Question 1

The MP curve indicates the relationship between ________ and the ________.

Accepted Answer

A)  taxes; price level 
B)  the real interest rate; inflation rate 
C)  monetary policy; IS curve 
D)  all of the above 
E)  none of the above 
A)  taxes; price level 
B)  the real interest rate; inflation rate 
C)  monetary policy; IS curve 
D)  all of the above 
E)  none of the above B

Question 2

Suppose the economy is just recovering from a recession and all signs now point to robust growth. How might this transition from recovery to expansion be reflected in the monetary policy curve?

Accepted Answer

The monetary policy curve will have been relatively low, as policy makers kept interest rates as low as possible to hasten recovery from the recession. Once the recession is over, the monetary policy curve will shift up, since low interest rates are no longer appropriate, and to reduce the danger that spending will climb too rapidly and cause inflation to rise. The curve may become steeper, as well, so that any increases in inflation are countered by substantial increases in the real interest rate.

Question 3

The exogenous variable in the monetary policy curve is ________.

Accepted Answer

A)  the policy parameter, λ 
B)  the real interest rate 
C)  the autonomous component,   
D)  the federal funds rate 
E)  the inflation rate 
A)  the policy parameter, λ 
B)  the real interest rate 
C)  the autonomous component,   
D)  the federal funds rate 
E)  the inflation rate E

Question 4

The liquidity preference theory distinguishes between ________.

Accepted Answer

A)  nominal and real quantities 
B)  money and financial assets 
C)  buying goods and earning interest income 
D)  all of the above 
E)  none of the above 
A)  nominal and real quantities 
B)  money and financial assets 
C)  buying goods and earning interest income 
D)  all of the above 
E)  none of the above

Question 5

The federal funds rate is ________.

Accepted Answer

A)  a real interest rate 
B)  set periodically by Congress 
C)  a nominal interest rate 
D)  all of the above 
E)  none of the above 
A)  a real interest rate 
B)  set periodically by Congress 
C)  a nominal interest rate 
D)  all of the above 
E)  none of the above

Question 6

Throughout 2008, inflation and the real interest rate declined together. The cause is a combination of ________.

Accepted Answer

A)  monetary policy easing and declining autonomous spending 
B)  declining autonomous spending and movement along a fixed MP curve 
C)  monetary policy tightening and inversion of the MP curve 
D)  increased government spending and movement along a fixed MP curve 
E)  none of the above 
A)  monetary policy easing and declining autonomous spending 
B)  declining autonomous spending and movement along a fixed MP curve 
C)  monetary policy tightening and inversion of the MP curve 
D)  increased government spending and movement along a fixed MP curve 
E)  none of the above

Question 7

Factors that shift the AD Curve include ________.

Accepted Answer

A)  government purchases 
B)  autonomous investment 
C)  taxes 
D)  all of the above 
E)  none of the above 
A)  government purchases 
B)  autonomous investment 
C)  taxes 
D)  all of the above 
E)  none of the above

Question 8

In the very short run ________.

Accepted Answer

A)  the real interest rate will be affected by changes in the nominal rate 
B)  monetary policy has an immediate effect on inflation 
C)  the inflation rate is determined by the federal funds rate 
D)  all of the above 
E)  none of the above 
A)  the real interest rate will be affected by changes in the nominal rate 
B)  monetary policy has an immediate effect on inflation 
C)  the inflation rate is determined by the federal funds rate 
D)  all of the above 
E)  none of the above

Question 9

The AD Curve ________.

Accepted Answer

A)  demonstrates how central banks respond to changes in interest rates by changing the inflation rate 
B)  shows how changes in equilibrium output affect the inflation rate 
C)  explains long run fluctuations in output and inflation 
D)  all of the above 
E)  none of the above 
A)  demonstrates how central banks respond to changes in interest rates by changing the inflation rate 
B)  shows how changes in equilibrium output affect the inflation rate 
C)  explains long run fluctuations in output and inflation 
D)  all of the above 
E)  none of the above

Question 10

Suppose the monetary policy curve is r = 5 + 0.8π, and the current values for output and inflation are 16.8 and 2 percent, respectively. An increase in global resource prices pushes the inflation rate to 4 percent. Policy makers estimate that the monetary policy in place, responding to 4 percent inflation, will bring output down to 13.6, a decline considered excessive. Instead, they implement an autonomous easing of monetary policy to lower output from 16.8 to 16. Assuming no change in the slope of the monetary policy curve, determine the new curve.

Accepted Answer

From the given monetary policy curve, th

Question 11

The endogenous variable in the liquidity preference function is ________.

Accepted Answer

A)  demand for real money balances 
B)  the nominal interest rate 
C)  real income 
D)  the price level 
E)  none of the above 
A)  demand for real money balances 
B)  the nominal interest rate 
C)  real income 
D)  the price level 
E)  none of the above

Question 12

Before the financial crisis of 2007, inflation was on the rise. According to the MP curve, this would lead to ________.

Accepted Answer

A)  an increase in the real interest rate 
B)  an upward shift of the MP curve, if policymakers opted for autonomous tightening 
C)  a decrease in aggregate output 
D)  all of the above 
E)  none of the above 
A)  an increase in the real interest rate 
B)  an upward shift of the MP curve, if policymakers opted for autonomous tightening 
C)  a decrease in aggregate output 
D)  all of the above 
E)  none of the above

Question 13

The MP curve may be used to represent ________.

Accepted Answer

A)  movements of the real interest rate as a direct policy action of the Federal Reserve 
B)  movements of the real interest rate that are independent of direct Federal Reserve action 
C)  how the real interest rate is related to the inflation rate 
D)  all of the above 
E)  none of the above 
A)  movements of the real interest rate as a direct policy action of the Federal Reserve 
B)  movements of the real interest rate that are independent of direct Federal Reserve action 
C)  how the real interest rate is related to the inflation rate 
D)  all of the above 
E)  none of the above

Question 14

The IS curve is Y = 20 - 1.5r, and the aggregate demand curve is Y = 15.5 - 0.3π. The monetary policy curve is ________.

Accepted Answer

A)  r = 4.5 - 1.8π 
B)  r = 20 + 0.3π 
C)  r = 3 + 0.2π 
D)  Y = 17.75 + 0.6π 
E)  none of the above 
A)  r = 4.5 - 1.8π 
B)  r = 20 + 0.3π 
C)  r = 3 + 0.2π 
D)  Y = 17.75 + 0.6π 
E)  none of the above

Question 15

An increase in inflation leads to higher ________.

Accepted Answer

A)  output 
B)  spending 
C)  real interest rate 
D)  all of the above 
E)  none of the above 
A)  output 
B)  spending 
C)  real interest rate 
D)  all of the above 
E)  none of the above

Question 16

Factors that shift the AD Curve include ________.

Accepted Answer

A)  the inflation rate 
B)  aggregate output 
C)  taxes 
D)  all of the above 
E)  none of the above 
A)  the inflation rate 
B)  aggregate output 
C)  taxes 
D)  all of the above 
E)  none of the above

Question 17

Which of the following is true with regard to the supply of money?

Accepted Answer

A)  an open market sale of government securities will increase liquidity 
B)  an open market purchase of government securities will decrease liquidity 
C)  liquidity and the money supply are directly related 
D)  all of the above 
E)  none of the above 
A)  an open market sale of government securities will increase liquidity 
B)  an open market purchase of government securities will decrease liquidity 
C)  liquidity and the money supply are directly related 
D)  all of the above 
E)  none of the above

Question 18

Which of the following is true with regard to the supply of money?

Accepted Answer

A)  an open market purchase of government securities will increase liquidity 
B)  an open market sale of government securities will decrease liquidity 
C)  liquidity and the money supply are directly related 
D)  all of the above 
E)  none of the above 
A)  an open market purchase of government securities will increase liquidity 
B)  an open market sale of government securities will decrease liquidity 
C)  liquidity and the money supply are directly related 
D)  all of the above 
E)  none of the above

Question 19

The supply curve for money ________.

Accepted Answer

A)  is upward sloping with respect to interest rates 
B)  is fixed to a specified interest rate 
C)  is fixed regardless of the interest rate 
D)  is downward sloping with respect to interest rates 
E)  none of the above 
A)  is upward sloping with respect to interest rates 
B)  is fixed to a specified interest rate 
C)  is fixed regardless of the interest rate 
D)  is downward sloping with respect to interest rates 
E)  none of the above

Question 20

Factors that shift the AD Curve include ________.

Accepted Answer

A)  autonomous net exports 
B)  autonomous inflation 
C)  autonomous interest rates 
D)  all of the above 
E)  none of the above 
A)  autonomous net exports 
B)  autonomous inflation 
C)  autonomous interest rates 
D)  all of the above 
E)  none of the above

Exam 10: Monetary Policy and Aggregate Demand

The MP curve indicates the relationship between ________ and the ________.

Suppose the economy is just recovering from a recession and all signs now point to robust growth. How might this transition from recovery to expansion be reflected in the monetary policy curve?

The exogenous variable in the monetary policy curve is ________.

The liquidity preference theory distinguishes between ________.

The federal funds rate is ________.

Throughout 2008, inflation and the real interest rate declined together. The cause is a combination of ________.

Factors that shift the AD Curve include ________.

In the very short run ________.

The AD Curve ________.

The endogenous variable in the liquidity preference function is ________.

Before the financial crisis of 2007, inflation was on the rise. According to the MP curve, this would lead to ________.

The MP curve may be used to represent ________.

The IS curve is Y = 20 - 1.5r, and the aggregate demand curve is Y = 15.5 - 0.3π. The monetary policy curve is ________.

An increase in inflation leads to higher ________.

Factors that shift the AD Curve include ________.

Which of the following is true with regard to the supply of money?

Which of the following is true with regard to the supply of money?

The supply curve for money ________.

Factors that shift the AD Curve include ________.

The Policy and Practice of Macroeconomics

Measuring Macroeconomic Data

Aggregate Production and Productivity

Saving and Investment in Closed and Open Economies

Money and Inflation

The Sources of Growth and the Solow Model

Drivers of Growth: Technology, Policy, and Institutions

Business Cycles: an Introduction

The Is Curve

Aggregate Supply and the Phillips Curve

The Aggregate Demand and Supply Model

Macroeconomic Policy and Aggregate Demand and Supply Analysis

The Financial System and Economic Growth

Financial Crises and the Economy

Fiscal Policy and the Government Budget

Exchange Rates and International Economic Policy

Consumption and Saving

Investment

The Labor Market, Employment, and Unemployment

The Role of Expectations in Macroeconomic Policy

Modern Business Cycle Theory

Filters

The MP curve indicates the relationship between and the .