Question 1

In the new classical view, whether changes in the nominal money supply affect output in the short run depends on whether

Accepted Answer

A) the changes are expected or unexpected. 
B) prices are flexible or inflexible. 
C) the nominal interest rate is affected by changes in the money supply. 
D) the Fed reacts passively or actively to the onset of recessions. 
A) the changes are expected or unexpected. 
B) prices are flexible or inflexible. 
C) the nominal interest rate is affected by changes in the money supply. 
D) the Fed reacts passively or actively to the onset of recessions.

Question 2

Business cycles have been a feature of modern economies since

Accepted Answer

A) World War II. 
B) 1900. 
C) 1970. 
D) the Industrial Revolution. 
A) World War II. 
B) 1900. 
C) 1970. 
D) the Industrial Revolution.

Question 3

In the new Keynesian view, an increase in the real interest rate would cause firms to

Accepted Answer

A) increase their spending on plant and equipment. 
B) increase the wages they pay their employees. 
C) reduce their inventory holdings. 
D) increase their reliance on borrowed funds. 
A) increase their spending on plant and equipment. 
B) increase the wages they pay their employees. 
C) reduce their inventory holdings. 
D) increase their reliance on borrowed funds.

Question 4

Which of the following accurately describes the new classical view of stabilization policy?

Accepted Answer

A) Changes in monetary policy do not affect output in the short run. 
B) Policy changes which are unexpected are likely to introduce substantial uncertainty in household and business decisionmaking, causing output to become more volatile. 
C) There's no need for stabilization policy since the economy operates at its full-employment level in the short run. 
D) Rational expectations negates any effect of stabilization policy. 
A) Changes in monetary policy do not affect output in the short run. 
B) Policy changes which are unexpected are likely to introduce substantial uncertainty in household and business decisionmaking, causing output to become more volatile. 
C) There's no need for stabilization policy since the economy operates at its full-employment level in the short run. 
D) Rational expectations negates any effect of stabilization policy.

Question 5

The finding that output declines following the implementation of a contractionary policy by the Fed indicates that

Accepted Answer

A) reverse causation appears to explain the correlation between changes in money and changes in output. 
B) money is neutral in the short run. 
C) the real business cycle model's explanation of the correlation between money and output is incorrect. 
D) money is neutral in the long run. 
A) reverse causation appears to explain the correlation between changes in money and changes in output. 
B) money is neutral in the short run. 
C) the real business cycle model's explanation of the correlation between money and output is incorrect. 
D) money is neutral in the long run.

Question 6

Christina and David Romer identify six independent monetary policy shifts after 1960 in which the Fed

Accepted Answer

A) increased the money supply when output increased and decreased the money supply when output decreased. 
B) announced a contractionary monetary policy to fight inflation, after which output fell. 
C) announced a contractionary monetary policy to fight inflation, after which output rose. 
D) raised nominal interest rates in order to fight recession, after which the money supply rose. 
A) increased the money supply when output increased and decreased the money supply when output decreased. 
B) announced a contractionary monetary policy to fight inflation, after which output fell. 
C) announced a contractionary monetary policy to fight inflation, after which output rose. 
D) raised nominal interest rates in order to fight recession, after which the money supply rose.

Question 7

New Keynesian economists provide which two reasons for price stickiness in the short run?

Accepted Answer

A) Imperfect information and imperfect competition 
B) Long-term contracts and imperfect competition 
C) Long-term contracts and imperfect information 
D) Long-term contracts and perfect competition 
A) Imperfect information and imperfect competition 
B) Long-term contracts and imperfect competition 
C) Long-term contracts and imperfect information 
D) Long-term contracts and perfect competition

Question 8

According to new Keynesians, which of the following is NOT an important source of price stickiness?

Accepted Answer

A) Imperfect competition among sellers in the goods market 
B) Government wage and price controls 
C) Long-term nominal wage contracts 
D) Long-term nominal price contracts 
A) Imperfect competition among sellers in the goods market 
B) Government wage and price controls 
C) Long-term nominal wage contracts 
D) Long-term nominal price contracts

Question 9

Which of the following is true of the new Keynesian view of stabilization policy?

Accepted Answer

A) It is necessary because shifts in aggregate demand are the main source of movements in current output. 
B) It is necessary during recessions but not during booms. 
C) It is unnecessary because output fluctuations reflect productivity disturbances. 
D) It is unnecessary because output fluctuations are largely the result of policy mistakes by the Fed. 
A) It is necessary because shifts in aggregate demand are the main source of movements in current output. 
B) It is necessary during recessions but not during booms. 
C) It is unnecessary because output fluctuations reflect productivity disturbances. 
D) It is unnecessary because output fluctuations are largely the result of policy mistakes by the Fed.

Question 10

New classical economists attribute the link between the money supply and output to

Accepted Answer

A) reverse causation. 
B) sticky prices. 
C) the difficulty the Fed has in adjusting the Fed funds rate. 
D) imperfect information. 
A) reverse causation. 
B) sticky prices. 
C) the difficulty the Fed has in adjusting the Fed funds rate. 
D) imperfect information.

Question 11

An expected change in the money supply will result in a greater shift in the short-run aggregate supply curve in the new classical approach than in the new Keynesian approach because

Accepted Answer

A) households and businesses have rational expectations in the new classical approach but not in the new Keynesian approach. 
B) households and businesses have rational expectations in the new Keynesian approach but not in the new classical approach. 
C) prices are perfectly flexible in the new Keynesian approach, whereas prices are sticky in the new classical approach. 
D) prices are perfectly flexible in the new classical approach, whereas prices are sticky in the new Keynesian approach. 
A) households and businesses have rational expectations in the new classical approach but not in the new Keynesian approach. 
B) households and businesses have rational expectations in the new Keynesian approach but not in the new classical approach. 
C) prices are perfectly flexible in the new Keynesian approach, whereas prices are sticky in the new classical approach. 
D) prices are perfectly flexible in the new classical approach, whereas prices are sticky in the new Keynesian approach.

Question 12

In comparing the views of economists on stabilization policy in the 1960s with the views of economists on stabilization policy in the 1990s, one can say

Accepted Answer

A) few economists in the 1960s favored stabilization policy, while most economists in the 1990s favored stabilization policy. 
B) economists' views on stabilization policy have changed very little since the 1960s. 
C) fewer economists in the 1990s than in the 1960s believed it is possible to use stabilization policy to fine-tune the economy. 
D) almost no economists in the 1990s believe stabilization policy should be used. 
A) few economists in the 1960s favored stabilization policy, while most economists in the 1990s favored stabilization policy. 
B) economists' views on stabilization policy have changed very little since the 1960s. 
C) fewer economists in the 1990s than in the 1960s believed it is possible to use stabilization policy to fine-tune the economy. 
D) almost no economists in the 1990s believe stabilization policy should be used.

Question 13

Milton Friedman and Anna Schwartz conclude that

Accepted Answer

A) output fluctuations cause changes in money growth. 
B) changes in money growth cause output fluctuations. 
C) there is no causal link between the money supply and output. 
D) there is no evidence for changes in the money supply that are not influenced by changes in output or by third factors that influenced both money and output. 
A) output fluctuations cause changes in money growth. 
B) changes in money growth cause output fluctuations. 
C) there is no causal link between the money supply and output. 
D) there is no evidence for changes in the money supply that are not influenced by changes in output or by third factors that influenced both money and output.

Exam 26: Money and Output in the Short Run

In the new classical view, whether changes in the nominal money supply affect output in the short run depends on whether

Business cycles have been a feature of modern economies since

In the new Keynesian view, an increase in the real interest rate would cause firms to

Which of the following accurately describes the new classical view of stabilization policy?

The finding that output declines following the implementation of a contractionary policy by the Fed indicates that

Christina and David Romer identify six independent monetary policy shifts after 1960 in which the Fed

New Keynesian economists provide which two reasons for price stickiness in the short run?

According to new Keynesians, which of the following is NOT an important source of price stickiness?

Which of the following is true of the new Keynesian view of stabilization policy?

New classical economists attribute the link between the money supply and output to

An expected change in the money supply will result in a greater shift in the short-run aggregate supply curve in the new classical approach than in the new Keynesian approach because

In comparing the views of economists on stabilization policy in the 1960s with the views of economists on stabilization policy in the 1990s, one can say

Milton Friedman and Anna Schwartz conclude that

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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