Question 1

When the economy is hit by a negative demand shock and the central bank does not respond by changing the autonomous component of monetary policy,then

Accepted Answer

A) inflation will be lower. 
B) output will be at its potential. 
C) output will be lower. 
D) inflation will not change. 
E) both A and B. 
A) inflation will be lower. 
B) output will be at its potential. 
C) output will be lower. 
D) inflation will not change. 
E) both A and B. E

Question 2

Which of the following is most likely to lead to inflationary monetary policy?

Accepted Answer

A) Declining oil prices 
B) Resolution of conflict in the Middle East 
C) The enactment of a free-trade agreement with Mexico 
D) Rising unemployment 
A) Declining oil prices 
B) Resolution of conflict in the Middle East 
C) The enactment of a free-trade agreement with Mexico 
D) Rising unemployment D

Question 3

If aggregate output is below the natural rate level,nonactivists of policies would recommend that the government

Accepted Answer

A) do nothing. 
B) try to eliminate the high unemployment by attempting to shift the aggregate supply curve to the right. 
C) try to eliminate the high unemployment by attempting to shift the aggregate demand curve to the right. 
D) try to eliminate the high unemployment by attempting to shift the aggregate demand curve to the left. 
A) do nothing. 
B) try to eliminate the high unemployment by attempting to shift the aggregate supply curve to the right. 
C) try to eliminate the high unemployment by attempting to shift the aggregate demand curve to the right. 
D) try to eliminate the high unemployment by attempting to shift the aggregate demand curve to the left. A

Question 4

The disruption to financial markets starting in August 2007 that caused both consumer and business spending to fall

Accepted Answer

A) shifted the aggregate demand curve to the right. 
B) shifted the aggregate demand curve to the left. 
C) shifted the aggregate supply curve to the right. 
D) shifted the aggregate supply curve to the left. 
A) shifted the aggregate demand curve to the right. 
B) shifted the aggregate demand curve to the left. 
C) shifted the aggregate supply curve to the right. 
D) shifted the aggregate supply curve to the left.

Question 5

Because policies in the United States were too expansionary from 1965 through 1973,the U.S.suffered

Accepted Answer

A) demand-pull inflation. 
B) cost-push inflation,as workers sought higher wages in order to keep up with inflation. 
C) both demand-pull and cost-push inflation. 
D) neither demand-pull nor cost-push inflation. 
A) demand-pull inflation. 
B) cost-push inflation,as workers sought higher wages in order to keep up with inflation. 
C) both demand-pull and cost-push inflation. 
D) neither demand-pull nor cost-push inflation.

Question 6

The effectiveness lag is

Accepted Answer

A) the time it takes for policy makers to obtain data indicating what is happening in the economy. 
B) the time it takes for policy makers to be sure of what the data are signaling about the future course of the economy. 
C) the time it takes to pass legislation to implement a particular policy. 
D) the time it takes for policy makers to change policy instruments once they have decided on the new policy. 
E) the time it takes for the policy actually to have an impact on the economy. 
A) the time it takes for policy makers to obtain data indicating what is happening in the economy. 
B) the time it takes for policy makers to be sure of what the data are signaling about the future course of the economy. 
C) the time it takes to pass legislation to implement a particular policy. 
D) the time it takes for policy makers to change policy instruments once they have decided on the new policy. 
E) the time it takes for the policy actually to have an impact on the economy.

Question 7

Which of the following is most likely to lead to inflationary monetary policy?

Accepted Answer

A) Declining oil prices 
B) Resolution of conflict in the Middle East 
C) The enactment of a free-trade agreement with Mexico 
D) Rising government budget deficits 
A) Declining oil prices 
B) Resolution of conflict in the Middle East 
C) The enactment of a free-trade agreement with Mexico 
D) Rising government budget deficits

Question 8

The legislative lag represents

Accepted Answer

A) the time it takes for policy makers to obtain data indicating what is happening in the economy. 
B) the time it takes for policy makers to be sure of what the data are signaling about the future course of the economy. 
C) the time it takes to pass legislation to implement a particular policy. 
D) the time it takes for policy makers to change policy instruments once they have decided on the new policy. 
E) the time it takes for the policy actually to have an impact on the economy. 
A) the time it takes for policy makers to obtain data indicating what is happening in the economy. 
B) the time it takes for policy makers to be sure of what the data are signaling about the future course of the economy. 
C) the time it takes to pass legislation to implement a particular policy. 
D) the time it takes for policy makers to change policy instruments once they have decided on the new policy. 
E) the time it takes for the policy actually to have an impact on the economy.

Question 9

The time it takes for the policy actually to have an impact on the economy is called

Accepted Answer

A) the data lag. 
B) the recognition lag. 
C) the legislative lag. 
D) the implementation lag. 
E) the effectiveness lag. 
A) the data lag. 
B) the recognition lag. 
C) the legislative lag. 
D) the implementation lag. 
E) the effectiveness lag.

Question 10

If policymakers set a target for unemployment that is too low because it is less than the natural rate of unemployment,this can set the stage for a higher rate of money growth and

Accepted Answer

A) cost-push inflation. 
B) demand-pull inflation. 
C) cost-pull inflation. 
D) demand-push inflation. 
A) cost-push inflation. 
B) demand-pull inflation. 
C) cost-pull inflation. 
D) demand-push inflation.

Question 11

The nonactivists who opposed the recent fiscal stimulus package argue that

Accepted Answer

A) fiscal stimulus would take too long to work because of long implementation lags. 
B) fiscal stimulus might kick in after the economy had already recovered. 
C) fiscal stimulus could lead to increased volatility in inflation and economic activity. 
D) all of the above. 
E) none of the above. 
A) fiscal stimulus would take too long to work because of long implementation lags. 
B) fiscal stimulus might kick in after the economy had already recovered. 
C) fiscal stimulus could lead to increased volatility in inflation and economic activity. 
D) all of the above. 
E) none of the above.

Question 12

Which of the following is least likely to lead to inflationary monetary policy?

Accepted Answer

A) Rising unemployment 
B) Expanding federal budget deficits 
C) Declining oil prices 
D) Conflict in the Middle East 
A) Rising unemployment 
B) Expanding federal budget deficits 
C) Declining oil prices 
D) Conflict in the Middle East

Question 13

When the economy suffers a permanent negative supply shock and the central bank does not respond by changing the autonomous component of monetary policy,then

Accepted Answer

A) inflation will be higher. 
B) output will be at its potential. 
C) output will be unchanged. 
D) inflation will be unchanged. 
E) both A and B. 
A) inflation will be higher. 
B) output will be at its potential. 
C) output will be unchanged. 
D) inflation will be unchanged. 
E) both A and B.

Question 14

The time it takes for policy makers to be sure of what the data are signaling about the future course of the economy is called

Accepted Answer

A) the data lag. 
B) the recognition lag. 
C) the legislative lag. 
D) the implementation lag. 
E) the effectiveness lag. 
A) the data lag. 
B) the recognition lag. 
C) the legislative lag. 
D) the implementation lag. 
E) the effectiveness lag.

Question 15

When the economy suffers a temporary negative supply shock and the central bank responds by changing the autonomous component of monetary policy to keep inflation at the target inflation rate,then

Accepted Answer

A) aggregate output drops in the short run. 
B) output will return to potential output over time. 
C) aggregate output is stabilized. 
D) all of the above. 
E) both A and B. 
A) aggregate output drops in the short run. 
B) output will return to potential output over time. 
C) aggregate output is stabilized. 
D) all of the above. 
E) both A and B.

Question 16

When the economy suffers a temporary negative supply shock and the monetary policy makers try to stabilize economic activity in the short run,then

Accepted Answer

A) aggregate demand curve shifts rightward. 
B) output will be at its potential. 
C) inflation rate will be higher. 
D) all of the above. 
E) both A and B. 
A) aggregate demand curve shifts rightward. 
B) output will be at its potential. 
C) inflation rate will be higher. 
D) all of the above. 
E) both A and B.

Question 17

Which of the following statements is correct?

Accepted Answer

A) If most shocks to the economy are aggregate demand shocks or permanent aggregate supply shocks,then policy that stabilizes inflation will also stabilize economic activity,even in the short run. 
B) If temporary supply shocks are more common,then a central bank must choose between stabilizing inflation and stabilizing output in the short run. 
C) In the long run,there is no conflict between stabilizing inflation and economic activity in response to shocks. 
D) all of the above. 
A) If most shocks to the economy are aggregate demand shocks or permanent aggregate supply shocks,then policy that stabilizes inflation will also stabilize economic activity,even in the short run. 
B) If temporary supply shocks are more common,then a central bank must choose between stabilizing inflation and stabilizing output in the short run. 
C) In the long run,there is no conflict between stabilizing inflation and economic activity in response to shocks. 
D) all of the above.

Question 18

When the economy suffers a permanent negative supply shock and the central bank responds by changing the autonomous component of monetary policy to keep inflation at the target inflation rate,then

Accepted Answer

A) aggregate demand curve shifts leftward. 
B) output will be unchanged. 
C) output will be at its potential. 
D) all of the above. 
E) both A and C. 
A) aggregate demand curve shifts leftward. 
B) output will be unchanged. 
C) output will be at its potential. 
D) all of the above. 
E) both A and C.

Question 19

When the economy suffers a permanent negative supply shock and the central bank responds by changing the autonomous component of monetary policy to keep inflation at the target inflation rate,then

Accepted Answer

A) aggregate demand curve shifts leftward. 
B) aggregate demand curve shifts rightward. 
C) output will be unchanged. 
D) both A and C. 
A) aggregate demand curve shifts leftward. 
B) aggregate demand curve shifts rightward. 
C) output will be unchanged. 
D) both A and C.

Question 20

Demand-pull inflation can result when

Accepted Answer

A) policymakers set an unemployment target that is too high. 
B) a persistent budget deficit is financed by selling bonds to the public. 
C) a persistent budget deficit is financed by selling bonds to the central bank. 
D) workers get numerous wage increases. 
A) policymakers set an unemployment target that is too high. 
B) a persistent budget deficit is financed by selling bonds to the public. 
C) a persistent budget deficit is financed by selling bonds to the central bank. 
D) workers get numerous wage increases.

Exam 23: Monetary Policy Theory

When the economy is hit by a negative demand shock and the central bank does not respond by changing the autonomous component of monetary policy,then

Which of the following is most likely to lead to inflationary monetary policy?

If aggregate output is below the natural rate level,nonactivists of policies would recommend that the government

The disruption to financial markets starting in August 2007 that caused both consumer and business spending to fall

Because policies in the United States were too expansionary from 1965 through 1973,the U.S.suffered

The effectiveness lag is

Which of the following is most likely to lead to inflationary monetary policy?

The legislative lag represents

The time it takes for the policy actually to have an impact on the economy is called

If policymakers set a target for unemployment that is too low because it is less than the natural rate of unemployment,this can set the stage for a higher rate of money growth and

The nonactivists who opposed the recent fiscal stimulus package argue that

Which of the following is least likely to lead to inflationary monetary policy?

When the economy suffers a permanent negative supply shock and the central bank does not respond by changing the autonomous component of monetary policy,then

The time it takes for policy makers to be sure of what the data are signaling about the future course of the economy is called

When the economy suffers a temporary negative supply shock and the central bank responds by changing the autonomous component of monetary policy to keep inflation at the target inflation rate,then

When the economy suffers a temporary negative supply shock and the monetary policy makers try to stabilize economic activity in the short run,then

Which of the following statements is correct?

When the economy suffers a permanent negative supply shock and the central bank responds by changing the autonomous component of monetary policy to keep inflation at the target inflation rate,then

When the economy suffers a permanent negative supply shock and the central bank responds by changing the autonomous component of monetary policy to keep inflation at the target inflation rate,then

Demand-pull inflation can result when

Why Study Money, banking, and Financial Markets

An Overview of the Financial System

What Is Money

Understanding Interest Rates

The Behavior of Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

An Economic Analysis of Financial Structure

Financial Crises

Banking and the Management of Financial Institutions

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Central Banks and the Federal Reserve System

The Money Supply Process

Tools of Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

Quantity Theory,inflation and the Demand for Money

The Is Curve

The Monetary Policy and Aggregate Demand Curves

Aggregate Demand and Supply Analysis

The Role of Expectations in Monetary Policy

Transmission Mechanisms of Monetary Policy

The ISLM Model

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