Question 1

The lag in realizing that a macroeconomic problem exists is called

Accepted Answer

A)  the recognition lag. 
B)  the implementation lag. 
C)  the impact lag. 
D)  the market lag. 
A)  the recognition lag. 
B)  the implementation lag. 
C)  the impact lag. 
D)  the market lag.

Question 2

If the economy experiences an inflationary gap, a contractionary monetary policy will

Accepted Answer

A)  increase real GDP and increase the price level. 
B)  increase real GDP and decrease the price level. 
C)  decrease real GDP and increase the price level. 
D)  decrease real GDP and decrease the price level. 
A)  increase real GDP and increase the price level. 
B)  increase real GDP and decrease the price level. 
C)  decrease real GDP and increase the price level. 
D)  decrease real GDP and decrease the price level.

Question 3

Use the following to answer questions .
Exhibit: Monetary Policy and Long-Run Aggregate Demand and Aggregate Supply  
-(Exhibit: Monetary Policy and Long-Run Aggregate Demand and Aggregate Supply) Short-run but not long-run equilibrium positions occur at points

Accepted Answer

A)  a and b. 
B)  b and c. 
C)  c and d. 
D)  a and c. 
A)  a and b. 
B)  b and c. 
C)  c and d. 
D)  a and c.

Question 4

Suppose the economy experiences a recessionary gap. Expansionary monetary policy will

Accepted Answer

A)  increase interest rates and increase the bond prices. 
B)  increase interest rates and decrease the bond prices 
C)  decrease interest rates and increase the bond prices 
D)  decrease interest rates and decrease the bond prices 
A)  increase interest rates and increase the bond prices. 
B)  increase interest rates and decrease the bond prices 
C)  decrease interest rates and increase the bond prices 
D)  decrease interest rates and decrease the bond prices

Question 5

Let M = money supply; P = price level; V = velocity; Y = real GDP. The equation of exchange is given by

Accepted Answer

A)  M * V = nominal GDP. 
B)  M * Y = P * V. 
C)  M * P = V *Y. 
D)  M * V = (1/V)P * Y. 
A)  M * V = nominal GDP. 
B)  M * Y = P * V. 
C)  M * P = V *Y. 
D)  M * V = (1/V)P * Y.

Question 6

Use the following to answer questions .
Exhibit: Monetary Policy 1  
-(Exhibit: Monetary Policy 1) By shifting the demand curve from D1 to D2, the Fed is attempting to

Accepted Answer

A)  contract the economy by increasing interest rates. 
B)  expand the economy by increasing interest rates. 
C)  contract the economy by decreasing interest rates. 
D)  expand the economy by decreasing interest rates. 
A)  contract the economy by increasing interest rates. 
B)  expand the economy by increasing interest rates. 
C)  contract the economy by decreasing interest rates. 
D)  expand the economy by decreasing interest rates.

Question 7

What is meant by the term "credit easing"?

Accepted Answer

A)  It is a strategy which involves the extension of central bank lending to influence more broadly the proper functioning of credit markets and to improve liquidity. 
B)  It is a strategy which involves keeping interest rates very low by providing substantial reserves for as long as is necessary to avoid deflation and encourage spending. 
C)  It is a strategy which involves lowering the required reserve ratio and lowering the federal funds rate to encourage banks to increase loan creation. 
D)  It is a strategy which involves allowing interest rates to rise slowly by providing substantial reserves for as long as is necessary to avoid inflation. 
A)  It is a strategy which involves the extension of central bank lending to influence more broadly the proper functioning of credit markets and to improve liquidity. 
B)  It is a strategy which involves keeping interest rates very low by providing substantial reserves for as long as is necessary to avoid deflation and encourage spending. 
C)  It is a strategy which involves lowering the required reserve ratio and lowering the federal funds rate to encourage banks to increase loan creation. 
D)  It is a strategy which involves allowing interest rates to rise slowly by providing substantial reserves for as long as is necessary to avoid inflation.

Question 8

Suppose the interest rate is zero and the public expects the price level to fall by 2%. Which of the following statement is true?

Accepted Answer

A)  The value of money falls by 2%. 
B)  Money becomes an interest earning asset; it earns a nominal interest rate of 2%. 
C)  Money becomes an interest earning asset; it earns a real interest rate of 2%. 
D)  Bonds and money will become perfect substitutes since both are non-interest earning assets. 
A)  The value of money falls by 2%. 
B)  Money becomes an interest earning asset; it earns a nominal interest rate of 2%. 
C)  Money becomes an interest earning asset; it earns a real interest rate of 2%. 
D)  Bonds and money will become perfect substitutes since both are non-interest earning assets.

Question 9

Use the following to answer questions .
Exhibit: Monetary Policy and Long-Run Aggregate Demand and Aggregate Supply  
-(Exhibit: Monetary Policy and Long-Run Aggregate Demand and Aggregate Supply) If the economy is at point c, the Federal Reserve can close the output gap by buying bonds. In the bond market,

Accepted Answer

A)  the supply curve shifts right, leading to a decrease in bond prices and an increase in interest rates. 
B)  the demand curve shifts right, leading to an increase in bond prices and a decrease in interest rates. 
C)  the supply curve shifts left, leading to an increase in bond prices and an increase in interest rates. 
D)  the demand curve shifts left, leading to a decrease in bond prices and an increase in interest rates. 
A)  the supply curve shifts right, leading to a decrease in bond prices and an increase in interest rates. 
B)  the demand curve shifts right, leading to an increase in bond prices and a decrease in interest rates. 
C)  the supply curve shifts left, leading to an increase in bond prices and an increase in interest rates. 
D)  the demand curve shifts left, leading to a decrease in bond prices and an increase in interest rates.

Question 10

The shortest of the three lags for monetary policy is

Accepted Answer

A)  the impact lag. 
B)  the implementation lag. 
C)  the government lag. 
D)  the recognition lag. 
A)  the impact lag. 
B)  the implementation lag. 
C)  the government lag. 
D)  the recognition lag.

Question 11

When the Fed sells bonds in the open market, in the product market (the aggregate demand- aggregate supply model),

Accepted Answer

A)  real GDP will fall and the price level will rise. 
B)  real GDP and the price level will rise. 
C)  real GDP and the price level will fall. 
D)  real GDP will rise and the price level will fall. 
A)  real GDP will fall and the price level will rise. 
B)  real GDP and the price level will rise. 
C)  real GDP and the price level will fall. 
D)  real GDP will rise and the price level will fall.

Question 12

Suppose money supply (M) = $4,000, real GDP (Y) = $30,000, and nominal GDP = $60,000. Calculate the value of velocity and the price level.

Accepted Answer

A)  V = 7.5; P = 2 
B)  V = 15; P = 2 
C)  V = 7.5; P = 0.5 
D)  V = 15; P = 15 
A)  V = 7.5; P = 2 
B)  V = 15; P = 2 
C)  V = 7.5; P = 0.5 
D)  V = 15; P = 15

Question 13

Suppose the Fed's primary goal is price stability and it aims to keep the inflation rate at 2%. If the inflation rate rose above 2%, what should it do?

Accepted Answer

A)  pursue an expansionary monetary policy 
B)  pursue a contractionary monetary policy 
C)  reduce the required reserve ratio 
D)  impose a temporary ceiling on the federal funds rate 
A)  pursue an expansionary monetary policy 
B)  pursue a contractionary monetary policy 
C)  reduce the required reserve ratio 
D)  impose a temporary ceiling on the federal funds rate

Question 14

Let M = money supply; P = price level; V = velocity; Y = real GDP. The equation of exchange is given by:

Accepted Answer

A)  M * P = V *Y. 
B)  M * V = P * Y. 
C)  M * Y = P * V. 
D)  M * V = (1/ P) * Y. 
A)  M * P = V *Y. 
B)  M * V = P * Y. 
C)  M * Y = P * V. 
D)  M * V = (1/ P) * Y.

Question 15

Using the quantity equation, the demand for money can be expressed as

Accepted Answer

A)  M = (V * Y) ÷ P. 
B)  M = (P * Y) ÷ V. 
C)  M = (P * V) ÷ Y. 
D)  M * V = (1/ P) V * Y. 
A)  M = (V * Y) ÷ P. 
B)  M = (P * Y) ÷ V. 
C)  M = (P * V) ÷ Y. 
D)  M * V = (1/ P) V * Y.

Question 16

The lag between the time at which a policy is put in place and the time that policy affects the economy is called

Accepted Answer

A)  the recognition lag. 
B)  the impact lag. 
C)  the implementation lag. 
D)  the theoretical lag. 
A)  the recognition lag. 
B)  the impact lag. 
C)  the implementation lag. 
D)  the theoretical lag.

Question 17

The Employment Act of 1946 was an outgrowth of the Great Depression.

Accepted Answer

A) True 
 B)False

Question 18

Which lag stems from the fact that it takes time for people and firms to react to a policy change, to acquire or reduce loans, and to change their level of consumption?

Accepted Answer

A)  the implementation lag 
B)  the recognition lag 
C)  the market lag 
D)  the impact lag 
A)  the implementation lag 
B)  the recognition lag 
C)  the market lag 
D)  the impact lag

Question 19

When interest rates are near zero and traditional monetary policy is ineffective, the Fed or other central bank may resort to a strategy referred to as quantitative easing. What does this strategy involve?

Accepted Answer

A)  allowing interest rates to rise slowly by providing substantial reserves for as long as is necessary to avoid inflation 
B)  reducing the money supply to raise the interest rates slowly without discouraging spending 
C)  keeping interest rates very low by providing substantial reserves for as long as is necessary to avoid deflation and encourage spending 
D)  increasing the money supply and interest rates at a constant rate to stimulate economic activity 
A)  allowing interest rates to rise slowly by providing substantial reserves for as long as is necessary to avoid inflation 
B)  reducing the money supply to raise the interest rates slowly without discouraging spending 
C)  keeping interest rates very low by providing substantial reserves for as long as is necessary to avoid deflation and encourage spending 
D)  increasing the money supply and interest rates at a constant rate to stimulate economic activity

Question 20

What is the rational expectations hypothesis? Using a diagram of the aggregate demand and aggregate supply to illustrate your answer, explain how the hypothesis suggests that monetary policy may affect the price level but not real GDP.

Accepted Answer

The rational expectations hypothesis is

The lag in realizing that a macroeconomic problem exists is called

If the economy experiences an inflationary gap, a contractionary monetary policy will

Use the following to answer questions . Exhibit: Monetary Policy and Long-Run Aggregate Demand and Aggregate Supply -(Exhibit: Monetary Policy and Long-Run Aggregate Demand and Aggregate Supply) Short-run but not long-run equilibrium positions occur at points

Suppose the economy experiences a recessionary gap. Expansionary monetary policy will

Let M = money supply; P = price level; V = velocity; Y = real GDP. The equation of exchange is given by

Use the following to answer questions . Exhibit: Monetary Policy 1 -(Exhibit: Monetary Policy 1) By shifting the demand curve from D₁ to D₂, the Fed is attempting to

What is meant by the term "credit easing"?

Suppose the interest rate is zero and the public expects the price level to fall by 2%. Which of the following statement is true?

The shortest of the three lags for monetary policy is

When the Fed sells bonds in the open market, in the product market (the aggregate demand- aggregate supply model),

Suppose money supply (M) = $4,000, real GDP (Y) = $30,000, and nominal GDP = $60,000. Calculate the value of velocity and the price level.

Suppose the Fed's primary goal is price stability and it aims to keep the inflation rate at 2%. If the inflation rate rose above 2%, what should it do?

Let M = money supply; P = price level; V = velocity; Y = real GDP. The equation of exchange is given by:

Using the quantity equation, the demand for money can be expressed as

The lag between the time at which a policy is put in place and the time that policy affects the economy is called

The Employment Act of 1946 was an outgrowth of the Great Depression.

Which lag stems from the fact that it takes time for people and firms to react to a policy change, to acquire or reduce loans, and to change their level of consumption?

When interest rates are near zero and traditional monetary policy is ineffective, the Fed or other central bank may resort to a strategy referred to as quantitative easing. What does this strategy involve?

What is the rational expectations hypothesis? Using a diagram of the aggregate demand and aggregate supply to illustrate your answer, explain how the hypothesis suggests that monetary policy may affect the price level but not real GDP.

Economics: the Study of Choice

Demand and Supply

Applications of Supply and Demand

Macroeconomics: the Big Picture

Measuring Total Output and Income

Aggregate Demand and Aggregate Supply

Economic Growth

The Nature and Creation of Money

Financial Markets and the Economy

Government and Fiscal Policy

Consumption and the Aggregate Expenditures Model

Investment and Economic Activity

Net Exports and International Finance

Inflation and Unemployment

A Brief History of Macroeconomic Thought and Policy

Inequality, Poverty, and Discrimination

Filters

Exam 11: Monetary Policy and the Fed

The lag in realizing that a macroeconomic problem exists is called

If the economy experiences an inflationary gap, a contractionary monetary policy will

Use the following to answer questions . Exhibit: Monetary Policy and Long-Run Aggregate Demand and Aggregate Supply -(Exhibit: Monetary Policy and Long-Run Aggregate Demand and Aggregate Supply) Short-run but not long-run equilibrium positions occur at points

Suppose the economy experiences a recessionary gap. Expansionary monetary policy will

Let M = money supply; P = price level; V = velocity; Y = real GDP. The equation of exchange is given by

Use the following to answer questions . Exhibit: Monetary Policy 1 -(Exhibit: Monetary Policy 1) By shifting the demand curve from D1 to D2, the Fed is attempting to

What is meant by the term "credit easing"?

Suppose the interest rate is zero and the public expects the price level to fall by 2%. Which of the following statement is true?

The shortest of the three lags for monetary policy is

When the Fed sells bonds in the open market, in the product market (the aggregate demand- aggregate supply model),

Suppose money supply (M) = $4,000, real GDP (Y) = $30,000, and nominal GDP = $60,000. Calculate the value of velocity and the price level.

Suppose the Fed's primary goal is price stability and it aims to keep the inflation rate at 2%. If the inflation rate rose above 2%, what should it do?

Let M = money supply; P = price level; V = velocity; Y = real GDP. The equation of exchange is given by:

Using the quantity equation, the demand for money can be expressed as

The lag between the time at which a policy is put in place and the time that policy affects the economy is called

The Employment Act of 1946 was an outgrowth of the Great Depression.

Which lag stems from the fact that it takes time for people and firms to react to a policy change, to acquire or reduce loans, and to change their level of consumption?

When interest rates are near zero and traditional monetary policy is ineffective, the Fed or other central bank may resort to a strategy referred to as quantitative easing. What does this strategy involve?

What is the rational expectations hypothesis? Using a diagram of the aggregate demand and aggregate supply to illustrate your answer, explain how the hypothesis suggests that monetary policy may affect the price level but not real GDP.

Economics: the Study of Choice

Demand and Supply

Applications of Supply and Demand

Macroeconomics: the Big Picture

Measuring Total Output and Income

Aggregate Demand and Aggregate Supply

Economic Growth

The Nature and Creation of Money

Financial Markets and the Economy

Government and Fiscal Policy

Consumption and the Aggregate Expenditures Model

Investment and Economic Activity

Net Exports and International Finance

Inflation and Unemployment

A Brief History of Macroeconomic Thought and Policy

Inequality, Poverty, and Discrimination

Filters

Use the following to answer questions . Exhibit: Monetary Policy 1 -(Exhibit: Monetary Policy 1) By shifting the demand curve from D₁ to D₂, the Fed is attempting to