Question 1

An increase in autonomous spending leads to higher ________.

Accepted Answer

A) inflation 
B) output 
C) real interest rate 
D) all of the above 
E) none of the above 
A) inflation 
B) output 
C) real interest rate 
D) all of the above 
E) none of the above B

Question 2

The MP Curve ________.

Accepted Answer

A) demonstrates how central banks respond to changes in inflation with changes in the interest rate 
B) shows how changes in interest rates affect equilibrium output 
C) explains short run fluctuations in output and inflation 
D) all of the above 
E) none of the above 
A) demonstrates how central banks respond to changes in inflation with changes in the interest rate 
B) shows how changes in interest rates affect equilibrium output 
C) explains short run fluctuations in output and inflation 
D) all of the above 
E) none of the above A

Question 3

Suppose the demand curve is Y = 38 - 3π,and the current values for output and the real interest rate are 29 and 7 percent,respectively.A decrease in inflation leads to a new output level of 32 and real interest rate at 6 percent.The monetary policy curve is ________.

Accepted Answer

The inflation rate falls from 3 percent to 2 percent.The corresponding real interest rates are 7 percent and 6 percent,so the MP curve is r = 4 + π.

Question 4

A central bank can control the real interest rate precisely,so long as ________ remains constant.

Accepted Answer

A) the nominal interest rate 
B) monetary policy 
C) expected inflation 
D) all of the above 
E) none of the above 
A) the nominal interest rate 
B) monetary policy 
C) expected inflation 
D) all of the above 
E) none of the above

Question 5

The endogenous variable in the monetary policy curve is ________.

Accepted Answer

A) the policy parameter,λ 
B) the real interest rate 
C) the autonomous component,   
D) the federal funds rate 
E) the inflation rate 
A) the policy parameter,λ 
B) the real interest rate 
C) the autonomous component,   
D) the federal funds rate 
E) the inflation rate

Question 6

A shift of the MP curve ________.

Accepted Answer

A) implies an automatic adjustment of the interest rate 
B) implies a direct policy action of the Federal Reserve 
C) does not alter the relationship between inflation and the interest rate 
D) all of the above 
E) none of the above 
A) implies an automatic adjustment of the interest rate 
B) implies a direct policy action of the Federal Reserve 
C) does not alter the relationship between inflation and the interest rate 
D) all of the above 
E) none of the above

Question 7

Why is the demand for real money balances related to the nominal interest rate,rather than the real interest rate?

Accepted Answer

Because expected inflation is irrelevant

Question 8

The aggregate demand curve is Y = 15 - 0.2π when the inflation rate falls from 6 percent to 5 percent.Then,output increases from 13.8 to 17.The response of monetary policy to the inflation decline has been ________.

Accepted Answer

A) autonomous tightening 
B) automatic adjustment 
C) autonomous easing 
D) to increase autonomous spending 
E) none of the above 
A) autonomous tightening 
B) automatic adjustment 
C) autonomous easing 
D) to increase autonomous spending 
E) none of the above

Question 9

Suppose the monetary policy curve is r = 5 + 0.8π,and the current values for output and inflation are 16.8 and 2 percent,respectively.An increase in global resource prices pushes the inflation rate to 4 percent.Policy makers estimate that the monetary policy in place,responding to 4 percent inflation,will bring output down to 13.6,a decline considered excessive.Instead,they implement an autonomous easing of monetary policy to lower output from 16.8 to 16.Assuming no change in the slope of the monetary policy curve,determine the new curve.

Accepted Answer

From the given monetary policy curve,the

Question 10

If the nominal interest rate is above the equilibrium level ________.

Accepted Answer

A) the supply of real money balances will fall 
B) the quantity of real money balances people are holding is too low,and is rising 
C) people are selling financial assets in order to increase real money balances 
D) all of the above 
E) none of the above 
A) the supply of real money balances will fall 
B) the quantity of real money balances people are holding is too low,and is rising 
C) people are selling financial assets in order to increase real money balances 
D) all of the above 
E) none of the above

Question 11

Shifts of the ________ curves result from autonomous monetary policy.

Accepted Answer

A) MP,IS,& AD 
B) MP & IS,but not AD 
C) IS & AD,but not MP 
D) MP,but not IS nor AD 
E) none of the above 
A) MP,IS,& AD 
B) MP & IS,but not AD 
C) IS & AD,but not MP 
D) MP,but not IS nor AD 
E) none of the above

Question 12

The federal funds rate is ________.

Accepted Answer

A) a real interest rate 
B) set periodically by Congress 
C) a nominal interest rate 
D) all of the above 
E) none of the above 
A) a real interest rate 
B) set periodically by Congress 
C) a nominal interest rate 
D) all of the above 
E) none of the above

Question 13

The supply curve for money ________.

Accepted Answer

A) is upward sloping with respect to interest rates 
B) is fixed to a specified interest rate 
C) is fixed regardless of the interest rate 
D) is downward sloping with respect to interest rates 
E) none of the above 
A) is upward sloping with respect to interest rates 
B) is fixed to a specified interest rate 
C) is fixed regardless of the interest rate 
D) is downward sloping with respect to interest rates 
E) none of the above

Question 14

A movement along the MP curve ________.

Accepted Answer

A) implies an automatic adjustment of the interest rate 
B) implies an autonomous adjustment to the interest rate 
C) implies an autonomous adjustment of aggregate demand 
D) all of the above 
E) none of the above 
A) implies an automatic adjustment of the interest rate 
B) implies an autonomous adjustment to the interest rate 
C) implies an autonomous adjustment of aggregate demand 
D) all of the above 
E) none of the above

Question 15

The AD Curve ________.

Accepted Answer

A) indicates the level of aggregate output corresponding to different goods-market-clearing levels of the interest rate 
B) is downward sloping,because with higher inflation comes higher interest rates and lower spending,so equilibrium aggregate output declines 
C) explains how inflation affects output in the short run 
D) all of the above 
E) none of the above 
A) indicates the level of aggregate output corresponding to different goods-market-clearing levels of the interest rate 
B) is downward sloping,because with higher inflation comes higher interest rates and lower spending,so equilibrium aggregate output declines 
C) explains how inflation affects output in the short run 
D) all of the above 
E) none of the above

Question 16

If the central bank did not follow the Taylor principle,an increase in inflation would lead to a decrease in ________.

Accepted Answer

A) the nominal interest 
B) the real interest rate 
C) aggregate output 
D) all of the above 
E) none of the above 
A) the nominal interest 
B) the real interest rate 
C) aggregate output 
D) all of the above 
E) none of the above

Question 17

The AD Curve ________.

Accepted Answer

A) indicates the level of aggregate output corresponding to different goods-market-clearing levels of the inflation rate 
B) is downward sloping,because with higher inflation comes lower interest rates and lower spending,so equilibrium aggregate output declines 
C) explains how inflation affects output in the short run 
D) all of the above 
E) none of the above 
A) indicates the level of aggregate output corresponding to different goods-market-clearing levels of the inflation rate 
B) is downward sloping,because with higher inflation comes lower interest rates and lower spending,so equilibrium aggregate output declines 
C) explains how inflation affects output in the short run 
D) all of the above 
E) none of the above

Question 18

Which of the following is true with regard to the supply of money?

Accepted Answer

A) an open market sale of government securities will increase liquidity 
B) an open market purchase of government securities will decrease liquidity 
C) liquidity and the money supply are directly related 
D) all of the above 
E) none of the above 
A) an open market sale of government securities will increase liquidity 
B) an open market purchase of government securities will decrease liquidity 
C) liquidity and the money supply are directly related 
D) all of the above 
E) none of the above

Question 19

On the graph above,which pair of points best represents a scenario in which the nominal interest rate and expected inflation decline equally?

Accepted Answer

A) I to H 
B) G to K 
C) I to J 
D) K to F 
E) J to H 
A) I to H 
B) G to K 
C) I to J 
D) K to F 
E) J to H

Question 20

An increase in the real interest rate occurs when ________.

Accepted Answer

A) monetary policy responds automatically to an increase in inflation 
B) expected inflation increases,relative to the nominal interest rate 
C) an increase in autonomous spending causes an increase in equilibrium output 
D) all of the above 
E) none of the above 
A) monetary policy responds automatically to an increase in inflation 
B) expected inflation increases,relative to the nominal interest rate 
C) an increase in autonomous spending causes an increase in equilibrium output 
D) all of the above 
E) none of the above

Exam 10: Monetary Policy and Aggregate Demand

An increase in autonomous spending leads to higher ________.

The MP Curve ________.

Suppose the demand curve is Y = 38 - 3π,and the current values for output and the real interest rate are 29 and 7 percent,respectively.A decrease in inflation leads to a new output level of 32 and real interest rate at 6 percent.The monetary policy curve is ________.

A central bank can control the real interest rate precisely,so long as ________ remains constant.

The endogenous variable in the monetary policy curve is ________.

A shift of the MP curve ________.

Why is the demand for real money balances related to the nominal interest rate,rather than the real interest rate?

The aggregate demand curve is Y = 15 - 0.2π when the inflation rate falls from 6 percent to 5 percent.Then,output increases from 13.8 to 17.The response of monetary policy to the inflation decline has been ________.

If the nominal interest rate is above the equilibrium level ________.

Shifts of the ________ curves result from autonomous monetary policy.

The federal funds rate is ________.

The supply curve for money ________.

A movement along the MP curve ________.

The AD Curve ________.

If the central bank did not follow the Taylor principle,an increase in inflation would lead to a decrease in ________.

The AD Curve ________.

Which of the following is true with regard to the supply of money?

On the graph above,which pair of points best represents a scenario in which the nominal interest rate and expected inflation decline equally?

An increase in the real interest rate occurs when ________.

The Policy and Practice of Macroeconomics

Measuring Macroeconomic Data

Aggregate Production and Productivity

Saving and Investment in Closed and Open Economies

Money and Inflation

The Sources of Growth and the Solow Model

Drivers of Growth: Technology, policy, and Institutions

Business Cycles: an Introduction

The Is Curve

Aggregate Supply and the Phillips Curve

The Aggregate Demand and Supply Model

Macroeconomic Policy and Aggregate Demand and Supply Analysis

The Financial System and Economic Growth

Financial Crises and the Economy

Fiscal Policy and the Government Budget

Exchange Rates and International Economic Policy

Consumption and Saving

Investment

The Labor Market, employment, and Unemployment

The Role of Expectations in Macroeconomic Policy

Modern Business Cycle Theory

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