Question 1

Unexpected inflation harms workers and other resource suppliers who have ________ prices in the________ run.

Accepted Answer

A)  flexible; short 
B)  fixed; short 
C)  fixed; long 
D)  flexible; short. 
E)  flexible; medium 
A)  flexible; short 
B)  fixed; short 
C)  fixed; long 
D)  flexible; short. 
E)  flexible; medium

Question 2

A cost-of-living adjustment clause

Accepted Answer

A)  is required in all government employee contracts. 
B)  forces an employer to increase wages at the same rate of inflation. 
C)  states that no raise can be less than the rate of inflation. 
D)  is not allowed for private employees. 
E)  forces an employer to increase wages at a rate higher than inflation. 
A)  is required in all government employee contracts. 
B)  forces an employer to increase wages at the same rate of inflation. 
C)  states that no raise can be less than the rate of inflation. 
D)  is not allowed for private employees. 
E)  forces an employer to increase wages at a rate higher than inflation.

Question 3

________ would be hurt by unexpected inflation.

Accepted Answer

A)  Someone who lent money out at a fixed interest rate 
B)  A firm that hired a worker on a two-year wage contract 
C)  Someone who borrowed money at a fixed interest rate 
D)  A worker whose wage increases with inflation 
E)  A firm that purchased inputs with a two-year contract 
A)  Someone who lent money out at a fixed interest rate 
B)  A firm that hired a worker on a two-year wage contract 
C)  Someone who borrowed money at a fixed interest rate 
D)  A worker whose wage increases with inflation 
E)  A firm that purchased inputs with a two-year contract

Question 4

The idea that the money supply does not affect real economic variables is called

Accepted Answer

A)  adaptive expectations theory. 
B)  monetary neutrality. 
C)  the Phillips curve. 
D)  contractionary monetary policy. 
E)  expansionary monetary policy. 
A)  adaptive expectations theory. 
B)  monetary neutrality. 
C)  the Phillips curve. 
D)  contractionary monetary policy. 
E)  expansionary monetary policy.

Question 5

Consider this excerpt from the textbook: "From 1929 to 1933, prior to the establishment of federal deposit insurance, over 9,000 banks failed in the United States. Because of these bank failures, people began holding their money outside the banking system. This action contributed to a significant contraction in the money supply. After peaking at $676 billion in 1931, the M2 money supply fell
to just $564 billion in 1933. This drastic decline was one of the major causes of the Great Depression." Looking back on the Great Depression, what do most economists believe the Federal Reserve should have done to try to limit the negative effects of the Depression?

Accepted Answer

Mainstream economists today agree that t

Question 6

Explain the theory behind the long-run Phillips curve and draw the long-run Phillips curve.

Accepted Answer

The theory behind the long-run Phillips

Question 7

Which of the following best explains how the money supply changed during the early part of the Great Depression?

Accepted Answer

A)  In the early part of the Great Depression, the money supply increased due to uncertainty and unemployment. 
B)  In the early part of the Great Depression, the money supply decreased due to individuals withdrawing funds and holding more currency. 
C)  In the early part of the Great Depression, the money supply increased due to individuals withdrawing funds and holding more currency. 
D)  In the early part of the Great Depression, the money supply increased due to huge bond-buying programs by the Federal Reserve. 
E)  In the early part of the Great Depression, the money supply decreased due to huge bond-buying programs by the Federal Reserve. 
A)  In the early part of the Great Depression, the money supply increased due to uncertainty and unemployment. 
B)  In the early part of the Great Depression, the money supply decreased due to individuals withdrawing funds and holding more currency. 
C)  In the early part of the Great Depression, the money supply increased due to individuals withdrawing funds and holding more currency. 
D)  In the early part of the Great Depression, the money supply increased due to huge bond-buying programs by the Federal Reserve. 
E)  In the early part of the Great Depression, the money supply decreased due to huge bond-buying programs by the Federal Reserve.

Question 8

In which year did A. W. Phillips note a negative relationship between wage inflation and unemployment rates?

Accepted Answer

A)  1965 
B)  1935 
C)  1929 
D)  1958 
E)  1972 
A)  1965 
B)  1935 
C)  1929 
D)  1958 
E)  1972

Question 9

Which of the following explains why resource prices are often the slowest prices to adjust?

Accepted Answer

A)  Resource prices are not affected by inflation. 
B)  Resource prices are often set by lengthy contracts. 
C)  Resource prices are often set by governments. 
D)  Resource prices are not reported in the consumer price index CPI). 
E)  Resource prices are all tied to inflation. 
A)  Resource prices are not affected by inflation. 
B)  Resource prices are often set by lengthy contracts. 
C)  Resource prices are often set by governments. 
D)  Resource prices are not reported in the consumer price index CPI). 
E)  Resource prices are all tied to inflation.

Question 10

According to the Fisher equation, if a bank extends a loan for 3 percent and the inflation rate ends up
being 2 percent, the ________ interest rate is ________ percent.

Accepted Answer

A)  nominal; 1 
B)  real; 1 
C)  nominal; -1 
D)  real; -1 
E)  nominal; 5 
A)  nominal; 1 
B)  real; 1 
C)  nominal; -1 
D)  real; -1 
E)  nominal; 5

Question 11

________ holds that people's expectations of future inflation are based on their most recent experiences.

Accepted Answer

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

Question 12

Passive monetary policy

Accepted Answer

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

Question 13

British economist A. W. Phillips's work on the relationship between wage inflation and unemployment rates was followed up by two U.S. economists, ________ and ________.

Accepted Answer

A)  Paul Samuelson; Robert Solow 
B)  Katharine Abraham; Stanisław Albinowski 
C)  Alfred H. Conrad; Sydney Caine 
D)  John Dierkes; Ernest Dichter 
E)  Kelvin Lancaster; Harvey Leibenstein 
A)  Paul Samuelson; Robert Solow 
B)  Katharine Abraham; Stanisław Albinowski 
C)  Alfred H. Conrad; Sydney Caine 
D)  John Dierkes; Ernest Dichter 
E)  Kelvin Lancaster; Harvey Leibenstein

Question 14

When central banks purposefully choose to only stabilize money and price levels through monetary policy, it 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 15

Answer the following questions using an aggregate demand-aggregate supply model when appropriate.
a. Use a graph to represent an economy at long-run equilibrium.
b. Now graph what happens when aggregate demand decreases.
c. Referring to your graph, is this economy in an expansion or recession now?
d. Continuing with the economy you have graphed earlier, what type of monetary policy would you suggest be taken by the Federal Reserve?
e. What will this policy you suggested do to your aggregate demand-aggregate supply model?

Accepted Answer

a. @#IMG-DLM& b. @#IMG-DLM& c. Because Y₁ @#IMG-DLM& Y*, this economy

Question 16

During a financial crisis hit hard by bank failures, the money supply

Accepted Answer

A)  decreases because people start putting money into savings accounts. 
B)  increases because people start putting money into savings accounts. 
C)  increases because people start withdrawing their money from banks. 
D)  decreases because people start withdrawing their money from banks. 
E)  increases because people spend more instead of saving more. 
A)  decreases because people start putting money into savings accounts. 
B)  increases because people start putting money into savings accounts. 
C)  increases because people start withdrawing their money from banks. 
D)  decreases because people start withdrawing their money from banks. 
E)  increases because people spend more instead of saving more.

Question 17

The Phillips curve

Accepted Answer

A)  holds that people's expectations of future inflation are based on their most recent experiences. 
B)  is the combination of high unemployment rates and high inflation. 
C)  holds that people form expectations on the basis of all available information. 
D)  involves the strategic use of monetary policy to counteract macroeconomic expansions and contractions. 
E)  indicates a short-run inverse relationship between inflation and unemployment rates. 
A)  holds that people's expectations of future inflation are based on their most recent experiences. 
B)  is the combination of high unemployment rates and high inflation. 
C)  holds that people form expectations on the basis of all available information. 
D)  involves the strategic use of monetary policy to counteract macroeconomic expansions and contractions. 
E)  indicates a short-run inverse relationship between inflation and unemployment rates.

Question 18

With adjusting expectations, the equilibrium at the natural rate of unemployment is obtained by

Accepted Answer

A)  movement along the short-run Phillips curve. 
B)  fixed prices. 
C)  shifts in the short-run Phillips curve. 
D)  a fixed short-run Phillips curve. 
E)  rational expectations theory. 
A)  movement along the short-run Phillips curve. 
B)  fixed prices. 
C)  shifts in the short-run Phillips curve. 
D)  a fixed short-run Phillips curve. 
E)  rational expectations theory.

Question 19

Adaptive expectations theory came about in the

Accepted Answer

A)  late 1960s. 
B)  early 1910s. 
C)  early 1980s. 
D)  late 1800s. 
E)  mid 1970s. 
A)  late 1960s. 
B)  early 1910s. 
C)  early 1980s. 
D)  late 1800s. 
E)  mid 1970s.

Question 20

Which 2009 condition limited the Federal Reserve's options in the use of traditional expansionary monetary policy?

Accepted Answer

A)  Open market operations had previously failed. 
B)  The Great Recession had ended. 
C)  The federal funds rate was already at 0 percent. 
D)  Inflation was rising at an unexpected rate. 
E)  The Great Recession was worsening. 
A)  Open market operations had previously failed. 
B)  The Great Recession had ended. 
C)  The federal funds rate was already at 0 percent. 
D)  Inflation was rising at an unexpected rate. 
E)  The Great Recession was worsening.

Unexpected inflation harms workers and other resource suppliers who have prices in the run.

A cost-of-living adjustment clause

________ would be hurt by unexpected inflation.

The idea that the money supply does not affect real economic variables is called

Explain the theory behind the long-run Phillips curve and draw the long-run Phillips curve.

Which of the following best explains how the money supply changed during the early part of the Great Depression?

In which year did A. W. Phillips note a negative relationship between wage inflation and unemployment rates?

Which of the following explains why resource prices are often the slowest prices to adjust?

According to the Fisher equation, if a bank extends a loan for 3 percent and the inflation rate ends up being 2 percent, the interest rate is percent.

________ holds that people's expectations of future inflation are based on their most recent experiences.

Passive monetary policy

British economist A. W. Phillips's work on the relationship between wage inflation and unemployment rates was followed up by two U.S. economists, and .

When central banks purposefully choose to only stabilize money and price levels through monetary policy, it is known as________ monetary policy.

During a financial crisis hit hard by bank failures, the money supply

The Phillips curve

With adjusting expectations, the equilibrium at the natural rate of unemployment is obtained by

Adaptive expectations theory came about in the

Which 2009 condition limited the Federal Reserve's options in the use of traditional expansionary monetary policy?

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

Unexpected inflation harms workers and other resource suppliers who have ________ prices in the________ run.

A cost-of-living adjustment clause

________ would be hurt by unexpected inflation.

The idea that the money supply does not affect real economic variables is called

Explain the theory behind the long-run Phillips curve and draw the long-run Phillips curve.

Which of the following best explains how the money supply changed during the early part of the Great Depression?

In which year did A. W. Phillips note a negative relationship between wage inflation and unemployment rates?

Which of the following explains why resource prices are often the slowest prices to adjust?

According to the Fisher equation, if a bank extends a loan for 3 percent and the inflation rate ends up being 2 percent, the ________ interest rate is ________ percent.

________ holds that people's expectations of future inflation are based on their most recent experiences.

Passive monetary policy

British economist A. W. Phillips's work on the relationship between wage inflation and unemployment rates was followed up by two U.S. economists, ________ and ________.

When central banks purposefully choose to only stabilize money and price levels through monetary policy, it is known as________ monetary policy.

During a financial crisis hit hard by bank failures, the money supply

The Phillips curve

With adjusting expectations, the equilibrium at the natural rate of unemployment is obtained by

Adaptive expectations theory came about in the

Which 2009 condition limited the Federal Reserve's options in the use of traditional expansionary monetary policy?

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

Unexpected inflation harms workers and other resource suppliers who have prices in the run.

According to the Fisher equation, if a bank extends a loan for 3 percent and the inflation rate ends up being 2 percent, the interest rate is percent.

British economist A. W. Phillips's work on the relationship between wage inflation and unemployment rates was followed up by two U.S. economists, and .