Question 1

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 2

To an economist, the term "inflation" refers to:

Accepted Answer

A) Any price increases 
B) A continually rising price level 
C) A one-time change in the average price level 
D) Increases in prices of important goods like food and energy 
A) Any price increases 
B) A continually rising price level 
C) A one-time change in the average price level 
D) Increases in prices of important goods like food and energy

Question 3

Given a central bank's monetary policy reaction curve, if inflation increases by 1% why would policymakers likely have to increase the nominal interest rate by more than the increase in the rate of inflation?

Accepted Answer

The higher rate of inflation will have t

Question 4

Of all of the interest-sensitive component parts of aggregate expenditures, the most important component is:

Accepted Answer

A) Investment 
B) Government purchases 
C) Consumption 
D) Net exports 
A) Investment 
B) Government purchases 
C) Consumption 
D) Net exports

Question 5

Most economists maintain that policy designed to increase aggregate demand cannot have any long-run real effects.What lies behind this argument?

Accepted Answer

The basis for the argument lies in the f

Question 6

Explain the self-correcting mechanism by which the economy returns to long-run equilibrium.

Accepted Answer

When output moves away from its long-run

Question 7

If the economy's current level of output is below its potential level of output, the short-run aggregate supply curve:

Accepted Answer

A) Will shift right 
B) Will shift left 
C) Will be vertical 
D) Does not matter; only the long-run aggregate supply curve matters in this situation 
A) Will shift right 
B) Will shift left 
C) Will be vertical 
D) Does not matter; only the long-run aggregate supply curve matters in this situation

Question 8

Which of the following would not shift the aggregate expenditures curve?

Accepted Answer

A) A change in the real interest rate 
B) Changes in consumer or business confidence 
C) Fiscal policy changes 
D) Changes in net exports that result from exchange rate changes 
A) A change in the real interest rate 
B) Changes in consumer or business confidence 
C) Fiscal policy changes 
D) Changes in net exports that result from exchange rate changes

Question 9

The effect on the monetary policy reaction curve resulting from policymakers increasing their inflation target would be:

Accepted Answer

A) The monetary policy reaction curve shifting to the left 
B) A movement up the existing monetary policy reaction curve 
C) A movement down the existing monetary policy reaction curve 
D) The monetary policy reaction curve shifting to the right 
A) The monetary policy reaction curve shifting to the left 
B) A movement up the existing monetary policy reaction curve 
C) A movement down the existing monetary policy reaction curve 
D) The monetary policy reaction curve shifting to the right

Question 10

Businesses successfully lobby Congress into passing legislation that eliminates the minimum wage law.The impact of this change would:

Accepted Answer

A) Shift the short-run aggregate supply curve to the left 
B) Make the long-run aggregate supply curve less vertical 
C) Shift the short-run aggregate supply curve to the right 
D) Make the short-run aggregate supply curve horizontal 
A) Shift the short-run aggregate supply curve to the left 
B) Make the long-run aggregate supply curve less vertical 
C) Shift the short-run aggregate supply curve to the right 
D) Make the short-run aggregate supply curve horizontal

Question 11

In the long run, the inflation rate equals the level implied by:

Accepted Answer

A) The rate of money growth 
B) Aggregate demand 
C) The exchange rate 
D) Fiscal policy 
A) The rate of money growth 
B) Aggregate demand 
C) The exchange rate 
D) Fiscal policy

Question 12

Why is it necessary to understand fluctuations in investment if we want to understand the fluctuations in the business cycle?

Accepted Answer

Investment is not the largest component

Question 13

The short-run effects from an increase in aggregate demand will include:

Accepted Answer

A) An increase in potential output 
B) An increase in the current inflation rate 
C) A decrease in current output 
D) A recessionary gap 
A) An increase in potential output 
B) An increase in the current inflation rate 
C) A decrease in current output 
D) A recessionary gap

Question 14

Business cycles are viewed as:

Accepted Answer

A) Movements in the short-run equilibrium 
B) Situations where aggregate demand does not equal short-run aggregate supply 
C) Inevitable; every economy must experience them 
D) Movements in the long-run equilibrium 
A) Movements in the short-run equilibrium 
B) Situations where aggregate demand does not equal short-run aggregate supply 
C) Inevitable; every economy must experience them 
D) Movements in the long-run equilibrium

Question 15

Which of the following statements is incorrect?

Accepted Answer

A) The point where the short-run and long-run supply curves intersect corresponds to the potential level of output 
B) Any point on the short-run aggregate supply curve reflects current inflation equals actual inflation 
C) Inflation and output are unrelated in the long run 
D) In the long run, inflation is determined by monetary policy 
A) The point where the short-run and long-run supply curves intersect corresponds to the potential level of output 
B) Any point on the short-run aggregate supply curve reflects current inflation equals actual inflation 
C) Inflation and output are unrelated in the long run 
D) In the long run, inflation is determined by monetary policy

Question 16

In the face of constant velocity, explain what happens to aggregate demand if the growth rate of money is less than the rate of inflation.

Accepted Answer

If the velocity of money is constant, ag

Question 17

If government purchases increase and as a result push current output above potential output, monetary policymakers are likely to:

Accepted Answer

A) Lower the real interest rate 
B) Raise the real interest rate 
C) Keep the real interest rate constant and focus on only changing the nominal interest rate 
D) Purchase Treasury securities 
A) Lower the real interest rate 
B) Raise the real interest rate 
C) Keep the real interest rate constant and focus on only changing the nominal interest rate 
D) Purchase Treasury securities

Question 18

If the level of current output is below the potential level of output, central bankers would:

Accepted Answer

A) Lower the real interest rate 
B) Raise the real interest rate 
C) Keep the real interest rate constant and focus on only changing the nominal interest rate 
D) Attempt to shift the aggregate expenditures curve 
A) Lower the real interest rate 
B) Raise the real interest rate 
C) Keep the real interest rate constant and focus on only changing the nominal interest rate 
D) Attempt to shift the aggregate expenditures curve

Question 19

The long-run aggregate supply curve intersects the horizontal axis at the:

Accepted Answer

A) Potential level of output 
B) Current level of output 
C) Expected rate of inflation 
D) Actual rate of inflation 
A) Potential level of output 
B) Current level of output 
C) Expected rate of inflation 
D) Actual rate of inflation

Question 20

Evidence points out that since the mid-1950s just about every recession was preceded by:

Accepted Answer

A) Low interest rates 
B) Rising interest rates 
C) Falling interest rates 
D) Negative real interest rates 
A) Low interest rates 
B) Rising interest rates 
C) Falling interest rates 
D) Negative real interest rates

Exam 21: Output, Inflation, and Monetary Policy

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

To an economist, the term "inflation" refers to:

Given a central bank's monetary policy reaction curve, if inflation increases by 1% why would policymakers likely have to increase the nominal interest rate by more than the increase in the rate of inflation?

Of all of the interest-sensitive component parts of aggregate expenditures, the most important component is:

Most economists maintain that policy designed to increase aggregate demand cannot have any long-run real effects.What lies behind this argument?

Explain the self-correcting mechanism by which the economy returns to long-run equilibrium.

If the economy's current level of output is below its potential level of output, the short-run aggregate supply curve:

Which of the following would not shift the aggregate expenditures curve?

The effect on the monetary policy reaction curve resulting from policymakers increasing their inflation target would be:

Businesses successfully lobby Congress into passing legislation that eliminates the minimum wage law.The impact of this change would:

In the long run, the inflation rate equals the level implied by:

Why is it necessary to understand fluctuations in investment if we want to understand the fluctuations in the business cycle?

The short-run effects from an increase in aggregate demand will include:

Business cycles are viewed as:

Which of the following statements is incorrect?

In the face of constant velocity, explain what happens to aggregate demand if the growth rate of money is less than the rate of inflation.

If government purchases increase and as a result push current output above potential output, monetary policymakers are likely to:

If the level of current output is below the potential level of output, central bankers would:

The long-run aggregate supply curve intersects the horizontal axis at the:

Evidence points out that since the mid-1950s just about every recession was preceded by:

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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