Question 1

Explain why the short-run aggregate supply curve has a positive slope.

Accepted Answer

The short-run aggregate supply curve sho

Question 2

Given the equation of exchange, MV = PY, when central bankers control short-term nominal interest rates by adjusting the level of reserves in the banking system, their actions are expected to primarily affect:

Accepted Answer

A)  the rate of growth of V. 
B)  the value of V. 
C)  potential Y as opposed to current Y. 
D)  the rate of growth of M. 
A)  the rate of growth of V. 
B)  the value of V. 
C)  potential Y as opposed to current Y. 
D)  the rate of growth of M.

Question 3

The slope of the monetary policy reaction curve is determined by:

Accepted Answer

A)  how strongly the economy reacts to changes in the nominal interest rate. 
B)  how strongly the inflation rate impacts peoples' decisions. 
C)  how aggressively policymakers change interest rates in response to deviations between current and target inflation rates. 
D)  people's expectations for inflation. 
A)  how strongly the economy reacts to changes in the nominal interest rate. 
B)  how strongly the inflation rate impacts peoples' decisions. 
C)  how aggressively policymakers change interest rates in response to deviations between current and target inflation rates. 
D)  people's expectations for inflation.

Question 4

An inflation rate below the target rate will result in:

Accepted Answer

A)  a movement up along the monetary policy reaction curve and a movement down the dynamic aggregate demand curve. 
B)  a movement down along the monetary policy reaction curve and a movement down the dynamic aggregate demand curve. 
C)  a movement up along the monetary policy reaction curve and a rightward shift of the dynamic aggregate demand curve. 
D)  a movement up along the monetary policy reaction curve and a leftward shift of the dynamic aggregate demand curve. 
A)  a movement up along the monetary policy reaction curve and a movement down the dynamic aggregate demand curve. 
B)  a movement down along the monetary policy reaction curve and a movement down the dynamic aggregate demand curve. 
C)  a movement up along the monetary policy reaction curve and a rightward shift of the dynamic aggregate demand curve. 
D)  a movement up along the monetary policy reaction curve and a leftward shift of the dynamic aggregate demand curve.

Question 5

Which of the following would not be included in aggregate expenditures?

Accepted Answer

A)  New military equipment purchased by the federal government 
B)  New computers purchased by a law firm 
C)  Social security payments made by the government to retirees 
D)  Tuition payments made by college students 
A)  New military equipment purchased by the federal government 
B)  New computers purchased by a law firm 
C)  Social security payments made by the government to retirees 
D)  Tuition payments made by college students

Question 6

Which of the following statements is most accurate?

Accepted Answer

A)  Potential output is determined by current output. 
B)  When an expansionary gap exists, current output is below potential output. 
C)  Current output cannot exceed potential output. 
D)  During a recessionary gap, current output is below potential output. 
A)  Potential output is determined by current output. 
B)  When an expansionary gap exists, current output is below potential output. 
C)  Current output cannot exceed potential output. 
D)  During a recessionary gap, current output is below potential output.

Question 7

Which of the following would cause an increase in the potential output of a country?

Accepted Answer

A)  An increase in the capital stock 
B)  A temporary decrease in exports 
C)  An increase in the money supply 
D)  A decrease in the labor force 
A)  An increase in the capital stock 
B)  A temporary decrease in exports 
C)  An increase in the money supply 
D)  A decrease in the labor force

Question 8

What are the determinants of the potential output for an economy?

Accepted Answer

The key determinants are the levels and

Question 9

Use the monetary policy reaction curve to link a higher inflation rate to lower aggregate demand.

Accepted Answer

When the inflation rate is above the tar

Question 10

The intersection of the aggregate demand curve and the short-run aggregate supply curve determines:

Accepted Answer

A)  current inflation, but not current output. 
B)  potential output. 
C)  current output, but not current inflation. 
D)  current output and current inflation. 
A)  current inflation, but not current output. 
B)  potential output. 
C)  current output, but not current inflation. 
D)  current output and current inflation.

Question 11

A rightward shift in the dynamic aggregate demand curve could result from:

Accepted Answer

A)  a decrease in government purchases. 
B)  an increase in investment resulting from a lower inflation rate. 
C)  a rightward shift of the monetary policy reaction curve. 
D)  a leftward shift of the monetary policy reaction curve. 
A)  a decrease in government purchases. 
B)  an increase in investment resulting from a lower inflation rate. 
C)  a rightward shift of the monetary policy reaction curve. 
D)  a leftward shift of the monetary policy reaction curve.

Question 12

Can central bankers set short-term interest rate targets and still control inflation in the long run or are these goals mutually impossible? Explain.

Accepted Answer

They can attain both goals. The monetary

Question 13

The monetary policy reaction curve:

Accepted Answer

A)  is the guideline the Fed publishes in setting their interest rate target. 
B)  approximates the behavior of central bankers. 
C)  has remained fairly constant over the years. 
D)  is set by Congress and given to the Fed as a guideline to follow. 
A)  is the guideline the Fed publishes in setting their interest rate target. 
B)  approximates the behavior of central bankers. 
C)  has remained fairly constant over the years. 
D)  is set by Congress and given to the Fed as a guideline to follow.

Question 14

The dynamic aggregate demand curve has a negative slope for all of the following reasons except:

Accepted Answer

A)  the reduction in real wealth caused by inflation. 
B)  the fact that high rates of inflation are good for the stock market. 
C)  the redistribution that occurs as inflation has a greater impact on the poor than it does on the wealthy. 
D)  higher current inflation leads policymakers to increase the real interest rate, which depresses various components of aggregate expenditures. 
A)  the reduction in real wealth caused by inflation. 
B)  the fact that high rates of inflation are good for the stock market. 
C)  the redistribution that occurs as inflation has a greater impact on the poor than it does on the wealthy. 
D)  higher current inflation leads policymakers to increase the real interest rate, which depresses various components of aggregate expenditures.

Question 15

The dynamic aggregate demand curve illustrates that the relationship between inflation and real output is:

Accepted Answer

A)  direct. 
B)  inverse. 
C)  independent. 
D)  undefined. 
A)  direct. 
B)  inverse. 
C)  independent. 
D)  undefined.

Question 16

In the long run, current output will:

Accepted Answer

A)  equal potential output. 
B)  be less than potential output. 
C)  be above potential output. 
D)  only equal potential output if unemployment is zero. 
A)  equal potential output. 
B)  be less than potential output. 
C)  be above potential output. 
D)  only equal potential output if unemployment is zero.

Question 17

If the economy is in long-run equilibrium:

Accepted Answer

A)  inflation should be accelerating. 
B)  current output should be greater than potential output. 
C)  current inflation should equal expected inflation. 
D)  current inflation should be less than expected inflation. 
A)  inflation should be accelerating. 
B)  current output should be greater than potential output. 
C)  current inflation should equal expected inflation. 
D)  current inflation should be less than expected inflation.

Question 18

If inflation is very high, say 50 or 100 percent a year, monetary policymakers wishing to lower it will shift their focus to controlling:

Accepted Answer

A)  the long-term interest rate. 
B)  the short-term interest rate. 
C)  the exchange rate. 
D)  money growth. 
A)  the long-term interest rate. 
B)  the short-term interest rate. 
C)  the exchange rate. 
D)  money growth.

Question 19

The self-correcting mechanism to return the economy to potential output from output gaps is the change in:

Accepted Answer

A)  potential output. 
B)  aggregate demand. 
C)  short-run aggregate supply. 
D)  the real interest rate by the central bank. 
A)  potential output. 
B)  aggregate demand. 
C)  short-run aggregate supply. 
D)  the real interest rate by the central bank.

Question 20

Potential output of the country when viewed over long periods of time:

Accepted Answer

A)  rises in spurts and then starts a downward trend that can last years. 
B)  is surprisingly constant. 
C)  always decreases. 
D)  tends to rise over time. 
A)  rises in spurts and then starts a downward trend that can last years. 
B)  is surprisingly constant. 
C)  always decreases. 
D)  tends to rise over time.

Exam 21:Output, Inflation, and Monetary Policy

Explain why the short-run aggregate supply curve has a positive slope.

Given the equation of exchange, MV = PY, when central bankers control short-term nominal interest rates by adjusting the level of reserves in the banking system, their actions are expected to primarily affect:

The slope of the monetary policy reaction curve is determined by:

An inflation rate below the target rate will result in:

Which of the following would not be included in aggregate expenditures?

Which of the following statements is most accurate?

Which of the following would cause an increase in the potential output of a country?

What are the determinants of the potential output for an economy?

Use the monetary policy reaction curve to link a higher inflation rate to lower aggregate demand.

The intersection of the aggregate demand curve and the short-run aggregate supply curve determines:

A rightward shift in the dynamic aggregate demand curve could result from:

Can central bankers set short-term interest rate targets and still control inflation in the long run or are these goals mutually impossible? Explain.

The monetary policy reaction curve:

The dynamic aggregate demand curve has a negative slope for all of the following reasons except:

The dynamic aggregate demand curve illustrates that the relationship between inflation and real output is:

In the long run, current output will:

If the economy is in long-run equilibrium:

If inflation is very high, say 50 or 100 percent a year, monetary policymakers wishing to lower it will shift their focus to controlling:

The self-correcting mechanism to return the economy to potential output from output gaps is the change in:

Potential output of the country when viewed over long periods of time:

An Introduction to Money and the Financial System

Money and the Payments System

Financial Instruments, Financial Markets, and Financial Institutions

Future Value, Present Value and Interest Rates

Understanding Risk

Bonds, Bond Prices, and the Determination of Interest Rates

The Risk and Term Structure of Interest Rates

Stocks, Stock Markets and Market Efficiency

Derivatives: Futures, Options, and Swaps

Foreign Exchange

The Economics of Financial Intermediation

Depository Institutions: Banks and Bank Management

Financial Industry Structure

Regulating the Financial System

Central Banks in the World Today

The Structure of Central Banks: The Federal Reserve and the European Central Bank

The Central Bank Balance Sheet and the Money Supply Process

Monetary Policy: Stabilizing the Domestic Economy

Exchange Rate Policy and the Central Bank

Money Growth, Money Demand and Modern Monetary Policy

Understanding Business Cycle Fluctuations

Modern Monetary Policy and the Challenges Facing Central Bankers

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