Question 1

Empirical research reveals that during recessions:

Accepted Answer

A) Investment falls by two to three times the percentage decrease in GDP 
B) The percentage decrease in GDP equals the percentage decrease in investment 
C) GDP falls by one-half the percentage decrease in investment 
D) Investment spending actually increases though GDP decreases 
A) Investment falls by two to three times the percentage decrease in GDP 
B) The percentage decrease in GDP equals the percentage decrease in investment 
C) GDP falls by one-half the percentage decrease in investment 
D) Investment spending actually increases though GDP decreases

Question 2

Short-run movements in inflation and output are ultimately attributed to changes in:

Accepted Answer

A) Aggregate demand 
B) Aggregate supply 
C) Changes in foreign policy 
D) Aggregate demand and aggregate supply 
A) Aggregate demand 
B) Aggregate supply 
C) Changes in foreign policy 
D) Aggregate demand and aggregate supply

Question 3

Use the equation of exchange to show how the level of money in the economy impacts the level of aggregate demand.

Accepted Answer

We can use the equation of exchange of M

Question 4

The potential output of a country would increase as a result of each of the following, except:

Accepted Answer

A) An increase in population 
B) An increase in capital per worker 
C) Technological innovation that increases labor productivity 
D) Depreciation of the capital stock 
A) An increase in population 
B) An increase in capital per worker 
C) Technological innovation that increases labor productivity 
D) Depreciation of the capital stock

Question 5

Explain what you suspect the slope of the monetary policy reaction curve would look like for an economy that is experiencing a severe economic slowdown, with a large recessionary gap, and high unemployment.

Accepted Answer

The slope of the monetary policy reactio

Question 6

What should be the impact on aggregate expenditures from an increase in the real interest rate?

Accepted Answer

A) It should increase 
B) It should decrease 
C) It should remain constant 
D) The impact is indeterminate 
A) It should increase 
B) It should decrease 
C) It should remain constant 
D) The impact is indeterminate

Question 7

If a recession were the result of monetary policy, we should observe:

Accepted Answer

A) Inflation increasing as output decreases 
B) Potential output decreasing 
C) Interest rates rising as output falls 
D) A high rate of money growth 
A) Inflation increasing as output decreases 
B) Potential output decreasing 
C) Interest rates rising as output falls 
D) A high rate of money growth

Question 8

At the conclusion of its meeting on December 16, 2009, the Federal Open Market Committee released a statement that included the following sentence: "The committee will maintain the target range for the federal funds rate at 0 to ¼ percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period." What is the significance of this statement?

Accepted Answer

FOMC members had concluded that economic

Question 9

A decrease in taxes would cause:

Accepted Answer

A) The dynamic aggregate demand curve to shift to the left 
B) A movement down and along the existing dynamic aggregate demand curve 
C) A movement up and along the existing dynamic aggregate demand curve 
D) The dynamic aggregate demand curve to shift to the right 
A) The dynamic aggregate demand curve to shift to the left 
B) A movement down and along the existing dynamic aggregate demand curve 
C) A movement up and along the existing dynamic aggregate demand curve 
D) The dynamic aggregate demand curve to shift to the right

Question 10

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 11

For central bankers to alter the real interest rate by changing the nominal interest rate, which of the following must be true?

Accepted Answer

A) The rate of inflation has to remain constant 
B) Inflation expectations do not change 
C) The expected rate of inflation has to change 
D) The change in the expected rate of inflation must equal the change in the nominal interest rate 
A) The rate of inflation has to remain constant 
B) Inflation expectations do not change 
C) The expected rate of inflation has to change 
D) The change in the expected rate of inflation must equal the change in the nominal interest rate

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

If the axes in the model for the monetary policy reaction curve are the real interest rate (vertical axis) and the rate of inflation (horizontal axis), then the monetary policy reaction curve would:

Accepted Answer

A) Have a positive slope 
B) Have a negative slope 
C) Have a zero slope 
D) Be vertical 
A) Have a positive slope 
B) Have a negative slope 
C) Have a zero slope 
D) Be vertical

Question 14

Empirical evidence suggests that over the last ten years:

Accepted Answer

A) The nominal and real federal funds rates are related inversely 
B) The nominal and real federal funds rates are highly positively correlated 
C) While the FOMC has had a lot of influence over the nominal federal funds rate, they have been less successful at changing the real federal funds rate 
D) There is no correlation between the nominal and real federal funds 
A) The nominal and real federal funds rates are related inversely 
B) The nominal and real federal funds rates are highly positively correlated 
C) While the FOMC has had a lot of influence over the nominal federal funds rate, they have been less successful at changing the real federal funds rate 
D) There is no correlation between the nominal and real federal funds

Question 15

If current output deviates from potential output, the short-run aggregate supply curve may shift because:

Accepted Answer

A) Aggregate demand has to shift 
B) Potential output will have to shift 
C) Inflation adjusts 
D) The economy's long-run growth rate will have to adjust 
A) Aggregate demand has to shift 
B) Potential output will have to shift 
C) Inflation adjusts 
D) The economy's long-run growth rate will have to adjust

Question 16

Aggregate supply is the quantity of:

Accepted Answer

A) Real output supplied at each level of inflation 
B) Nominal output supplied at each level of inflation 
C) Real output supplied at each level of real interest rate 
D) Output the country wants at each level of inflation 
A) Real output supplied at each level of inflation 
B) Nominal output supplied at each level of inflation 
C) Real output supplied at each level of real interest rate 
D) Output the country wants at each level of inflation

Question 17

Increases in the real interest rate in the U.S.will cause net exports to:

Accepted Answer

A) Decrease, because the dollar depreciates 
B) Increase, because the dollar depreciates 
C) Decrease, because the dollar appreciates 
D) Increase, because the dollar appreciates 
A) Decrease, because the dollar depreciates 
B) Increase, because the dollar depreciates 
C) Decrease, because the dollar appreciates 
D) Increase, because the dollar appreciates

Question 18

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 19

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

Accepted Answer

The short-run aggregate supply curve sho

Question 20

Inflation reduces aggregate demand mainly by:

Accepted Answer

A) Increasing nominal GDP 
B) Increasing velocity 
C) Reducing real balances 
D) Increasing wealth 
A) Increasing nominal GDP 
B) Increasing velocity 
C) Reducing real balances 
D) Increasing wealth

Exam 21: Output, Inflation, and Monetary Policy

Empirical research reveals that during recessions:

Short-run movements in inflation and output are ultimately attributed to changes in:

Use the equation of exchange to show how the level of money in the economy impacts the level of aggregate demand.

The potential output of a country would increase as a result of each of the following, except:

Explain what you suspect the slope of the monetary policy reaction curve would look like for an economy that is experiencing a severe economic slowdown, with a large recessionary gap, and high unemployment.

What should be the impact on aggregate expenditures from an increase in the real interest rate?

If a recession were the result of monetary policy, we should observe:

A decrease in taxes would cause:

The monetary policy reaction curve:

For central bankers to alter the real interest rate by changing the nominal interest rate, which of the following must be true?

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

If the axes in the model for the monetary policy reaction curve are the real interest rate (vertical axis) and the rate of inflation (horizontal axis), then the monetary policy reaction curve would:

Empirical evidence suggests that over the last ten years:

If current output deviates from potential output, the short-run aggregate supply curve may shift because:

Aggregate supply is the quantity of:

Increases in the real interest rate in the U.S.will cause net exports to:

Which of the following statements is most accurate?

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

Inflation reduces aggregate demand mainly 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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