Question 1

Autonomous easing of monetary policy involves ________.

Accepted Answer

A)  raising interest rates and shifting the MP curve to the right 
B)  lowering interest rates and shifting the MP curve to the left 
C)  raising interest rates and shifting the MP curve to the left 
D)  lowering interest rates and shifting the MP curve to the right 
E)  none of the above 
A)  raising interest rates and shifting the MP curve to the right 
B)  lowering interest rates and shifting the MP curve to the left 
C)  raising interest rates and shifting the MP curve to the left 
D)  lowering interest rates and shifting the MP curve to the right 
E)  none of the above

Question 2

If your local bank buys a few billion dollars worth of government securities, what happens to the economy's money supply?

Accepted Answer

If the seller of the bonds is another pr

Question 3

As the financial crisis became more severe in 2008, the Federal Reserve undertook a(n) ________ of monetary policy, an effect of which is to ________ inflation.

Accepted Answer

A)  contraction; raise 
B)  easing; raise 
C)  contraction; lower 
D)  easing; lower 
E)  none of the above 
A)  contraction; raise 
B)  easing; raise 
C)  contraction; lower 
D)  easing; lower 
E)  none of the above

Question 4

A shift of the MP curve ________.

Accepted Answer

A)  implies an automatic adjustment of the interest rate 
B)  implies a direct policy action of the Federal Reserve 
C)  does not alter the relationship between inflation and the interest rate 
D)  all of the above 
E)  none of the above 
A)  implies an automatic adjustment of the interest rate 
B)  implies a direct policy action of the Federal Reserve 
C)  does not alter the relationship between inflation and the interest rate 
D)  all of the above 
E)  none of the above

Question 5

The endogenous 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

Question 6

A movement along the MP curve ________.

Accepted Answer

A)  implies an automatic adjustment of the interest rate 
B)  implies an autonomous adjustment to the interest rate 
C)  implies an autonomous adjustment of aggregate demand 
D)  all of the above 
E)  none of the above 
A)  implies an automatic adjustment of the interest rate 
B)  implies an autonomous adjustment to the interest rate 
C)  implies an autonomous adjustment of aggregate demand 
D)  all of the above 
E)  none of the above

Question 7

Shifts of the ________ curves result from autonomous monetary policy.

Accepted Answer

A)  MP, IS, & AD 
B)  MP & IS, but not AD 
C)  IS & AD, but not MP 
D)  MP, but not IS nor AD 
E)  none of the above 
A)  MP, IS, & AD 
B)  MP & IS, but not AD 
C)  IS & AD, but not MP 
D)  MP, but not IS nor AD 
E)  none of the above

Question 8

MP Curve
  
-On the graph above, which pair of points best represents a scenario in which the nominal interest rate and expected inflation decline equally?

Accepted Answer

A)  I to H 
B)  G to K 
C)  I to J 
D)  K to F 
E)  J to H 
A)  I to H 
B)  G to K 
C)  I to J 
D)  K to F 
E)  J to H

Question 9

MP Curve
  
-Referring to the graph above, a movement from point H to point I might represent ________.

Accepted Answer

A)  the increase in the inflation rate that occurs when the real interest rate rises 
B)  the automatic response of monetary policy to an increase in the inflation rate 
C)  an autonomous tightening of monetary policy 
D)  any of the above 
E)  none of the above 
A)  the increase in the inflation rate that occurs when the real interest rate rises 
B)  the automatic response of monetary policy to an increase in the inflation rate 
C)  an autonomous tightening of monetary policy 
D)  any of the above 
E)  none of the above

Question 10

The AD Curve ________.

Accepted Answer

A)  indicates the level of aggregate output corresponding to different goods-market-clearing levels of the interest rate 
B)  is downward sloping, because with higher inflation comes higher interest rates and lower spending, so equilibrium aggregate output declines 
C)  explains how inflation affects output in the short run 
D)  all of the above 
E)  none of the above 
A)  indicates the level of aggregate output corresponding to different goods-market-clearing levels of the interest rate 
B)  is downward sloping, because with higher inflation comes higher interest rates and lower spending, so equilibrium aggregate output declines 
C)  explains how inflation affects output in the short run 
D)  all of the above 
E)  none of the above

Question 11

If the monetary policy curve is correct, then policy makers care only about inflation and not at all about aggregate output and unemployment. Comment.

Accepted Answer

The monetary policy curve is a concise e

Question 12

If expected inflation rises, monetary policy ________.

Accepted Answer

A)  is rendered ineffective 
B)  must be tightened, to prevent further increases in inflation and expected inflation 
C)  will prevent any increase in the real interest rate 
D)  is designed to increase the nominal interest rate by more than the increase in expected inflation 
E)  none of the above 
A)  is rendered ineffective 
B)  must be tightened, to prevent further increases in inflation and expected inflation 
C)  will prevent any increase in the real interest rate 
D)  is designed to increase the nominal interest rate by more than the increase in expected inflation 
E)  none of the above

Question 13

If the nominal interest rate is above the equilibrium level ________.

Accepted Answer

A)  purchases of bonds and other assets will cause the interest rate to fall 
B)  issuance of bonds and other assets will cause the supply of real money balances to increase 
C)  the opportunity cost of holding money is low, and is rising 
D)  all of the above 
E)  none of the above 
A)  purchases of bonds and other assets will cause the interest rate to fall 
B)  issuance of bonds and other assets will cause the supply of real money balances to increase 
C)  the opportunity cost of holding money is low, and is rising 
D)  all of the above 
E)  none of the above

Question 14

The liquidity preference theory ________.

Accepted Answer

A)  distinguishes between nominal and real quantities 
B)  shows that demand for real balances depends on real income 
C)  shows that demand for real balances depends on the nominal interest rate 
D)  all of the above 
E)  none of the above 
A)  distinguishes between nominal and real quantities 
B)  shows that demand for real balances depends on real income 
C)  shows that demand for real balances depends on the nominal interest rate 
D)  all of the above 
E)  none of the above

Question 15

An increase in the real interest rate occurs when ________.

Accepted Answer

A)  monetary policy responds automatically to an increase in inflation 
B)  expected inflation increases, relative to the nominal interest rate 
C)  an increase in autonomous spending causes an increase in equilibrium output 
D)  all of the above 
E)  none of the above 
A)  monetary policy responds automatically to an increase in inflation 
B)  expected inflation increases, relative to the nominal interest rate 
C)  an increase in autonomous spending causes an increase in equilibrium output 
D)  all of the above 
E)  none of the above

Question 16

The Federal Reserve ________.

Accepted Answer

A)  sets the federal funds rate once a year 
B)  controls the interest rate in the short run 
C)  controls the interest rate in the long run 
D)  all of the above 
E)  none of the above 
A)  sets the federal funds rate once a year 
B)  controls the interest rate in the short run 
C)  controls the interest rate in the long run 
D)  all of the above 
E)  none of the above

Question 17

A decrease in the real interest rate occurs when ________.

Accepted Answer

A)  there is an autonomous tightening of monetary policy 
B)  expected inflation increases, relative to the nominal interest rate 
C)  a decrease in autonomous spending causes a decrease in equilibrium output 
D)  all of the above 
E)  none of the above 
A)  there is an autonomous tightening of monetary policy 
B)  expected inflation increases, relative to the nominal interest rate 
C)  a decrease in autonomous spending causes a decrease in equilibrium output 
D)  all of the above 
E)  none of the above

Question 18

An increase in autonomous spending leads to higher ________.

Accepted Answer

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

Question 19

When the inflation rate falls, what happens, and why, to the MP, IS, and AD curves?

Accepted Answer

A decrease in the inflation rate will, t

Question 20

Suppose the demand curve is Y = 38 - 3π, and the current values for output and the real interest rate are 29 and 7 percent, respectively. A decrease in inflation leads to a new output level of 32 and real interest rate at 6 percent. The monetary policy curve is ________.

Accepted Answer

The inflation rate falls from

Exam 10: Monetary Policy and Aggregate Demand

Autonomous easing of monetary policy involves ________.

If your local bank buys a few billion dollars worth of government securities, what happens to the economy's money supply?

As the financial crisis became more severe in 2008, the Federal Reserve undertook a(n) ________ of monetary policy, an effect of which is to ________ inflation.

A shift of the MP curve ________.

The endogenous variable in the monetary policy curve is ________.

A movement along the MP curve ________.

Shifts of the ________ curves result from autonomous monetary policy.

MP Curve -On the graph above, which pair of points best represents a scenario in which the nominal interest rate and expected inflation decline equally?

MP Curve -Referring to the graph above, a movement from point H to point I might represent ________.

The AD Curve ________.

If the monetary policy curve is correct, then policy makers care only about inflation and not at all about aggregate output and unemployment. Comment.

If expected inflation rises, monetary policy ________.

If the nominal interest rate is above the equilibrium level ________.

The liquidity preference theory ________.

An increase in the real interest rate occurs when ________.

The Federal Reserve ________.

A decrease in the real interest rate occurs when ________.

An increase in autonomous spending leads to higher ________.

When the inflation rate falls, what happens, and why, to the MP, IS, and AD curves?

Suppose the demand curve is Y = 38 - 3π, and the current values for output and the real interest rate are 29 and 7 percent, respectively. A decrease in inflation leads to a new output level of 32 and real interest rate at 6 percent. The monetary policy curve is ________.

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

As the financial crisis became more severe in 2008, the Federal Reserve undertook a(n) of monetary policy, an effect of which is to inflation.