Question 1

If velocity and output are fixed at 5 and 400, respectively, and the price level is 2, then the money supply is

Accepted Answer

A)  4,000. 
B)  200. 
C)  160. 
D)  40. 
A)  4,000. 
B)  200. 
C)  160. 
D)  40.

Question 2

The theory of "rational expectations" is most closely associated with __________ economists.

Accepted Answer

A)  Classical 
B)  Keynesian 
C)  Monetarist 
D)  New Classical 
A)  Classical 
B)  Keynesian 
C)  Monetarist 
D)  New Classical

Question 3

Monetarists view government intervention in the economy as

Accepted Answer

A)  necessary to maintain full employment. 
B)  unnecessary and potentially damaging. 
C)  effective because it stimulates capital formation. 
D)  leads to consistently higher employment and output. 
A)  necessary to maintain full employment. 
B)  unnecessary and potentially damaging. 
C)  effective because it stimulates capital formation. 
D)  leads to consistently higher employment and output.

Question 4

If I = S, then

Accepted Answer

A)  C + I = S + I. 
B)  C + S = S + I. 
C)  C + S = C + I. 
D)  C - S = S - I. 
A)  C + I = S + I. 
B)  C + S = S + I. 
C)  C + S = C + I. 
D)  C - S = S - I.

Question 5

In the Classical view, falling interest rates increase

Accepted Answer

A)  government spending. 
B)  saving. 
C)  velocity. 
D)  investment. 
A)  government spending. 
B)  saving. 
C)  velocity. 
D)  investment.

Question 6

Money neutrality implies that changes in the money supply have an impact on

Accepted Answer

A)  the unemployment rate. 
B)  interest rates. 
C)  the price level. 
D)  real GDP. 
A)  the unemployment rate. 
B)  interest rates. 
C)  the price level. 
D)  real GDP.

Question 7

An increase in aggregate demand in the Classical model causes the price level to

Accepted Answer

A)  rise but output remains constant. 
B)  fall but output remains constant. 
C)  rise but output to fall. 
D)  fall but output to rise. 
A)  rise but output remains constant. 
B)  fall but output remains constant. 
C)  rise but output to fall. 
D)  fall but output to rise.

Question 8

Assuming a nominal interest rate of 6 percent, an unemployment rate of 4 percent, and an inflation rate of 2 percent, the real interest rate is approximately

Accepted Answer

A)  2 percent. 
B)  4 percent. 
C)  6 percent. 
D)  8 percent. 
A)  2 percent. 
B)  4 percent. 
C)  6 percent. 
D)  8 percent.

Question 9

According to Classical interest rate theory, falling interest rates will

Accepted Answer

A)  increase the demand for money. 
B)  decrease the demand for money. 
C)  decrease investment expenditures. 
D)  decrease the saving rate. 
A)  increase the demand for money. 
B)  decrease the demand for money. 
C)  decrease investment expenditures. 
D)  decrease the saving rate.

Question 10

In the Cambridge version of the Quantity Theory of Money, the amount of real money balances __________ after an increase in the nominal money supply.

Accepted Answer

A)  increases 
B)  decreases 
C)  is unchanged 
D)  Cannot be determined from the information given. 
A)  increases 
B)  decreases 
C)  is unchanged 
D)  Cannot be determined from the information given.

Question 11

Monetarists have maintained the Classical tradition by emphasizing the

Accepted Answer

A)  importance of government's fine-tuning policies. 
B)  inflationary impact of government spending. 
C)  instability of money demand. 
D)  inherent stability of the economy. 
A)  importance of government's fine-tuning policies. 
B)  inflationary impact of government spending. 
C)  instability of money demand. 
D)  inherent stability of the economy.

Question 12

What economist in the early 20th century refined the use of the equation of exchange?

Accepted Answer

A)  Jean-Baptiste Say 
B)  Irving Fisher 
C)  Thomas Malthus 
D)  Adam Smith 
A)  Jean-Baptiste Say 
B)  Irving Fisher 
C)  Thomas Malthus 
D)  Adam Smith

Question 13

If the total output is 300, the velocity of money is 5, and the money supply is 600, then the price level is

Accepted Answer

A)  10.0. 
B)  2.0. 
C)  2.50. 
D)  5.0. 
A)  10.0. 
B)  2.0. 
C)  2.50. 
D)  5.0.

Exam 22: The Classical Foundations

If velocity and output are fixed at 5 and 400, respectively, and the price level is 2, then the money supply is

The theory of "rational expectations" is most closely associated with __________ economists.

Monetarists view government intervention in the economy as

If I = S, then

In the Classical view, falling interest rates increase

Money neutrality implies that changes in the money supply have an impact on

An increase in aggregate demand in the Classical model causes the price level to

Assuming a nominal interest rate of 6 percent, an unemployment rate of 4 percent, and an inflation rate of 2 percent, the real interest rate is approximately

According to Classical interest rate theory, falling interest rates will

In the Cambridge version of the Quantity Theory of Money, the amount of real money balances __________ after an increase in the nominal money supply.

Monetarists have maintained the Classical tradition by emphasizing the

What economist in the early 20th century refined the use of the equation of exchange?

If the total output is 300, the velocity of money is 5, and the money supply is 600, then the price level is

Introducing Money, Banking, and Financial Markets

The Role of Money in the Macroeconomy

Financial Instruments, Markets, and Institutions

Interest Rate Measurement and Behavior

The Term and Risk Structure of Interest Rates

The Structure and Performance of Securities Markets

The Pricing of Risky Financial Assets

Money and Capital Markets

Demystifying Derivatives

Understanding Foreign Exchange

The Nature of Financial Intermediation

Depository Financial Institutions

Nondepository Financial Institutions

Understanding Financial Contracts

The Regulation of Markets and Institutions

Financial System Design

Who's in Charge Here?

Bank Reserves and the Money Supply

The Instruments of Central Bankin

Understanding Movements in Bank Reserves

Monetary Policy Strategy

The Keynesian Framework

The ISLM World

Money and Economic Stability in the ISLM World

An Aggregate Supply and Demand Perspective on Money and Economic Stability

Rational Expectations: Theory and Policy Implications

Empirical Evidence on the Effectiveness of Monetary Policy

Tying It All Together

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