Question 1

In the long run, the key reason that money is neutral is that

Accepted Answer

A) the federal budget is balanced. 
B) prices are flexible. 
C) business cycles have become much milder. 
D) the nominal interest rate must equal the real interest rate. 
A) the federal budget is balanced. 
B) prices are flexible. 
C) business cycles have become much milder. 
D) the nominal interest rate must equal the real interest rate.

Question 2

The key concept in the new classical approach to the aggregate supply curve is

Accepted Answer

A) the impact of imperfect information on business decisions. 
B) the impact of changes in the price level on real balances. 
C) the inverse relationship between the real interest rate and desired investment spending. 
D) the crowding out of investment spending by government spending. 
A) the impact of imperfect information on business decisions. 
B) the impact of changes in the price level on real balances. 
C) the inverse relationship between the real interest rate and desired investment spending. 
D) the crowding out of investment spending by government spending.

Question 3

If there is a decrease in foreign demand for U.S. goods due to a recession in Europe

Accepted Answer

A) the U.S. aggregate demand will shift right. 
B) the U.S. aggregate demand will shift left. 
C) the U.S. aggregate demand will not be affected. 
D) the U.S. aggregate demand will become steeper. 
A) the U.S. aggregate demand will shift right. 
B) the U.S. aggregate demand will shift left. 
C) the U.S. aggregate demand will not be affected. 
D) the U.S. aggregate demand will become steeper.

Question 4

The automatic mechanism can best be described as:

Accepted Answer

A) the process of the economy adjusting back to potential GDP without any action taken by the government 
B) the result of monetary policy implemented by the Fed restoring full employment 
C) how fiscal policy is used to return the economy to its potential 
D) using rule-based policies to stabilize the economy 
A) the process of the economy adjusting back to potential GDP without any action taken by the government 
B) the result of monetary policy implemented by the Fed restoring full employment 
C) how fiscal policy is used to return the economy to its potential 
D) using rule-based policies to stabilize the economy

Question 5

How do New Keynesians use the existence of long-term nominal contracts to help explain the failure of prices to adjust in the short run?

Accepted Answer

When contracts of this type exist, firms

Question 6

An increase in the price level

Accepted Answer

A) shifts the short-run aggregate supply curve up and to the left. 
B) shifts the short-run aggregate supply curve down and to the right. 
C) shifts the long-run aggregate supply curve to the left. 
D) results in a movement along the short-run aggregate supply curve, rather than a shift in the short-run aggregate supply curve. 
A) shifts the short-run aggregate supply curve up and to the left. 
B) shifts the short-run aggregate supply curve down and to the right. 
C) shifts the long-run aggregate supply curve to the left. 
D) results in a movement along the short-run aggregate supply curve, rather than a shift in the short-run aggregate supply curve.

Question 7

Economists who are skeptical of hysteresis in Europe during the 1980s and 1990s cite all of the following as reasons for persistently high unemployment in Europe EXCEPT

Accepted Answer

A) generous unemployment benefits. 
B) restrictions on firms' ability to hire and fire workers. 
C) the existence of an ongoing recession. 
D) high tax rates. 
A) generous unemployment benefits. 
B) restrictions on firms' ability to hire and fire workers. 
C) the existence of an ongoing recession. 
D) high tax rates.

Question 8

The new classical explanation of aggregate supply is also known as

Accepted Answer

A) Monetarism. 
B) Keynesianism. 
C) the misperception theory. 
D) the adaptive expectations theory. 
A) Monetarism. 
B) Keynesianism. 
C) the misperception theory. 
D) the adaptive expectations theory.

Question 9

Explain what happens to the short-run aggregate supply curve when output exceeds its potential.

Accepted Answer

When output exceeds potential GDP, the h

Question 10

The opportunity cost of holding money is measured by:

Accepted Answer

A) short-term nominal interest rate 
B) short-term real interest rate 
C) long-term nominal interest rate 
D) long-term real interest rate 
A) short-term nominal interest rate 
B) short-term real interest rate 
C) long-term nominal interest rate 
D) long-term real interest rate

Question 11

The proposition of monetary neutrality states that changes in the money supply have:

Accepted Answer

A) no impact on output in the short run 
B) no impact on output in the long run 
C) no impact on the price level in the short run 
D) no impact on the price level in the long run 
A) no impact on output in the short run 
B) no impact on output in the long run 
C) no impact on the price level in the short run 
D) no impact on the price level in the long run

Question 12

According to the new classical approach to the aggregate supply curve, the aggregate supply curve slopes upward because

Accepted Answer

A) increases in the price level result in lower real balances. 
B) higher current output results in higher desired investment. 
C) higher prices result in higher levels of spending as consumers attempt to stay ahead of inflation. 
D) businesses have difficulty in distinguishing relative price increases from general price increases. 
A) increases in the price level result in lower real balances. 
B) higher current output results in higher desired investment. 
C) higher prices result in higher levels of spending as consumers attempt to stay ahead of inflation. 
D) businesses have difficulty in distinguishing relative price increases from general price increases.

Question 13

When output is below its full-employment level, the short-run aggregate supply will shift down and to the right because

Accepted Answer

A) the expected price level will be below the actual price level. 
B) workers' wages will decline. 
C) prices of nonlabor inputs will rise. 
D) workers' wages will rise. 
A) the expected price level will be below the actual price level. 
B) workers' wages will decline. 
C) prices of nonlabor inputs will rise. 
D) workers' wages will rise.

Question 14

If in the short run prices did not respond at all to changes in aggregate demand, the short-run aggregate supply curve would

Accepted Answer

A) be vertical. 
B) be horizontal. 
C) slope up. 
D) slope down. 
A) be vertical. 
B) be horizontal. 
C) slope up. 
D) slope down.

Question 15

According to some economists, what contributed to the unusual uncertainty that adversely affected aggregate supply during the recovery following the recession of 2007-2009?

Accepted Answer

Given that the financial crisis and rece

Question 16

How does an increase in the short-term interest rate affect peoples' desire to hold real money balances?

Accepted Answer

A) People will hold more money to compensate for the higher interest rate. 
B) People will hold more money in anticipation of higher inflation. 
C) People will hold less money since they would be sacrificing more interest by holding money. 
D) People will hold less money since it is not worth as much. 
A) People will hold more money to compensate for the higher interest rate. 
B) People will hold more money in anticipation of higher inflation. 
C) People will hold less money since they would be sacrificing more interest by holding money. 
D) People will hold less money since it is not worth as much.

Question 17

Which of the following is the correct expression for short-run aggregate supply in the new classical view?

Accepted Answer

A) YP = Y + a(P -   ) 
B) Y = YP + a(P -   ) 
C) YP = Y + a(P +   ) 
D) Y = YP + a(P +   ) 
A) YP = Y + a(P -   ) 
B) Y = YP + a(P -   ) 
C) YP = Y + a(P +   ) 
D) Y = YP + a(P +   )

Question 18

Which of the following will NOT shift the aggregate demand curve to the right?

Accepted Answer

A) a decline in the price level 
B) an increase in government expenditures 
C) an increase in investment 
D) an increase in the money supply 
A) a decline in the price level 
B) an increase in government expenditures 
C) an increase in investment 
D) an increase in the money supply

In the long run, the key reason that money is neutral is that

The key concept in the new classical approach to the aggregate supply curve is

If there is a decrease in foreign demand for U.S. goods due to a recession in Europe

The automatic mechanism can best be described as:

How do New Keynesians use the existence of long-term nominal contracts to help explain the failure of prices to adjust in the short run?

An increase in the price level

Economists who are skeptical of hysteresis in Europe during the 1980s and 1990s cite all of the following as reasons for persistently high unemployment in Europe EXCEPT

The new classical explanation of aggregate supply is also known as

Explain what happens to the short-run aggregate supply curve when output exceeds its potential.

The opportunity cost of holding money is measured by:

The proposition of monetary neutrality states that changes in the money supply have:

According to the new classical approach to the aggregate supply curve, the aggregate supply curve slopes upward because

When output is below its full-employment level, the short-run aggregate supply will shift down and to the right because

If in the short run prices did not respond at all to changes in aggregate demand, the short-run aggregate supply curve would

According to some economists, what contributed to the unusual uncertainty that adversely affected aggregate supply during the recovery following the recession of 2007-2009?

How does an increase in the short-term interest rate affect peoples' desire to hold real money balances?

Which of the following is the correct expression for short-run aggregate supply in the new classical view?

Which of the following will NOT shift the aggregate demand curve to the right?

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, Information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

Transactions Costs, Asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Investment Banks, Mutual Funds, Hedge Funds, and the Shadow Banking System

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory II: The IS-MP Model

Filters

Exam 17: Monetary Theory I: The Aggregate Demand and Aggregate Supply Model

In the long run, the key reason that money is neutral is that

The key concept in the new classical approach to the aggregate supply curve is

If there is a decrease in foreign demand for U.S. goods due to a recession in Europe

The automatic mechanism can best be described as:

How do New Keynesians use the existence of long-term nominal contracts to help explain the failure of prices to adjust in the short run?

An increase in the price level

Economists who are skeptical of hysteresis in Europe during the 1980s and 1990s cite all of the following as reasons for persistently high unemployment in Europe EXCEPT

The new classical explanation of aggregate supply is also known as

Explain what happens to the short-run aggregate supply curve when output exceeds its potential.

The opportunity cost of holding money is measured by:

The proposition of monetary neutrality states that changes in the money supply have:

According to the new classical approach to the aggregate supply curve, the aggregate supply curve slopes upward because

When output is below its full-employment level, the short-run aggregate supply will shift down and to the right because

If in the short run prices did not respond at all to changes in aggregate demand, the short-run aggregate supply curve would

According to some economists, what contributed to the unusual uncertainty that adversely affected aggregate supply during the recovery following the recession of 2007-2009?

How does an increase in the short-term interest rate affect peoples' desire to hold real money balances?

Which of the following is the correct expression for short-run aggregate supply in the new classical view?

Which of the following will NOT shift the aggregate demand curve to the right?

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, Information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

Transactions Costs, Asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Investment Banks, Mutual Funds, Hedge Funds, and the Shadow Banking System

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory II: The IS-MP Model

Filters