Question 1

________ holds that people form expectations on the basis of all available information.

Accepted Answer

A)  Stagflation theory 
B)  The Phillips curve 
C)  Adaptive expectations theory 
D)  Rational expectations theory 
E)  Monetary neutrality 
A)  Stagflation theory 
B)  The Phillips curve 
C)  Adaptive expectations theory 
D)  Rational expectations theory 
E)  Monetary neutrality

Question 2

Starting at macroeconomic equilibrium at full employment, show the effects of expansionary monetary policy in the long run using an aggregate demand-aggregate supply AD-AS) model and discuss.

Accepted Answer

As shown on the following AD-AS model:

Question 3

What is the impact on prices of expansionary monetary policy?

Accepted Answer

A)  Prices are kept constant. 
B)  Prices fall uniformly. 
C)  Prices fall unevenly. 
D)  Prices rise uniformly. 
E)  Prices rise unevenly. 
A)  Prices are kept constant. 
B)  Prices fall uniformly. 
C)  Prices fall unevenly. 
D)  Prices rise uniformly. 
E)  Prices rise unevenly.

Question 4

Expansionary monetary policy ________ interest rates, which ________ the ________.

Accepted Answer

A)  raises; increases; aggregate demand 
B)  raises; decreases; aggregate demand 
C)  lowers; decreases; demand for loanable funds 
D)  lowers; increases; quantity demanded for loanable funds 
E)  raises; increases; quantity demanded for loanable funds 
A)  raises; increases; aggregate demand 
B)  raises; decreases; aggregate demand 
C)  lowers; decreases; demand for loanable funds 
D)  lowers; increases; quantity demanded for loanable funds 
E)  raises; increases; quantity demanded for loanable funds

Question 5

Under normal economic conditions, including the situation in which there is no surprise inflation, we expect the unemployment rate to

Accepted Answer

A)  be increasing. 
B)  increase and then decrease. 
C)  be equal to the natural rate of unemployment. 
D)  decrease and then increase. 
E)  be decreasing. 
A)  be increasing. 
B)  increase and then decrease. 
C)  be equal to the natural rate of unemployment. 
D)  decrease and then increase. 
E)  be decreasing.

Question 6

Which of the following best describes how expansionary monetary policy affects the aggregate demand curve in the aggregate demand-aggregate supply model?

Accepted Answer

A)  Expansionary monetary policy directly pulls money out of the loanable funds market. This lowers the interest rate, which provides a larger incentive for firms to invest. Investment is a component of aggregate demand, so this shifts aggregate demand to the right. 
B)  Expansionary monetary policy directly puts money into the loanable funds market. This lowers the interest rate, which provides a larger incentive for firms to invest. Investment is a component of aggregate demand, so this shifts aggregate demand to the right. 
C)  Expansionary monetary policy directly puts money into the loanable funds market. This raises the interest rate, which provides a larger incentive for firms to invest. Investment is a component of aggregate demand, so this shifts aggregate demand to the right. 
D)  Expansionary monetary policy directly puts money into the loanable funds market. This lowers the interest rate, which provides a larger incentive for firms to invest. Investment is a component of aggregate demand, so this shifts aggregate demand to the left. 
E)  Expansionary monetary policy directly pulls money out of the loanable funds market. This raises the interest rate, which provides a larger incentive for firms to invest. Investment is a component of aggregate demand, so this shifts aggregate demand to the left. 
A)  Expansionary monetary policy directly pulls money out of the loanable funds market. This lowers the interest rate, which provides a larger incentive for firms to invest. Investment is a component of aggregate demand, so this shifts aggregate demand to the right. 
B)  Expansionary monetary policy directly puts money into the loanable funds market. This lowers the interest rate, which provides a larger incentive for firms to invest. Investment is a component of aggregate demand, so this shifts aggregate demand to the right. 
C)  Expansionary monetary policy directly puts money into the loanable funds market. This raises the interest rate, which provides a larger incentive for firms to invest. Investment is a component of aggregate demand, so this shifts aggregate demand to the right. 
D)  Expansionary monetary policy directly puts money into the loanable funds market. This lowers the interest rate, which provides a larger incentive for firms to invest. Investment is a component of aggregate demand, so this shifts aggregate demand to the left. 
E)  Expansionary monetary policy directly pulls money out of the loanable funds market. This raises the interest rate, which provides a larger incentive for firms to invest. Investment is a component of aggregate demand, so this shifts aggregate demand to the left.

Question 7

Explain the impact of expansionary monetary policy on the entire macroeconomy in the short run. Be sure to use a step-by-step analysis of the macroeconomy.

Accepted Answer

The Federal Reserve increases the money

Question 8

Which of the following statements is true about monetary policy and the unemployment rate?

Accepted Answer

A)  Expansionary monetary policy can decrease the unemployment rate in the short run and in the long run. 
B)  Expansionary monetary policy has no effect on the unemployment rate in the short run or in the long run. 
C)  Contractionary monetary policy can decrease the unemployment rate in the short run but has no effect on the unemployment rate in the long run. 
D)  Contractionary monetary policy has no effect on the unemployment rate in the short run or in the long run. 
E)  Expansionary monetary policy can decrease the unemployment rate in the short run but has no effect on the unemployment rate in the long run. 
A)  Expansionary monetary policy can decrease the unemployment rate in the short run and in the long run. 
B)  Expansionary monetary policy has no effect on the unemployment rate in the short run or in the long run. 
C)  Contractionary monetary policy can decrease the unemployment rate in the short run but has no effect on the unemployment rate in the long run. 
D)  Contractionary monetary policy has no effect on the unemployment rate in the short run or in the long run. 
E)  Expansionary monetary policy can decrease the unemployment rate in the short run but has no effect on the unemployment rate in the long run.

Question 9

Active monetary policy

Accepted Answer

A)  is when central banks purposefully choose to only stabilize money and price levels through monetary policy. 
B)  has a real effect on the economy in the long run. 
C)  is when central banks take orders from the ruling party on how to conduct monetary policy. 
D)  is the strategic use of monetary policy to counteract macroeconomic expansions and contractions. 
E)  is when central banks only use fiscal policy to try to influence the economy. 
A)  is when central banks purposefully choose to only stabilize money and price levels through monetary policy. 
B)  has a real effect on the economy in the long run. 
C)  is when central banks take orders from the ruling party on how to conduct monetary policy. 
D)  is the strategic use of monetary policy to counteract macroeconomic expansions and contractions. 
E)  is when central banks only use fiscal policy to try to influence the economy.

Question 10

Which of the following explains why the money supply is not completely controlled by the Federal Reserve?

Accepted Answer

A)  The actions of private individuals and banks can increase or decrease the money supply via the money multiplier. 
B)  The president can issue an executive order that can increase or decrease the money supply. 
C)  The Treasury has say over when the Federal Reserve can increase or decrease the money supply. 
D)  The actions of banks, which determine reserve requirements, can increase or decrease the money supply via the spending multiplier. 
E)  Congress has authority to veto any monetary policy enacted by the Federal Reserve. 
A)  The actions of private individuals and banks can increase or decrease the money supply via the money multiplier. 
B)  The president can issue an executive order that can increase or decrease the money supply. 
C)  The Treasury has say over when the Federal Reserve can increase or decrease the money supply. 
D)  The actions of banks, which determine reserve requirements, can increase or decrease the money supply via the spending multiplier. 
E)  Congress has authority to veto any monetary policy enacted by the Federal Reserve.

Question 11

Refer to the following figure to answer the next questions.
  
-According to the figure, expansionary monetary policy starting at full-employment equilibrium will go from point ________ to point ________ in the short run and then to point ________ in the long run.

Accepted Answer

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

Question 12

Consider this excerpt from the textbook: "In the fall of 2007, it was clear that the U.S. economy was slowing. The unemployment rate rose from 4.4 percent to 5 percent between May and June 2007, and real [gross domestic product] GDP grew by just 1.7 percent in the fourth quarter. The U.S. economy officially entered recession in December 2007. We now know that the nation's economy was entering several years of low growth and high unemployment. Many economists believe that a decline in aggregate demand was one of the causes of the recession." What did the Federal Reserve do in response to this decline in aggregate demand?

Accepted Answer

The Federal Reserve participated in open

Question 13

Adaptive 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 14

Which two famous economists hypothesized that people would adapt their expectations about inflation to something consistent with their prior experiences?

Accepted Answer

A)  Ben Bernanke and Alan Greenspan 
B)  Milton Friedman and Edmund Phelps 
C)  Adam Smith and David Ricardo 
D)  John Maynard Keynes and F. A. Hayek 
E)  Irving Fisher and Adam Smith 
A)  Ben Bernanke and Alan Greenspan 
B)  Milton Friedman and Edmund Phelps 
C)  Adam Smith and David Ricardo 
D)  John Maynard Keynes and F. A. Hayek 
E)  Irving Fisher and Adam Smith

Question 15

Printing more paper money doesn't affect the economy's long-run productivity or its ability to produce; these outcomes are determined by

Accepted Answer

A)  resources only. 
B)  technology only. 
C)  institutions only. 
D)  resources, technology, and institutions. 
E)  resources and technology only. 
A)  resources only. 
B)  technology only. 
C)  institutions only. 
D)  resources, technology, and institutions. 
E)  resources and technology only.

Question 16

What is meant by the phrase "prices are sticky"?

Accepted Answer

A)  In the short run, suppliers expect future prices to remain constant. 
B)  In the short run, contracts, loans, and wages are often fixed. 
C)  In the long run, contracts, loans, and wages are often fixed. 
D)  In the long run, suppliers expect future prices to remain constant. 
E)  In the long run, people demand constant real wages. 
A)  In the short run, suppliers expect future prices to remain constant. 
B)  In the short run, contracts, loans, and wages are often fixed. 
C)  In the long run, contracts, loans, and wages are often fixed. 
D)  In the long run, suppliers expect future prices to remain constant. 
E)  In the long run, people demand constant real wages.

Question 17

The strategic use of monetary policy to counteract macroeconomic expansions and contractions is known as ________ monetary policy.

Accepted Answer

A)  active 
B)  expansionary 
C)  contractionary 
D)  adaptive 
E)  passive 
A)  active 
B)  expansionary 
C)  contractionary 
D)  adaptive 
E)  passive

Question 18

The two types of monetary policy are

Accepted Answer

A)  monetary and fiscal. 
B)  expansionary and contractionary. 
C)  countercyclical and pro-cyclical. 
D)  positive and negative. 
E)  pro and con. 
A)  monetary and fiscal. 
B)  expansionary and contractionary. 
C)  countercyclical and pro-cyclical. 
D)  positive and negative. 
E)  pro and con.

Question 19

________ would be helped by unexpected inflation.

Accepted Answer

A)  Someone who lent money out at a fixed interest rate 
B)  Someone who signed a two-year contract at a fixed wage 
C)  Someone who borrowed money at a fixed interest rate 
D)  A worker whose wage increases with expected inflation 
E)  Elderly individuals on a fixed income 
A)  Someone who lent money out at a fixed interest rate 
B)  Someone who signed a two-year contract at a fixed wage 
C)  Someone who borrowed money at a fixed interest rate 
D)  A worker whose wage increases with expected inflation 
E)  Elderly individuals on a fixed income

Question 20

Monetary neutrality is

Accepted Answer

A)  when a central bank acts to increase the money supply. 
B)  when a central bank acts to decrease the money supply. 
C)  the short-run inverse relationship between inflation and unemployment rates. 
D)  the combination of high unemployment and high inflation. 
E)  the idea that the money supply does not affect real economic variables. 
A)  when a central bank acts to increase the money supply. 
B)  when a central bank acts to decrease the money supply. 
C)  the short-run inverse relationship between inflation and unemployment rates. 
D)  the combination of high unemployment and high inflation. 
E)  the idea that the money supply does not affect real economic variables.

________ holds that people form expectations on the basis of all available information.

Starting at macroeconomic equilibrium at full employment, show the effects of expansionary monetary policy in the long run using an aggregate demand-aggregate supply AD-AS) model and discuss.

What is the impact on prices of expansionary monetary policy?

Expansionary monetary policy interest rates, which the .

Under normal economic conditions, including the situation in which there is no surprise inflation, we expect the unemployment rate to

Which of the following best describes how expansionary monetary policy affects the aggregate demand curve in the aggregate demand-aggregate supply model?

Explain the impact of expansionary monetary policy on the entire macroeconomy in the short run. Be sure to use a step-by-step analysis of the macroeconomy.

Which of the following statements is true about monetary policy and the unemployment rate?

Active monetary policy

Which of the following explains why the money supply is not completely controlled by the Federal Reserve?

Refer to the following figure to answer the next questions. -According to the figure, expansionary monetary policy starting at full-employment equilibrium will go from point to point in the short run and then to point in the long run.

Adaptive expectations theory

Which two famous economists hypothesized that people would adapt their expectations about inflation to something consistent with their prior experiences?

Printing more paper money doesn't affect the economy's long-run productivity or its ability to produce; these outcomes are determined by

What is meant by the phrase "prices are sticky"?

The strategic use of monetary policy to counteract macroeconomic expansions and contractions is known as ________ monetary policy.

The two types of monetary policy are

________ would be helped by unexpected inflation.

Monetary neutrality is

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

________ holds that people form expectations on the basis of all available information.

Starting at macroeconomic equilibrium at full employment, show the effects of expansionary monetary policy in the long run using an aggregate demand-aggregate supply AD-AS) model and discuss.

What is the impact on prices of expansionary monetary policy?

Expansionary monetary policy ________ interest rates, which ________ the ________.

Under normal economic conditions, including the situation in which there is no surprise inflation, we expect the unemployment rate to

Which of the following best describes how expansionary monetary policy affects the aggregate demand curve in the aggregate demand-aggregate supply model?

Explain the impact of expansionary monetary policy on the entire macroeconomy in the short run. Be sure to use a step-by-step analysis of the macroeconomy.

Which of the following statements is true about monetary policy and the unemployment rate?

Active monetary policy

Which of the following explains why the money supply is not completely controlled by the Federal Reserve?

Refer to the following figure to answer the next questions. -According to the figure, expansionary monetary policy starting at full-employment equilibrium will go from point ________ to point ________ in the short run and then to point ________ in the long run.

Adaptive expectations theory

Which two famous economists hypothesized that people would adapt their expectations about inflation to something consistent with their prior experiences?

Printing more paper money doesn't affect the economy's long-run productivity or its ability to produce; these outcomes are determined by

What is meant by the phrase "prices are sticky"?

The strategic use of monetary policy to counteract macroeconomic expansions and contractions is known as ________ monetary policy.

The two types of monetary policy are

________ would be helped by unexpected inflation.

Monetary neutrality is

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

Expansionary monetary policy interest rates, which the .

Refer to the following figure to answer the next questions. -According to the figure, expansionary monetary policy starting at full-employment equilibrium will go from point to point in the short run and then to point in the long run.