Exam 15: The Distribution of Income and Poverty

Investment spending is insensitive to changes in the interest rate and the SRAS curve is upward sloping.According to a monetarist,an increase in the money supply will __________ Real GDP.According to a Keynesian,an increase in the money supply will __________ Real GDP.

Suppose that the bond market and the money market both start out in equilibrium,then the Federal Reserve increases the money supply.The result will be a ______________ in the money market and a _________________ in the bond market,which will push bond prices _________________ and interest rates will ___________________ until a new equilibrium is reached.

According to the Keynesian transmission mechanism (and assuming there is no liquidity trap and investment is not interest insensitive),if the money supply increases,the interest rate __________,investment spending __________ and the AD curve shifts to the __________.

-Refer to Exhibit 15-4.In the row of this table containing blank (B),people are holding ______________ of their wealth in bonds and ________________ of their wealth in money.

Compared to the Keynesian transmission mechanism,the monetarist transmission mechanism is

Suppose that the bond market and the money market both start out in equilibrium,then the Federal Reserve decreases the money supply.The result will be a ______________ in the money market and a _________________ in the bond market,which will push bond prices _________________ and interest rates will ___________________ until a new equilibrium is reached.

The price of holding money balances is equal to the

Advocates of a gold standard believe that long-term price stability would be more likely under a gold standard than under current Fed monetary policy.

Economists who propose a constant-money-growth-rate rule often argue that setting the annual growth rate in the money supply equal to the average annual growth rate in Real GDP

The economy is in a recessionary gap and there is evidence that the economy is in a liquidity trap.In this situation,a Keynesian is likely to advocate the use of __________ policy.

If the interest rate falls,the opportunity cost of holding money __________ and the quantity demanded of money __________.

An individual buys a bond for $1,000 and sells it one year later for $1,070.What is the annual interest rate return that this individual has received on this bond?

Under a gold standard,if the market price of gold is below the official price of gold (set by the monetary authority),people will be more likely to sell gold __________________,which will cause the money supply to _______________ and the price level.to _______________.

Buddy bought a bond last year for $10,000.His bond pays $800 a year.This year a bond that sells for $10,000 pays $850 a year.If Buddy were to sell his (old)bond,its price would be approximately

Suppose that a rules-based monetary policy proposal specifies that the money supply will grow 5 percent each year.If velocity grows 2 percent this year and Real GDP grows 2 percent,the price level will __________ by __________ percent.

The economy is in the horizontal portion of the AS curve,there is no liquidity trap and investment is sensitive to changes in the interest rate.According to the Keynesian transmission mechanism,if the money supply drops the interest rate will __________,investment spending will __________,the AD curve will shift to the __________,and the price level will __________.

Suppose the economy is experiencing an inflationary gap.Based on available data,the Fed starts implementing contractionary monetary policy,but this moves the economy into a recessionary gap.The most probable explanation is that,because of the total lag in monetary policy,the government did not realize that the economy was already healing itself,i.e.,that the

Which of the following events prompted the birth of market monetarism?

If the money market is in the liquidity trap,then people

The quantity demanded of money decreases as the supply of money increases.