Question 1

Economists who discount the short-run expansionary effects of monetary policy focus on the problems of

Accepted Answer

A)  inflation. 
B)  government intervention. 
C)  fiscal policy. 
D)  unemployment. 
E)  disinflation. 
A)  inflation. 
B)  government intervention. 
C)  fiscal policy. 
D)  unemployment. 
E)  disinflation.

Question 2

If the interest rate on a loan is lower than the expected return from an investment,

Accepted Answer

A)  a rational firm will take out a loan for the investment. 
B)  the Federal Reserve will conduct contractionary monetary policy. 
C)  a rational firm will not take out a loan for the investment. 
D)  the Federal Reserve will conduct expansionary monetary policy. 
E)  the government will conduct expansionary fiscal policy. 
A)  a rational firm will take out a loan for the investment. 
B)  the Federal Reserve will conduct contractionary monetary policy. 
C)  a rational firm will not take out a loan for the investment. 
D)  the Federal Reserve will conduct expansionary monetary policy. 
E)  the government will conduct expansionary fiscal policy.

Question 3

________ policy is when a central bank acts to decrease the money supply in an effort to control an economy that is expanding too quickly.

Accepted Answer

A)  Expansionary monetary 
B)  Expansionary fiscal 
C)  Contractionary monetary 
D)  Contractionary fiscal 
E)  Countercyclical monetary 
A)  Expansionary monetary 
B)  Expansionary fiscal 
C)  Contractionary monetary 
D)  Contractionary fiscal 
E)  Countercyclical monetary

Question 4

According to adaptive expectations theory, when inflation decelerates,

Accepted Answer

A)  people underestimate inflation. 
B)  people correctly estimate inflation. 
C)  people change to rational expectations. 
D)  unemployment must decrease. 
E)  people overestimate inflation. 
A)  people underestimate inflation. 
B)  people correctly estimate inflation. 
C)  people change to rational expectations. 
D)  unemployment must decrease. 
E)  people overestimate inflation.

Question 5

The theory behind the long-run Phillips curve relationship is that

Accepted Answer

A)  people's expectations of future inflation are based on their most recent experiences. 
B)  people form expectations on the basis of all available information. 
C)  monetary policy has real effects in the long run. 
D)  inflation stimulates the economy, and this outcome reduces the unemployment rate. 
E)  prices are flexible in the long run, causing no relationship between unemployment and inflation. 
A)  people's expectations of future inflation are based on their most recent experiences. 
B)  people form expectations on the basis of all available information. 
C)  monetary policy has real effects in the long run. 
D)  inflation stimulates the economy, and this outcome reduces the unemployment rate. 
E)  prices are flexible in the long run, causing no relationship between unemployment and inflation.

Question 6

During a contraction of the money supply, which attribute of prices prevents firms from adjusting wages and loans in the short run?

Accepted Answer

A)  Prices are fixed. 
B)  Prices match demand. 
C)  Prices trend downward. 
D)  Prices trend upward. 
E)  Prices are sticky. 
A)  Prices are fixed. 
B)  Prices match demand. 
C)  Prices trend downward. 
D)  Prices trend upward. 
E)  Prices are sticky.

Question 7

Explain why workers have an incentive to expect a certain level of inflation.

Accepted Answer

Workers have an incentive to expect a ce

Question 8

The Federal Reserve generally uses ________ to implement monetary policy.

Accepted Answer

A)  reserve requirements 
B)  open market operations 
C)  fiscal policy 
D)  discount policies 
E)  government spending and taxes 
A)  reserve requirements 
B)  open market operations 
C)  fiscal policy 
D)  discount policies 
E)  government spending and taxes

Question 9

Rational expectations theory

Accepted Answer

A)  holds that people form expectations on the basis of all available information. 
B)  holds that people's expectations of future inflation are based on their most recent experiences. 
C)  explains why prices are flexible in the long run. 
D)  holds that people form expectations perfectly. 
E)  explains the relationship between the unemployment rate and inflation. 
A)  holds that people form expectations on the basis of all available information. 
B)  holds that people's expectations of future inflation are based on their most recent experiences. 
C)  explains why prices are flexible in the long run. 
D)  holds that people form expectations perfectly. 
E)  explains the relationship between the unemployment rate and inflation.

Question 10

Central banks can use monetary policy to

Accepted Answer

A)  reduce interest rates. 
B)  decrease taxes. 
C)  increase government spending. 
D)  steer the economy out of every recession. 
E)  prevent recessions. 
A)  reduce interest rates. 
B)  decrease taxes. 
C)  increase government spending. 
D)  steer the economy out of every recession. 
E)  prevent recessions.

Question 11

In the short run, some prices are inflexible. Most often, the prices that are inflexible are

Accepted Answer

A)  output prices. 
B)  energy prices. 
C)  food prices. 
D)  product prices. 
E)  wages for workers. 
A)  output prices. 
B)  energy prices. 
C)  food prices. 
D)  product prices. 
E)  wages for workers.

Question 12

According to adaptive expectations theory, if the last three years of inflation were 3 percent, 3 percent, and 2 percent, respectively, one would expect inflation the following year to be ________ percent.

Accepted Answer

A)  0 
B)  3 
C)  1 
D)  4 
E)  2 
A)  0 
B)  3 
C)  1 
D)  4 
E)  2

Question 13

How will expansionary monetary policy impact real wages under long-term contracts?

Accepted Answer

A)  Real wages decrease. 
B)  Real wages remain constant. 
C)  Real wages decrease but are offset by falling prices. 
D)  Real wages increase. 
E)  Real wages increase but are offset by rising prices. 
A)  Real wages decrease. 
B)  Real wages remain constant. 
C)  Real wages decrease but are offset by falling prices. 
D)  Real wages increase. 
E)  Real wages increase but are offset by rising prices.

Question 14

The long-run Phillips curve is ________ and equal to ________.

Accepted Answer

A)  horizontal; the natural rate of unemployment 
B)  vertical; the natural rate of unemployment 
C)  vertical; full-employment output 
D)  horizontal; full-employment inflation 
E)  horizontal; full-employment output 
A)  horizontal; the natural rate of unemployment 
B)  vertical; the natural rate of unemployment 
C)  vertical; full-employment output 
D)  horizontal; full-employment inflation 
E)  horizontal; full-employment output

Question 15

Refer to the following figure to answer the next questions.
  
-According to the figure, if the economy started at full-employment output, contractionary monetary policy would cause real gross domestic product (GDP) to ________ in the short run.

Accepted Answer

A)  increase from Y1 to Y2 
B)  increase from Y1 to Y3 
C)  decrease from Y2 to Y1 
D)  decrease from Y3 to Y2 
E)  increase from Y2 to Y3 
A)  increase from Y1 to Y2 
B)  increase from Y1 to Y3 
C)  decrease from Y2 to Y1 
D)  decrease from Y3 to Y2 
E)  increase from Y2 to Y3

Question 16

According to adaptive expectations theory, people underestimate inflation when

Accepted Answer

A)  it slows down. 
B)  they anticipate it. 
C)  it accelerates. 
D)  it is unexpected. 
E)  their expectations change. 
A)  it slows down. 
B)  they anticipate it. 
C)  it accelerates. 
D)  it is unexpected. 
E)  their expectations change.

Question 17

Refer to the following figure to answer the next  questions.
  
-According to the figure, expansionary monetary policy will cause an economy that is initially at full-employment output to go from equilibrium to equilibrium in the short run.

Accepted Answer

A)  A; C 
B)  A; B 
C)  A; D 
D)  C; B 
E)  C; D 
A)  A; C 
B)  A; B 
C)  A; D 
D)  C; B 
E)  C; D

Question 18

The long-run Phillips curve has ________ on the x axis and ________ on the y axis

Accepted Answer

A)  unemployment; inflation 
B)  inflation; unemployment 
C)  real gross domestic product GDP); price level 
D)  price level; real gross domestic product GDP) 
E)  real gross domestic product GDP); inflation 
A)  unemployment; inflation 
B)  inflation; unemployment 
C)  real gross domestic product GDP); price level 
D)  price level; real gross domestic product GDP) 
E)  real gross domestic product GDP); inflation

Question 19

According to the theory of monetary neutrality, in the long run,

Accepted Answer

A)  monetary policy is always more effective than fiscal policy. 
B)  fiscal policy is always more effective than monetary policy. 
C)  expansionary monetary policy is more effective than contractionary monetary policy. 
D)  contractionary monetary policy is more effective than expansionary monetary policy. 
E)  there is a lack of real economic effects from monetary policy. 
A)  monetary policy is always more effective than fiscal policy. 
B)  fiscal policy is always more effective than monetary policy. 
C)  expansionary monetary policy is more effective than contractionary monetary policy. 
D)  contractionary monetary policy is more effective than expansionary monetary policy. 
E)  there is a lack of real economic effects from monetary policy.

Question 20

Which of the following explains expansionary monetary policy in the long run?

Accepted Answer

A)  Expansionary monetary policy shifts aggregate demand to the left, moving the economy from long-run equilibrium to a short-run equilibrium with a lower price level and a lower level of real gross domestic product GDP). In the long run, as resource prices fall, the short-run aggregate supply curve shifts to the right, bringing the economy back to a long-run equilibrium where no real changes to GDP have occurred. 
B)  Expansionary monetary policy shifts aggregate demand to the right, moving the economy from long-run equilibrium to a short-run equilibrium with a higher price level and a higher level of real gross domestic product GDP). In the long run, as resource prices rise, the aggregate demand curve shifts back to the left, causing the economy to expand. 
C)  Expansionary monetary policy shifts aggregate demand to the right, moving the economy from long-run equilibrium to a short-run equilibrium with a higher price level and a higher level of real gross domestic product GDP). In the long run, as resource prices rise, the short-run aggregate supply curve shifts to the left, bringing the economy back to a long-run equilibrium where no real changes to GDP have occurred. 
D)  Expansionary monetary policy shifts aggregate demand to the right, moving the economy from long-run equilibrium to a short-run equilibrium with a higher price level and a higher level of real gross domestic product GDP). In the long run, as resource prices fall, the short-run aggregate supply curve shifts to the right as well, causing the economy to expand. 
E)  Expansionary monetary policy shifts aggregate demand to the left, moving the economy from long-run equilibrium to a short-run equilibrium with a lower price level and a lower level of real gross domestic product GDP). In the long run, as resource prices rise, the short-run aggregate supply curve shifts to the left, causing the economy to contract. 
A)  Expansionary monetary policy shifts aggregate demand to the left, moving the economy from long-run equilibrium to a short-run equilibrium with a lower price level and a lower level of real gross domestic product GDP). In the long run, as resource prices fall, the short-run aggregate supply curve shifts to the right, bringing the economy back to a long-run equilibrium where no real changes to GDP have occurred. 
B)  Expansionary monetary policy shifts aggregate demand to the right, moving the economy from long-run equilibrium to a short-run equilibrium with a higher price level and a higher level of real gross domestic product GDP). In the long run, as resource prices rise, the aggregate demand curve shifts back to the left, causing the economy to expand. 
C)  Expansionary monetary policy shifts aggregate demand to the right, moving the economy from long-run equilibrium to a short-run equilibrium with a higher price level and a higher level of real gross domestic product GDP). In the long run, as resource prices rise, the short-run aggregate supply curve shifts to the left, bringing the economy back to a long-run equilibrium where no real changes to GDP have occurred. 
D)  Expansionary monetary policy shifts aggregate demand to the right, moving the economy from long-run equilibrium to a short-run equilibrium with a higher price level and a higher level of real gross domestic product GDP). In the long run, as resource prices fall, the short-run aggregate supply curve shifts to the right as well, causing the economy to expand. 
E)  Expansionary monetary policy shifts aggregate demand to the left, moving the economy from long-run equilibrium to a short-run equilibrium with a lower price level and a lower level of real gross domestic product GDP). In the long run, as resource prices rise, the short-run aggregate supply curve shifts to the left, causing the economy to contract.

Economists who discount the short-run expansionary effects of monetary policy focus on the problems of

If the interest rate on a loan is lower than the expected return from an investment,

________ policy is when a central bank acts to decrease the money supply in an effort to control an economy that is expanding too quickly.

According to adaptive expectations theory, when inflation decelerates,

The theory behind the long-run Phillips curve relationship is that

During a contraction of the money supply, which attribute of prices prevents firms from adjusting wages and loans in the short run?

Explain why workers have an incentive to expect a certain level of inflation.

The Federal Reserve generally uses ________ to implement monetary policy.

Rational expectations theory

Central banks can use monetary policy to

In the short run, some prices are inflexible. Most often, the prices that are inflexible are

According to adaptive expectations theory, if the last three years of inflation were 3 percent, 3 percent, and 2 percent, respectively, one would expect inflation the following year to be ________ percent.

How will expansionary monetary policy impact real wages under long-term contracts?

The long-run Phillips curve is and equal to .

Refer to the following figure to answer the next questions. -According to the figure, if the economy started at full-employment output, contractionary monetary policy would cause real gross domestic product (GDP) to ________ in the short run.

According to adaptive expectations theory, people underestimate inflation when

Refer to the following figure to answer the next questions. -According to the figure, expansionary monetary policy will cause an economy that is initially at full-employment output to go from equilibrium to equilibrium in the short run.

The long-run Phillips curve has on the x axis and on the y axis

According to the theory of monetary neutrality, in the long run,

Which of the following explains expansionary monetary policy in the long run?

Five Foundations of Economics

Model Building and Gains From Trade

The Market at Work: Supply and Demand

Market Outcomes and Tax Incidence

Price Controls

Introduction to Macroeconomics and Gross Domestic Product

Unemployment

The Price Level and Inflation

Savings, Interest Rates, and the Market for Loanable Funds

Financial Markets and Securities

Economic Growth and the Wealth of Nations

Growth Theory

The Aggregate Demandaggregate Supply Model

The Great Recession, the Great Depression, and Great Macroeconomic Debates

Federal Budgets: the Tools of Fiscal Policy

Fiscal Policy

Money and the Federal Reserve

International Trade

International Finance

Filters

Exam 18: Monetary Policy Learning Objectives

Economists who discount the short-run expansionary effects of monetary policy focus on the problems of

If the interest rate on a loan is lower than the expected return from an investment,

________ policy is when a central bank acts to decrease the money supply in an effort to control an economy that is expanding too quickly.

According to adaptive expectations theory, when inflation decelerates,

The theory behind the long-run Phillips curve relationship is that

During a contraction of the money supply, which attribute of prices prevents firms from adjusting wages and loans in the short run?

Explain why workers have an incentive to expect a certain level of inflation.

The Federal Reserve generally uses ________ to implement monetary policy.

Rational expectations theory

Central banks can use monetary policy to

In the short run, some prices are inflexible. Most often, the prices that are inflexible are

According to adaptive expectations theory, if the last three years of inflation were 3 percent, 3 percent, and 2 percent, respectively, one would expect inflation the following year to be ________ percent.

How will expansionary monetary policy impact real wages under long-term contracts?

The long-run Phillips curve is ________ and equal to ________.

Refer to the following figure to answer the next questions. -According to the figure, if the economy started at full-employment output, contractionary monetary policy would cause real gross domestic product (GDP) to ________ in the short run.

According to adaptive expectations theory, people underestimate inflation when

Refer to the following figure to answer the next questions. -According to the figure, expansionary monetary policy will cause an economy that is initially at full-employment output to go from equilibrium to equilibrium in the short run.

The long-run Phillips curve has ________ on the x axis and ________ on the y axis

According to the theory of monetary neutrality, in the long run,

Which of the following explains expansionary monetary policy in the long run?

Five Foundations of Economics

Model Building and Gains From Trade

The Market at Work: Supply and Demand

Market Outcomes and Tax Incidence

Price Controls

Introduction to Macroeconomics and Gross Domestic Product

Unemployment

The Price Level and Inflation

Savings, Interest Rates, and the Market for Loanable Funds

Financial Markets and Securities

Economic Growth and the Wealth of Nations

Growth Theory

The Aggregate Demandaggregate Supply Model

The Great Recession, the Great Depression, and Great Macroeconomic Debates

Federal Budgets: the Tools of Fiscal Policy

Fiscal Policy

Money and the Federal Reserve

International Trade

International Finance

Filters

The long-run Phillips curve is and equal to .

The long-run Phillips curve has on the x axis and on the y axis