks, and monetary contractions precede business cycle troughs. 
B) Monetary expansions precede business cycle troughs, and monetary contractions precede business cycle peaks. 
C) Monetary expansions precede both business cycle troughs and business cycle peaks. 
D) There is no consistent relationship between monetary expansions and contractions, and the business cycle. 
A) Monetary expansions precede business cycle peaks, and monetary contractions precede business cycle troughs. 
B) Monetary expansions precede business cycle troughs, and monetary contractions precede business cycle peaks. 
C) Monetary expansions precede both business cycle troughs and business cycle peaks. 
D) There is no consistent relationship between monetary expansions and contractions, and the business cycle.

Question 6

In early 2007, the Bank of England raised its base interest rate unexpectedly. Which school of thought approach to monetary policy did this change in policy most reflect?

Accepted Answer

A) New classical 
B) New Keynesian 
C) Real business cycle 
D) Monetarist 
A) New classical 
B) New Keynesian 
C) Real business cycle 
D) Monetarist

Question 7

Discuss the significance of the work of David Romer and Christina Romer that identified six independent monetary policy shifts after 1960 in which the announcement of a contractionary monetary policy was followed by a decline in output.

Accepted Answer

Movements in the money supply are correl

Question 8

The available evidence provides the most support to which perspective regarding the short-run effect of monetary policy?

Accepted Answer

A) New Keynesian 
B) New classical 
C) Real business cycle 
D) Monetarist 
A) New Keynesian 
B) New classical 
C) Real business cycle 
D) Monetarist

Question 9

Which of the following statements is true concerning the new Keynesian approach?

Accepted Answer

A) Only unexpected changes in the money supply affect output. 
B) Only expected changes in the money supply affect output. 
C) Unexpected changes in the money supply have a greater effect on output than do expected changes in the money supply. 
D) Expected changes in the money supply have a greater effect on output than do unexpected changes in the money supply. 
A) Only unexpected changes in the money supply affect output. 
B) Only expected changes in the money supply affect output. 
C) Unexpected changes in the money supply have a greater effect on output than do expected changes in the money supply. 
D) Expected changes in the money supply have a greater effect on output than do unexpected changes in the money supply.

Question 10

Stabilization policy refers to attempts to

Accepted Answer

A) shift the AD curve to smooth short-run fluctuations in output. 
B) shift the SRAS curve to smooth short-run fluctuations in output. 
C) shift the AD curve to keep the price level as low as possible. 
D) shift the SRAS curve to keep the nominal interest rate as low as possible. 
A) shift the AD curve to smooth short-run fluctuations in output. 
B) shift the SRAS curve to smooth short-run fluctuations in output. 
C) shift the AD curve to keep the price level as low as possible. 
D) shift the SRAS curve to keep the nominal interest rate as low as possible.

Question 11

According to the real business cycle model,

Accepted Answer

A) changes in money growth cause output fluctuations in both the short run and long run. 
B) changes in money growth cause output fluctuation in the long run, but not in the short run. 
C) there is no causal link between the money supply and output. 
D) most observed changes in the money supply are independent of previous changes in output. 
A) changes in money growth cause output fluctuations in both the short run and long run. 
B) changes in money growth cause output fluctuation in the long run, but not in the short run. 
C) there is no causal link between the money supply and output. 
D) most observed changes in the money supply are independent of previous changes in output.

Question 12

The growth rate of the money supply

Accepted Answer

A) increases during both booms and recessions. 
B) increases during booms and falls during recessions. 
C) falls during booms and increases during recessions. 
D) falls during both booms and recessions. 
A) increases during both booms and recessions. 
B) increases during booms and falls during recessions. 
C) falls during booms and increases during recessions. 
D) falls during both booms and recessions.

Question 13

Which of the following is a correct reason why a decrease in the money supply will tend to cause stock prices to fall?

Accepted Answer

A) A decrease in the money supply will cause interest rates to rise, thereby shifting funds from financial to real investments. 
B) A decrease in the money supply will cause interest rates to fall, thereby shifting funds from financial to real investments. 
C) A decrease in the money supply will result in higher corporate profits in real terms. 
D) A decrease in the money supply will cause interest rates to rise, thereby making bonds more attractive investments than stocks. 
A) A decrease in the money supply will cause interest rates to rise, thereby shifting funds from financial to real investments. 
B) A decrease in the money supply will cause interest rates to fall, thereby shifting funds from financial to real investments. 
C) A decrease in the money supply will result in higher corporate profits in real terms. 
D) A decrease in the money supply will cause interest rates to rise, thereby making bonds more attractive investments than stocks.

Question 14

Milton Friedman and Anna Schwartz traced the recession of 1937-1938 to

Accepted Answer

A) the monetary contraction resulting from the Fed's increase in the required reserve ratio. 
B) the monetary contraction resulting from a wave of bank failures. 
C) the effects of World War II on the demand for U.S. exports. 
D) the increased foreign exchange value of the dollar. 
A) the monetary contraction resulting from the Fed's increase in the required reserve ratio. 
B) the monetary contraction resulting from a wave of bank failures. 
C) the effects of World War II on the demand for U.S. exports. 
D) the increased foreign exchange value of the dollar.

Question 15

Milton Friedman and Anna Schwartz believe that money's impact on output appears

Accepted Answer

A) within a few months. 
B) only in the very long run. 
C) with a long and variable lag. 
D) only in the very short run. 
A) within a few months. 
B) only in the very long run. 
C) with a long and variable lag. 
D) only in the very short run.

Question 16

Business cycles

Accepted Answer

A) have existed since the Industrial Revolution, but have been analyzed by economists only since the nineteenth century. 
B) have existed since the nineteenth century, but have been analyzed by economists only since World War II. 
C) have existed since World War II, but have been analyzed by economists only since 1980. 
D) have existed since the Middle Ages, but have been analyzed by economists only since the Industrial Revolution. 
A) have existed since the Industrial Revolution, but have been analyzed by economists only since the nineteenth century. 
B) have existed since the nineteenth century, but have been analyzed by economists only since World War II. 
C) have existed since World War II, but have been analyzed by economists only since 1980. 
D) have existed since the Middle Ages, but have been analyzed by economists only since the Industrial Revolution.

Question 17

Suppose that neither output nor the money supply has been growing. In the new Keynesian view, if the Chairman of the Fed announces a 10% increase in the money supply and then takes actions that cause the money supply to grow by 10%, the result will be

Accepted Answer

A) a 10% increase in the price level and no change in output. 
B) a 10% increase in the price level and an increase in output. 
C) a less than 10% increase in the price level and an increase in output. 
D) a less than 10% increase in the price level and no change in output. 
A) a 10% increase in the price level and no change in output. 
B) a 10% increase in the price level and an increase in output. 
C) a less than 10% increase in the price level and an increase in output. 
D) a less than 10% increase in the price level and no change in output.

Question 18

According to the new Keynesian approach, output fell during the early 1980s because

Accepted Answer

A) fiscal policy was sufficiently contractionary to offset an expansionary monetary policy. 
B) the leftward shift of the AD curve was greater than the rightward shift of the SRAS curve. 
C) consumers and businesses came to expect higher inflation, thereby causing the SRAS curve to shift to the left. 
D) Congress and the President decided to raise taxes and cut spending in order to reduce the budget deficit. 
A) fiscal policy was sufficiently contractionary to offset an expansionary monetary policy. 
B) the leftward shift of the AD curve was greater than the rightward shift of the SRAS curve. 
C) consumers and businesses came to expect higher inflation, thereby causing the SRAS curve to shift to the left. 
D) Congress and the President decided to raise taxes and cut spending in order to reduce the budget deficit.

Question 19

When economists state that in the long run prices are flexible they mean that

Accepted Answer

A) inflation must be zero in the long run. 
B) in the long run, firms adjust their prices to reflect changes in cost or demand. 
C) changes in the nominal money supply have greater impact on the level of economic activity in the long run than in the short run. 
D) a one-time increase in the money supply will affect output only in the long run. 
A) inflation must be zero in the long run. 
B) in the long run, firms adjust their prices to reflect changes in cost or demand. 
C) changes in the nominal money supply have greater impact on the level of economic activity in the long run than in the short run. 
D) a one-time increase in the money supply will affect output only in the long run.

Question 20

One important point on which new Keynesian and new classical economists are in agreement is

Accepted Answer

A) that only unexpected changes in policy can affect output. 
B) the importance of policy credibility for determining the response of output to policy. 
C) the irrelevance of policy as output changes are the result of technology shocks. 
D) the inability of the assumption of rational expectations to explain the reactions of businesses and consumers to changes in policy. 
A) that only unexpected changes in policy can affect output. 
B) the importance of policy credibility for determining the response of output to policy. 
C) the irrelevance of policy as output changes are the result of technology shocks. 
D) the inability of the assumption of rational expectations to explain the reactions of businesses and consumers to changes in policy.

Exam 26: Money and Output in the Short Run

The low point in a business cycle is known as the

According to the real business cycle model, the economy's short-run aggregate supply curve is

Milton Friedman and Anna Schwartz believe that their evidence indicates that money growth causes output fluctuations because they discovered that

According to the real business cycle model, in the economy's short run equilibrium,

Which of the following statements is correct?

In early 2007, the Bank of England raised its base interest rate unexpectedly. Which school of thought approach to monetary policy did this change in policy most reflect?

Discuss the significance of the work of David Romer and Christina Romer that identified six independent monetary policy shifts after 1960 in which the announcement of a contractionary monetary policy was followed by a decline in output.

The available evidence provides the most support to which perspective regarding the short-run effect of monetary policy?

Which of the following statements is true concerning the new Keynesian approach?

Stabilization policy refers to attempts to

According to the real business cycle model,

The growth rate of the money supply

Which of the following is a correct reason why a decrease in the money supply will tend to cause stock prices to fall?

Milton Friedman and Anna Schwartz traced the recession of 1937-1938 to

Milton Friedman and Anna Schwartz believe that money's impact on output appears

Business cycles

Suppose that neither output nor the money supply has been growing. In the new Keynesian view, if the Chairman of the Fed announces a 10% increase in the money supply and then takes actions that cause the money supply to grow by 10%, the result will be

According to the new Keynesian approach, output fell during the early 1980s because

When economists state that in the long run prices are flexible they mean that

One important point on which new Keynesian and new classical economists are in agreement is

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

Filters