Question 1

Which of the following prevented the Fed from reducing long-term real interest rates during the Financial Crisis of 2007-2009?

Accepted Answer

A)  an increase in expected inflation 
B)  an increase in the risk premium 
C)  the collapse in the housing market 
D)  the failure of the federal funds rate to respond to monetary policy 
A)  an increase in expected inflation 
B)  an increase in the risk premium 
C)  the collapse in the housing market 
D)  the failure of the federal funds rate to respond to monetary policy B

Question 2

Which of the following is the least likely take place if the Fed responds to a negative demand shock by reducing the real interest rate?

Accepted Answer

A)  IS shifts to the right 
B)  output gap returns to zero 
C)  inflation returns to its previous rate 
D)  MP shifts down 
A)  IS shifts to the right 
B)  output gap returns to zero 
C)  inflation returns to its previous rate 
D)  MP shifts down A

Question 3

The bank lending channel

Accepted Answer

A)  emphasizes the role of interest rates in the money supply process. 
B)  emphasizes the importance of borrowers' net worth to the decision of lenders to grant loans. 
C)  emphasizes the behavior of bank-dependent borrowers. 
D)  is another name for the interest rate channel. 
A)  emphasizes the role of interest rates in the money supply process. 
B)  emphasizes the importance of borrowers' net worth to the decision of lenders to grant loans. 
C)  emphasizes the behavior of bank-dependent borrowers. 
D)  is another name for the interest rate channel. C

Question 4

Which of the following is NOT true of the interest rate channel?

Accepted Answer

A)  bank loans play no special role. 
B)  the Fed changes the real interest rate which affects the components of aggregate expenditures. 
C)  borrowers are indifferent as to how and from whom they raise funds. 
D)  alternative sources of funds are not substitutes for each other. 
A)  bank loans play no special role. 
B)  the Fed changes the real interest rate which affects the components of aggregate expenditures. 
C)  borrowers are indifferent as to how and from whom they raise funds. 
D)  alternative sources of funds are not substitutes for each other.

Question 5

Suppose the stock market crashes resulting in a significant decline in the wealth of consumers.Make use of the IS-MP model to illustrate the impact this has on the economy.How is the Fed likely to respond? Show the impact of the change in monetary policy on the graph of the IS-MP model.

Accepted Answer

The decline in wealth causes the IS curv

Question 6

How do expectations of higher inflation become embedded in the economy and affect actual inflation?

Accepted Answer

Workers will push for an increase in the

Question 7

Which of the following would NOT cause the IS curve to shift to the left?

Accepted Answer

A)  a decrease in government purchases 
B)  an increase in consumer confidence 
C)  a decrease in foreign demand for domestic products 
D)  a decrease in the expected future profitability of capital 
A)  a decrease in government purchases 
B)  an increase in consumer confidence 
C)  a decrease in foreign demand for domestic products 
D)  a decrease in the expected future profitability of capital

Question 8

If AE > Y,which of the following will NOT occur?

Accepted Answer

A)  inventories will decline 
B)  actual investment will be more than planned investment 
C)  employment will increase 
D)  GDP will increase 
A)  inventories will decline 
B)  actual investment will be more than planned investment 
C)  employment will increase 
D)  GDP will increase

Question 9

The relationship between the output gap and the cyclical rate of unemployment is known as

Accepted Answer

A)  the Phillips curve. 
B)  the LM curve. 
C)  Murphy's law. 
D)  Okun's law. 
A)  the Phillips curve. 
B)  the LM curve. 
C)  Murphy's law. 
D)  Okun's law.

Question 10

When the Fed reduces the real interest rate,which of the following does NOT increase?

Accepted Answer

A)  consumption 
B)  investment 
C)  government purchases 
D)  net exports 
A)  consumption 
B)  investment 
C)  government purchases 
D)  net exports

Question 11

Most economists think changes in which type of unemployment affects inflation?

Accepted Answer

A)  frictional unemployment 
B)  cyclical unemployment 
C)  structural unemployment 
D)  natural rate of unemployment 
A)  frictional unemployment 
B)  cyclical unemployment 
C)  structural unemployment 
D)  natural rate of unemployment

Question 12

The LM curve slopes upward to the right because

Accepted Answer

A)  the demand for money plus the demand for nonmoney assets must equal the supply of money plus the supply of nonmoney assets. 
B)  a higher real interest rate is associated with a higher level of the output gap in money market equilibrium. 
C)  a higher real interest rate is associated with a higher level of saving in goods market equilibrium. 
D)  in equilibrium the actual real interest rate must increase one-for-one with expected real interest rate. 
A)  the demand for money plus the demand for nonmoney assets must equal the supply of money plus the supply of nonmoney assets. 
B)  a higher real interest rate is associated with a higher level of the output gap in money market equilibrium. 
C)  a higher real interest rate is associated with a higher level of saving in goods market equilibrium. 
D)  in equilibrium the actual real interest rate must increase one-for-one with expected real interest rate.

Question 13

An increase in the output gap causes the demand for real balances

Accepted Answer

A)  to rise and the interest rate to fall. 
B)  to fall and the interest rate to rise. 
C)  and the interest rate to fall. 
D)  and the interest rate to rise. 
A)  to rise and the interest rate to fall. 
B)  to fall and the interest rate to rise. 
C)  and the interest rate to fall. 
D)  and the interest rate to rise.

Question 14

How does the goods market return to equilibrium if AE is less than production?

Accepted Answer

With spending less than production,there

Question 15

At any point along the LM curve,

Accepted Answer

A)  the quantity of money demanded equals the quantity of money supplied. 
B)  the economy must be in general equilibrium. 
C)  the nominal interest rate must equal the real interest rate. 
D)  saving must equal investment. 
A)  the quantity of money demanded equals the quantity of money supplied. 
B)  the economy must be in general equilibrium. 
C)  the nominal interest rate must equal the real interest rate. 
D)  saving must equal investment.

Question 16

What is potential GDP? What happens to unemployment when GDP is at its potential?

Accepted Answer

Potential GDP is the level of real GDP a

Question 17

If AE < Y,which of the following will NOT occur?

Accepted Answer

A)  inventories will decline 
B)  actual investment will be more than planned investment 
C)  employment will decline 
D)  GDP will decline 
A)  inventories will decline 
B)  actual investment will be more than planned investment 
C)  employment will decline 
D)  GDP will decline

Question 18

Changes in net worth and liquidity may significantly affect the volume of lending and economic activity according to the

Accepted Answer

A)  interest rate channel. 
B)  balance sheet channel. 
C)  money channel. 
D)  bank lending channel. 
A)  interest rate channel. 
B)  balance sheet channel. 
C)  money channel. 
D)  bank lending channel.

Question 19

Which of the following statements about potential GDP is false?

Accepted Answer

A)  The Fed's goal is to have equilibrium GDP close to potential GDP. 
B)  When GDP is at potential, cyclical unemployment is zero. 
C)  It occurs when firms are producing at their maximum level of output. 
D)  It occurs when firms are producing with a workforce of normal size working normal hours. 
A)  The Fed's goal is to have equilibrium GDP close to potential GDP. 
B)  When GDP is at potential, cyclical unemployment is zero. 
C)  It occurs when firms are producing at their maximum level of output. 
D)  It occurs when firms are producing with a workforce of normal size working normal hours.

Question 20

What is the difference between an autonomous change in spending and an induced change in spending?

Accepted Answer

An autonomous expenditure is e

Which of the following prevented the Fed from reducing long-term real interest rates during the Financial Crisis of 2007-2009?

Which of the following is the least likely take place if the Fed responds to a negative demand shock by reducing the real interest rate?

The bank lending channel

Which of the following is NOT true of the interest rate channel?

Suppose the stock market crashes resulting in a significant decline in the wealth of consumers.Make use of the IS-MP model to illustrate the impact this has on the economy.How is the Fed likely to respond? Show the impact of the change in monetary policy on the graph of the IS-MP model.

How do expectations of higher inflation become embedded in the economy and affect actual inflation?

Which of the following would NOT cause the IS curve to shift to the left?

If AE > Y,which of the following will NOT occur?

The relationship between the output gap and the cyclical rate of unemployment is known as

When the Fed reduces the real interest rate,which of the following does NOT increase?

Most economists think changes in which type of unemployment affects inflation?

The LM curve slopes upward to the right because

An increase in the output gap causes the demand for real balances

How does the goods market return to equilibrium if AE is less than production?

At any point along the LM curve,

What is potential GDP? What happens to unemployment when GDP is at its potential?

If AE < Y,which of the following will NOT occur?

Changes in net worth and liquidity may significantly affect the volume of lending and economic activity according to the

Which of the following statements about potential GDP is false?

What is the difference between an autonomous change in spending and an induced change in spending?

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 I: the Aggregate Demand and Aggregate Supply Model

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Exam 18: Monetary Theory Ii: the Is-Mp Model

Which of the following prevented the Fed from reducing long-term real interest rates during the Financial Crisis of 2007-2009?

Which of the following is the least likely take place if the Fed responds to a negative demand shock by reducing the real interest rate?

The bank lending channel

Which of the following is NOT true of the interest rate channel?

Suppose the stock market crashes resulting in a significant decline in the wealth of consumers.Make use of the IS-MP model to illustrate the impact this has on the economy.How is the Fed likely to respond? Show the impact of the change in monetary policy on the graph of the IS-MP model.

How do expectations of higher inflation become embedded in the economy and affect actual inflation?

Which of the following would NOT cause the IS curve to shift to the left?

If AE > Y,which of the following will NOT occur?

The relationship between the output gap and the cyclical rate of unemployment is known as

When the Fed reduces the real interest rate,which of the following does NOT increase?

Most economists think changes in which type of unemployment affects inflation?

The LM curve slopes upward to the right because

An increase in the output gap causes the demand for real balances

How does the goods market return to equilibrium if AE is less than production?

At any point along the LM curve,

What is potential GDP? What happens to unemployment when GDP is at its potential?

If AE < Y,which of the following will NOT occur?

Changes in net worth and liquidity may significantly affect the volume of lending and economic activity according to the

Which of the following statements about potential GDP is false?

What is the difference between an autonomous change in spending and an induced change in spending?

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 I: the Aggregate Demand and Aggregate Supply Model

Filters