Question 1

During the Great Depression,

Accepted Answer

A) deflation raised the real interest rate. 
B) unemployment lowered the nominal interest rate. 
C) deflation lowered the real interest rate. 
D) unemployment increased the output gap. 
E) high interest rates increased inflation. 
A) deflation raised the real interest rate. 
B) unemployment lowered the nominal interest rate. 
C) deflation lowered the real interest rate. 
D) unemployment increased the output gap. 
E) high interest rates increased inflation. A

Question 2

When an economy is in a deflationary spiral,and nominal interest rates are close to zero,it may be necessary:

Accepted Answer

A) for the Fed to print money. 
B) for the Fed to buy financial securities. 
C) to use fiscal stimulus. 
D) all of the above 
E) c and a 
A) for the Fed to print money. 
B) for the Fed to buy financial securities. 
C) to use fiscal stimulus. 
D) all of the above 
E) c and a D

Question 3

For the following questions refer to Figure 14.3 below.  
-Consider Figure 14.3 above.If the economy begins in its long-run equilibrium and there is a decrease in the economy's risk premium,the economy would move from point __________ to __________.

Accepted Answer

A) c;d 
B) a;d 
C) b;c 
D) a;b 
E) b;a 
A) c;d 
B) a;d 
C) b;c 
D) a;b 
E) b;a D

Question 4

The relatively high growth rate of money in the late 2000s is likely due to the Fed's fear of low unemployment.

Accepted Answer

A) True 
 B)False

Question 5

Use the figure below for the following questions;it shows the BAA corporate and 10-Year Treasury Bond yields.  
-In Figure 14.1 above,the ten-year bond yield is considered __________,while the BAA bond yield represents ____.

Accepted Answer

A) the federal funds rate;the risk premium 
B) the saving rate;the lending rate 
C) the risk premium,the prime lending rate 
D) a risk-free interest rate;a risky interest rate 
E) inflation;M1 money growth rate 
A) the federal funds rate;the risk premium 
B) the saving rate;the lending rate 
C) the risk premium,the prime lending rate 
D) a risk-free interest rate;a risky interest rate 
E) inflation;M1 money growth rate

Question 6

Bailouts of the financial sector:

Accepted Answer

A) worsen the moral hazard problem. 
B) alleviate future fears of financial crisis. 
C) make financial institutions weaker. 
D) are a step toward the nationalization of banks. 
E) increase confidence in the banking system. 
A) worsen the moral hazard problem. 
B) alleviate future fears of financial crisis. 
C) make financial institutions weaker. 
D) are a step toward the nationalization of banks. 
E) increase confidence in the banking system.

Question 7

Economists believe that bailing out banks in the most recent financial crisis will lead to moral hazard.

Accepted Answer

A) True 
 B)False

Question 8

If the rate of inflation is -2 percent,the output gap is -5 percent,the nominal interest rate is 5 percent,and the unemployment rate is 8 percent,what is the real interest rate?

Accepted Answer

A) 10 percent 
B) 0 percent 
C) -3 percent 
D) 7 percent 
E) 3 percent 
A) 10 percent 
B) 0 percent 
C) -3 percent 
D) 7 percent 
E) 3 percent

Question 9

When we add the risk premium to the AD curve it:

Accepted Answer

A) is represented by a downward movement along the AD curve. 
B) is represented by a downward movement along the AS curve. 
C) shifts the AD curve down. 
D) shifts the AS curve up. 
E) has no impact on the AD curve. 
A) is represented by a downward movement along the AD curve. 
B) is represented by a downward movement along the AS curve. 
C) shifts the AD curve down. 
D) shifts the AS curve up. 
E) has no impact on the AD curve.

Question 10

Refer to Figure 14.4 below,which shows the inflation rate and ten-year bond yield,for the following questions.  
-For most of 2008,

Accepted Answer

A) real interest rate was negative. 
B) the ten-year bonds nominal interest rate was less than the real interest rate. 
C) real interest rate was zero. 
D) real interest rate was positive. 
E) not enough information 
A) real interest rate was negative. 
B) the ten-year bonds nominal interest rate was less than the real interest rate. 
C) real interest rate was zero. 
D) real interest rate was positive. 
E) not enough information

Question 11

The Monetary History of the United States,1867-1960 was written by:

Accepted Answer

A) Ben Bernanke and Alan Greenspan. 
B) Peter Diamond,Dale Mortensen,and Christopher Pissarides. 
C) Milton Friedman and Anna Schwartz. 
D) Paul Krugman and Greg Mankiw. 
E) Christina Romer. 
A) Ben Bernanke and Alan Greenspan. 
B) Peter Diamond,Dale Mortensen,and Christopher Pissarides. 
C) Milton Friedman and Anna Schwartz. 
D) Paul Krugman and Greg Mankiw. 
E) Christina Romer.

Question 12

The liquidity trap occurs when:

Accepted Answer

A) nominal interest rates are high. 
B) real interest rates are high. 
C) there is not enough money in bank vaults. 
D) the Fed interferes with market interest rates. 
E) there are too many excess reserves. 
A) nominal interest rates are high. 
B) real interest rates are high. 
C) there is not enough money in bank vaults. 
D) the Fed interferes with market interest rates. 
E) there are too many excess reserves.

Question 13

An explanation for the low federal funds rate in 2003 was:

Accepted Answer

A) a fear of deflation. 
B) falling unemployment. 
C) rising inflation. 
D) the decline of the dollar vis-à-vis the euro. 
E) an attempt to boost house sales. 
A) a fear of deflation. 
B) falling unemployment. 
C) rising inflation. 
D) the decline of the dollar vis-à-vis the euro. 
E) an attempt to boost house sales.

Question 14

Adding a risk premium to the short-run model:

Accepted Answer

A) shifts the MP curve up. 
B) shifts the AD curve down. 
C) has no (direct)impact on the IS curve. 
D) a-c 
E) a and c only 
A) shifts the MP curve up. 
B) shifts the AD curve down. 
C) has no (direct)impact on the IS curve. 
D) a-c 
E) a and c only

Question 15

Use the figure below for the following questions;it shows the BAA corporate and 10-Year Treasury Bond yields.  
-In Figure 14.1 above,the risk premium in late 2008 was about __________ percent.

Accepted Answer

A) 9.5 
B) 12 
C) 6 
D) -6 
E) not enough information 
A) 9.5 
B) 12 
C) 6 
D) -6 
E) not enough information

Question 16

__________ encourage banks to __________ which __________.

Accepted Answer

A) Loans;increase lending;lowers market liquidity 
B) Increased capital requirements;take more risk;leads to future bank bailouts 
C) Increased leverage ratios;take less risk;strengthens the banking industry 
D) Lower return on assets;hold more cash;increases the "lemon" problem 
E) Bailouts;take more risk;worsens the moral hazard problem 
A) Loans;increase lending;lowers market liquidity 
B) Increased capital requirements;take more risk;leads to future bank bailouts 
C) Increased leverage ratios;take less risk;strengthens the banking industry 
D) Lower return on assets;hold more cash;increases the "lemon" problem 
E) Bailouts;take more risk;worsens the moral hazard problem

Question 17

The risk premium raises the borrowing rate above the nominal federal funds rate.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following represents the AD curve with a risk premium?

Accepted Answer

A)    
B)    
C)    
D)    
E)    
A)    
B)    
C)    
D)    
E)

Question 19

By linking bank executive compensation to long-term performance,__________ hopes to __________ in financial markets.

Accepted Answer

A) Long Term Capital Management;increase the use of complicated financial algorithms 
B) the Squam Lake Group;reduce systematic risktaking 
C) American Insurance Group;increase the use of collateralized insurance obligations 
D) the Fed;increase risk-sharing through the use of collateralized debt obligations 
E) Fannnie Mae;reduce subprime loans 
A) Long Term Capital Management;increase the use of complicated financial algorithms 
B) the Squam Lake Group;reduce systematic risktaking 
C) American Insurance Group;increase the use of collateralized insurance obligations 
D) the Fed;increase risk-sharing through the use of collateralized debt obligations 
E) Fannnie Mae;reduce subprime loans

Question 20

In late September 2008,Fed Chairman told a congressional panel:

Accepted Answer

A) "In the long run we are all dead." 
B) "If we don't do this [the Troubled Asset Relief Program],we may not have an economy on Monday." 
C) "A recession is when your neighbor loses his job;a depression is when you lose yours." 
D) "Inflation is always and everywhere a monetary phenomenon." 
E) "We do not believe that more fiscal stimulus will improve economic performance." 
A) "In the long run we are all dead." 
B) "If we don't do this [the Troubled Asset Relief Program],we may not have an economy on Monday." 
C) "A recession is when your neighbor loses his job;a depression is when you lose yours." 
D) "Inflation is always and everywhere a monetary phenomenon." 
E) "We do not believe that more fiscal stimulus will improve economic performance."

During the Great Depression,

When an economy is in a deflationary spiral,and nominal interest rates are close to zero,it may be necessary:

For the following questions refer to Figure 14.3 below. -Consider Figure 14.3 above.If the economy begins in its long-run equilibrium and there is a decrease in the economy's risk premium,the economy would move from point to .

The relatively high growth rate of money in the late 2000s is likely due to the Fed's fear of low unemployment.

Use the figure below for the following questions;it shows the BAA corporate and 10-Year Treasury Bond yields. -In Figure 14.1 above,the ten-year bond yield is considered ______,while the BAA bond yield represents .

Bailouts of the financial sector:

Economists believe that bailing out banks in the most recent financial crisis will lead to moral hazard.

If the rate of inflation is -2 percent,the output gap is -5 percent,the nominal interest rate is 5 percent,and the unemployment rate is 8 percent,what is the real interest rate?

When we add the risk premium to the AD curve it:

Refer to Figure 14.4 below,which shows the inflation rate and ten-year bond yield,for the following questions. -For most of 2008,

The Monetary History of the United States,1867-1960 was written by:

The liquidity trap occurs when:

An explanation for the low federal funds rate in 2003 was:

Adding a risk premium to the short-run model:

Use the figure below for the following questions;it shows the BAA corporate and 10-Year Treasury Bond yields. -In Figure 14.1 above,the risk premium in late 2008 was about __________ percent.

encourage banks to which __.

The risk premium raises the borrowing rate above the nominal federal funds rate.

Which of the following represents the AD curve with a risk premium?

By linking bank executive compensation to long-term performance, hopes to in financial markets.

In late September 2008,Fed Chairman told a congressional panel:

Introduction to Macroeconomics

Measuring the Macroeconomy

An Overview of Long- Run Economic Growth

A Model of Production

The Solow Growth Model

Growth and Ideas

The Labor Market,wages,and Unemployment

Inflation

An Introduction to the Short Run

The Great Recession: a First Look

The Is Curve

Monetary Policy and the Phillips Curve

Stabilization Policy and the Asad Framework

Consumption

Investment

The Government and the Macroeconomy

International Trade

Exchange Rates and International Finance

Parting Thoughts

Filters

Exam 14: The Great Recession and the Short-Run Model

During the Great Depression,

When an economy is in a deflationary spiral,and nominal interest rates are close to zero,it may be necessary:

For the following questions refer to Figure 14.3 below. -Consider Figure 14.3 above.If the economy begins in its long-run equilibrium and there is a decrease in the economy's risk premium,the economy would move from point __________ to __________.

The relatively high growth rate of money in the late 2000s is likely due to the Fed's fear of low unemployment.

Use the figure below for the following questions;it shows the BAA corporate and 10-Year Treasury Bond yields. -In Figure 14.1 above,the ten-year bond yield is considered __________,while the BAA bond yield represents ____.

Bailouts of the financial sector:

Economists believe that bailing out banks in the most recent financial crisis will lead to moral hazard.

If the rate of inflation is -2 percent,the output gap is -5 percent,the nominal interest rate is 5 percent,and the unemployment rate is 8 percent,what is the real interest rate?

When we add the risk premium to the AD curve it:

Refer to Figure 14.4 below,which shows the inflation rate and ten-year bond yield,for the following questions. -For most of 2008,

The Monetary History of the United States,1867-1960 was written by:

The liquidity trap occurs when:

An explanation for the low federal funds rate in 2003 was:

Adding a risk premium to the short-run model:

Use the figure below for the following questions;it shows the BAA corporate and 10-Year Treasury Bond yields. -In Figure 14.1 above,the risk premium in late 2008 was about __________ percent.

__________ encourage banks to __________ which __________.

The risk premium raises the borrowing rate above the nominal federal funds rate.

Which of the following represents the AD curve with a risk premium?

By linking bank executive compensation to long-term performance,__________ hopes to __________ in financial markets.

In late September 2008,Fed Chairman told a congressional panel:

Introduction to Macroeconomics

Measuring the Macroeconomy

An Overview of Long- Run Economic Growth

A Model of Production

The Solow Growth Model

Growth and Ideas

The Labor Market,wages,and Unemployment

Inflation

An Introduction to the Short Run

The Great Recession: a First Look

The Is Curve

Monetary Policy and the Phillips Curve

Stabilization Policy and the Asad Framework

Consumption

Investment

The Government and the Macroeconomy

International Trade

Exchange Rates and International Finance

Parting Thoughts

Filters

For the following questions refer to Figure 14.3 below. -Consider Figure 14.3 above.If the economy begins in its long-run equilibrium and there is a decrease in the economy's risk premium,the economy would move from point to .

Use the figure below for the following questions;it shows the BAA corporate and 10-Year Treasury Bond yields. -In Figure 14.1 above,the ten-year bond yield is considered ______,while the BAA bond yield represents .

encourage banks to which __.

By linking bank executive compensation to long-term performance, hopes to in financial markets.