Question 1

If the velocity of money in an economy is 7.5, money supply is $350 billion, and the price level is 1.5, the real output is worth

Accepted Answer

A) ​$1,750 billion 
B) ​$1,200 billion 
C) ​$2625 billion 
D) ​$5250 billion 
A) ​$1,750 billion 
B) ​$1,200 billion 
C) ​$2625 billion 
D) ​$5250 billion

Question 2

Usually inflation targets are set for a

Accepted Answer

A) low but positive inflation rate. 
B) high and positive inflation rate. 
C) negative inflation rate. 
D) zero inflation rate. 
A) low but positive inflation rate. 
B) high and positive inflation rate. 
C) negative inflation rate. 
D) zero inflation rate.

Question 3

A money-growth rule that does not respond to the state of the economy is a _____rule.

Accepted Answer

A) lagging 
B) leading 
C) nonactivist 
D) activist 
A) lagging 
B) leading 
C) nonactivist 
D) activist

Question 4

When a central bank increases money growth, the bank is said to _____policy.

Accepted Answer

A) restrict 
B) tighten 
C) destabilize 
D) ease 
A) restrict 
B) tighten 
C) destabilize 
D) ease

Question 5

In inflation targeting, the range that represents the goal for the inflation rate is known as the

Accepted Answer

A) target band. 
B) optimal range. 
C) central tendency. 
D) ultimate goal. 
A) target band. 
B) optimal range. 
C) central tendency. 
D) ultimate goal.

Question 6

The Taylor rule is

Accepted Answer

A) an activist rule. 
B) a nonactivist rule. 
C) used to set optimal tax rates. 
D) used to set the amount of government spending. 
A) an activist rule. 
B) a nonactivist rule. 
C) used to set optimal tax rates. 
D) used to set the amount of government spending.

Question 7

Why have economists abandoned the use of money-growth rules in the United States? Explain.

Accepted Answer

Instability in money demand has led econ

Question 8

The average number of times a dollar of money is used for transactions over the course of a year is referred to as the

Accepted Answer

A) money multiplier. 
B) velocity of money. 
C) money growth rate. 
D) extent of exchange. 
A) money multiplier. 
B) velocity of money. 
C) money growth rate. 
D) extent of exchange.

Question 9

Which of the following is an useful indicator of the stance of monetary policy?

Accepted Answer

A) The income tax rate 
B) ​The federal funds rate 
C) ​The exchange rate 
D) The rate of unemployment 
A) The income tax rate 
B) ​The federal funds rate 
C) ​The exchange rate 
D) The rate of unemployment

Question 10

If the growth rate of velocity is -2 percent, the growth rate of money supply is 7 percent, and the inflation rate is 3 percent, what is the growth rate of real output?

Accepted Answer

A) ​1 percent 
B) ​2 percent 
C) ​3 percent 
D) ​4 percent 
A) ​1 percent 
B) ​2 percent 
C) ​3 percent 
D) ​4 percent

Question 11

The equation that says money times velocity equals total spending is known as

Accepted Answer

A) the national income identity. 
B) purchasing-power parity. 
C) a covenant. 
D) the equation of exchange. 
A) the national income identity. 
B) purchasing-power parity. 
C) a covenant. 
D) the equation of exchange.

Question 12

From 1991 to 2001, Argentina established commitment by

Accepted Answer

A) following the Taylor rule. 
B) following a strict money growth rule. 
C) establishing a currency board. 
D) using a system of inflation targeting. 
A) following the Taylor rule. 
B) following a strict money growth rule. 
C) establishing a currency board. 
D) using a system of inflation targeting.

Question 13

Monetarists think that

Accepted Answer

A) money growth is closely related to inflation in the long run. 
B) money demand is unstable in the long run. 
C) the central should focus on short run economic fluctuations. 
D) the central bank should rely on discretionary policy making. 
A) money growth is closely related to inflation in the long run. 
B) money demand is unstable in the long run. 
C) the central should focus on short run economic fluctuations. 
D) the central bank should rely on discretionary policy making.

Question 14

If velocity of money is 6, the price level is 1.2, and real output is worth $1,100 billion, what is the money supply?

Accepted Answer

A) $65 billion 
B) $153 billion 
C) $220 billion 
D) $5,500 billion 
A) $65 billion 
B) $153 billion 
C) $220 billion 
D) $5,500 billion

Question 15

Suppose the Fed has set the federal funds rate at 4.5 percent using the Taylor rule.If the inflation rate increases by 1 percentage point and the weight on inflation gap is 0.5, all other variables remain unchanged, the federal funds rate should

Accepted Answer

A) decrease to 3.5 percent. 
B) decrease to 4 percent. 
C) increase to 5.5 percent. 
D) increase to 5 percent. 
A) decrease to 3.5 percent. 
B) decrease to 4 percent. 
C) increase to 5.5 percent. 
D) increase to 5 percent.

Question 16

Suppose the economy is thought to be 1 percent below potential (i.e., the output gap is −1 percent), when potential output grows 4 percent per year.Suppose the Fed is following the Taylor rule, with an inflation rate of 4 percent over the past year.The equilibrium real federal funds rate is 3 percent and the weights on the output gap and inflation gap are 0.5 each.The inflation target is 1 percent.What should the federal funds rate be?

Accepted Answer

A) 4 percent 
B) 6 percent 
C) 8 percent 
D) 12 percent 
A) 4 percent 
B) 6 percent 
C) 8 percent 
D) 12 percent

Question 17

If the growth rate of the money supply is 5 percent, the inflation rate is 2 percent, and real output growth is 2 percent, what is the growth rate of the velocity of money?

Accepted Answer

A) −5 percent 
B) −1 percent 
C) +1 percent 
D) +5 percent 
A) −5 percent 
B) −1 percent 
C) +1 percent 
D) +5 percent

Question 18

Taylor originally picked ______as the equilibrium real federal funds rate, which was equal to its historical average.

Accepted Answer

A) 1 percent 
B) 2 percent 
C) 3 percent 
D) 4 percent 
A) 1 percent 
B) 2 percent 
C) 3 percent 
D) 4 percent

Question 19

Suppose the federal funds rate is 6 percent.If the output gap increases by 2 percentage points and the weight on output gap is 0.6, by how much should the federal funds rate increase according to the Taylor rule if all other variables remain unchanged?​

Accepted Answer

A) It should increase by 0.4 percentage points. 
B) It should increase by 0.6 percentage points. 
C) It should increase by 2 percentage points. 
D) It should increase by 1.2 percentage points. 
A) It should increase by 0.4 percentage points. 
B) It should increase by 0.6 percentage points. 
C) It should increase by 2 percentage points. 
D) It should increase by 1.2 percentage points.

Question 20

Under an activist rule,

Accepted Answer

A) the growth rate of money supply is greater than the inflation rate. 
B) monetary policy is allowed to change over the course of the business cycle. 
C) the growth rate of money supply is lower than the inflation rate. 
D) monetary policy is not changed over the course of the business cycle. 
A) the growth rate of money supply is greater than the inflation rate. 
B) monetary policy is allowed to change over the course of the business cycle. 
C) the growth rate of money supply is lower than the inflation rate. 
D) monetary policy is not changed over the course of the business cycle.

If the velocity of money in an economy is 7.5, money supply is $350 billion, and the price level is 1.5, the real output is worth

Usually inflation targets are set for a

A money-growth rule that does not respond to the state of the economy is a _____rule.

When a central bank increases money growth, the bank is said to _____policy.

In inflation targeting, the range that represents the goal for the inflation rate is known as the

The Taylor rule is

Why have economists abandoned the use of money-growth rules in the United States? Explain.

The average number of times a dollar of money is used for transactions over the course of a year is referred to as the

Which of the following is an useful indicator of the stance of monetary policy?

If the growth rate of velocity is -2 percent, the growth rate of money supply is 7 percent, and the inflation rate is 3 percent, what is the growth rate of real output?

The equation that says money times velocity equals total spending is known as

From 1991 to 2001, Argentina established commitment by

Monetarists think that

If velocity of money is 6, the price level is 1.2, and real output is worth $1,100 billion, what is the money supply?

Suppose the Fed has set the federal funds rate at 4.5 percent using the Taylor rule.If the inflation rate increases by 1 percentage point and the weight on inflation gap is 0.5, all other variables remain unchanged, the federal funds rate should

If the growth rate of the money supply is 5 percent, the inflation rate is 2 percent, and real output growth is 2 percent, what is the growth rate of the velocity of money?

Taylor originally picked ______as the equilibrium real federal funds rate, which was equal to its historical average.

Suppose the federal funds rate is 6 percent.If the output gap increases by 2 percentage points and the weight on output gap is 0.6, by how much should the federal funds rate increase according to the Taylor rule if all other variables remain unchanged?

Under an activist rule,

Money and the Financial System

The Financial System and the Economy

Money and Payments

Present Value

The Structure of Interest Rates

Real Interest Rates

Stocks and Other Assets

How Banks Work

Governments Role in Banking

Economics Growth and Business Cycles

Modeling Money

The Aggregate-Demandaggregate-Supply Model

Modern Macroeconomic Models

Economic Interdependence

The Federal Reserve System

Monetary Control

Monetary Policy: Goals and Tradeoffs

Filters

Exam 18: Rules for Monetary Policy

If the velocity of money in an economy is 7.5, money supply is $350 billion, and the price level is 1.5, the real output is worth

Usually inflation targets are set for a

A money-growth rule that does not respond to the state of the economy is a _____rule.

When a central bank increases money growth, the bank is said to _____policy.

In inflation targeting, the range that represents the goal for the inflation rate is known as the

The Taylor rule is

Why have economists abandoned the use of money-growth rules in the United States? Explain.

The average number of times a dollar of money is used for transactions over the course of a year is referred to as the

Which of the following is an useful indicator of the stance of monetary policy?

If the growth rate of velocity is -2 percent, the growth rate of money supply is 7 percent, and the inflation rate is 3 percent, what is the growth rate of real output?

The equation that says money times velocity equals total spending is known as

From 1991 to 2001, Argentina established commitment by

Monetarists think that

If velocity of money is 6, the price level is 1.2, and real output is worth $1,100 billion, what is the money supply?

Suppose the Fed has set the federal funds rate at 4.5 percent using the Taylor rule.If the inflation rate increases by 1 percentage point and the weight on inflation gap is 0.5, all other variables remain unchanged, the federal funds rate should

If the growth rate of the money supply is 5 percent, the inflation rate is 2 percent, and real output growth is 2 percent, what is the growth rate of the velocity of money?

Taylor originally picked ______as the equilibrium real federal funds rate, which was equal to its historical average.

Suppose the federal funds rate is 6 percent.If the output gap increases by 2 percentage points and the weight on output gap is 0.6, by how much should the federal funds rate increase according to the Taylor rule if all other variables remain unchanged?​

Under an activist rule,

Money and the Financial System

The Financial System and the Economy

Money and Payments

Present Value

The Structure of Interest Rates

Real Interest Rates

Stocks and Other Assets

How Banks Work

Governments Role in Banking

Economics Growth and Business Cycles

Modeling Money

The Aggregate-Demandaggregate-Supply Model

Modern Macroeconomic Models

Economic Interdependence

The Federal Reserve System

Monetary Control

Monetary Policy: Goals and Tradeoffs

Filters

Suppose the federal funds rate is 6 percent.If the output gap increases by 2 percentage points and the weight on output gap is 0.6, by how much should the federal funds rate increase according to the Taylor rule if all other variables remain unchanged?