Questions:
Question 1 People's decision to hold money based on the comparison of the relative returns of money and nonmoney assets is known as
speculative motive.
transactions motive.
precautionary motive.
liquidity motive.
Question 2According to Friedman, the opportunity cost of holding money depends on all of the following EXCEPT
According to Friedman, the opportunity cost of holding money depends on all of the following EXCEPT
the return on money.
expected return on financial assets.
the return on durable goods.
permanent income.
Question 3If in the short run prices did not respond at all to changes in aggregate demand, the short-run aggregate supply curve would
If in the short run prices did not respond at all to changes in aggregate demand, the short-run aggregate supply curve would
be horizontal.
slope down.
be vertical.
slope up.
Question 4Sustained growth in the money supply doesn't affect real output in the long run but does lead to inflation according to
Sustained growth in the money supply doesn't affect real output in the long run but does lead to inflation according to
new classical economists, but not new Keynesian economists.
new Keynesian economists, but not new classical economists.
neither new classical nor new Keynesian economists.
both new classical and new Keynesian economists.
Question 5Which of the following is a likely causative factor in the movement of M1 velocity during the 1980s?
Which of the following is a likely causative factor in the movement of M1 velocity during the 1980s?
Exchange rate fluctuations
Changes in marginal tax rates
Political instability in Eastern Europe
Movements in interest rates
Question 6Business cycles typically last
Business cycles typically last
more than ten years.
from several months to several years.
more than five years.
less than one year.
Question 7Cost-push inflation
Cost-push inflation
will result in increases in output, unless policymakers adjust aggregate demand in response.
originates in the desire of policymakers to expand employment.
cannot persist in the long run unless ratified by policymakers.
was outlawed by the Humphrey-Hawkins Act of 1978.
Question 8 According to the new classical approach to the aggregate supply curve, the aggregate supply curve slopes upward because
According to the new classical approach to the aggregate supply curve, the aggregate supply curve slopes upward because
higher prices result in higher levels of spending as consumers attempt to stay ahead of inflation.
businesses have difficulty in distinguishing relative price increases from general price increases.
increases in the price level result in lower real balances.
higher current output results in higher desired investment.
Question 9Inflation generates an excess burden whenever
Inflation generates an excess burden whenever
the public's shoe leather costs exceed the government's revenue gain from the inflation tax.
it is greater than zero.
income tax brackets are not indexed.
bracket creep exceeds the public's shoe leather costs.
Question 10Periods of contraction in the business cycle are known as
Periods of contraction in the business cycle are known as
recessions.
down ticks.
inflations.
expansions.
Question 11Most economists believe that changes in the price level have
Most economists believe that changes in the price level have
an effect on the quantity of output supplied in the short run, but not in the long run.
an effect on the quantity of output supplied in both the short run and the long run.
no effect on the quantity of output supplied in either the short run or the long run.
an effect on the quantity of output supplied in the long run, but not in the short run.
Question 12Which of the following schools of thought among economists believe that activist stabilization policy is ever desirable?
Which of the following schools of thought among economists believe that activist stabilization policy is ever desirable?
Only new Keynesian and new classical
Only new Keynesian and real business cycle
New Keynesian, new classical, and real business cycle
Only new Keynesian
Question 13Stabilization policy refers to attempts to
Stabilization policy refers to attempts to
shift the SRAS curve to smooth short-run fluctuations in output.
shift the SRAS curve to keep the nominal interest rate as low as possible.
shift the AD curve to keep the price level as low as possible.
shift the AD curve to smooth short-run fluctuations in output.
Question 14In the new Keynesian approach, an increase in the nominal money supply
In the new Keynesian approach, an increase in the nominal money supply
does not raise real balances in either the short or long runs.
raises real balances in the long run but not in the short run.
raises real balances in the short run but not in the long run.
raises real balances in both the short and long runs.
Question 15Whom did President Jimmy Carter appoint chair of the Board of Governors of the Fed in order to convince the public about his anti-inflation resolve?
Whom did President Jimmy Carter appoint chair of the Board of Governors of the Fed in order to convince the public about his anti-inflation resolve?
Paul Volcker
Arthur Burns
Alan Greenspan
Milton Friedman
Question 16Transactions velocity
Transactions velocity
is much smaller than the value of velocity obtained from dividing GDP by the money stock.
was rejected by Irving Fisher as the correct definition of velocity in the quantity theory of money demand.
is much larger than the value of velocity obtained from dividing GDP by the money stock.
is much smaller than the value of velocity obtained from dividing the money stock by GDP.
Question 17Which of the following is true of the new Keynesian view of stabilization policy?
Which of the following is true of the new Keynesian view of stabilization policy?
It is unnecessary because output fluctuations reflect productivity disturbances.
It is necessary because shifts in aggregate demand are the main source of movements in current output.
It is necessary during recessions but not during booms.
It is unnecessary because output fluctuations are largely the result of policy mistakes by the Fed.
Question 18Which of the following statements is correct?
Which of the following statements is correct?
New Keynesians believe that the aggregate supply curve slopes upward in the long run.
Both new classicals and new Keynesians believe that the aggregate supply curve is vertical in the long run.
New Keynesians believe that the aggregate supply curve is vertical in the short run but not in the long run.
New classicals believe that the aggregate supply curve is a vertical line in both the short run and the long run.
Question 19During the late 1970s, households, businesses, and policymakers shifted to the opinion that
During the late 1970s, households, businesses, and policymakers shifted to the opinion that
higher inflation was acceptable provided it resulted in higher output.
higher inflation was acceptable provided it resulted in higher employment.
reducing inflation was necessary even if it resulted in lower levels of employment and output.
a reduction in inflation should take place provided it did not result in disinflation.
Question 20According to New Keynesians, why does an expected change in the money supply affect output in the short run?
According to New Keynesians, why does an expected change in the money supply affect output in the short run?
Firms have imperfect information.
People expect central banks to increase the money supply in response to increases in output.
Many prices are set by long-term contracts and thus cannot respond quickly to increases in the money supply.
Prices are flexible in the short run.
Question 21According to the real business cycle model, the correlation between changes in the money supply and changes in output over the business cycle results from
According to the real business cycle model, the correlation between changes in the money supply and changes in output over the business cycle results from
changes in money causing changes in output.
changes in output causing changes in the demand for money, which leads the Fed to make changes in the money supply.
chance; the real business cycle model offers no other explanation for it.
increases and decreases in the federal budget deficit, causing both the changes in money and the changes in output.
Question 22In Friedman's theory of money demand, when households expect a high rate of inflation, they will
In Friedman's theory of money demand, when households expect a high rate of inflation, they will
increase their real balances.
buy houses and consumer durable goods.
increase their nominal balances.
buy bonds.
Question 23Which school of thought believes that the Fed should seek to reduce inflation in a major, one-shot policy shift that's announced and credible?
Which school of thought believes that the Fed should seek to reduce inflation in a major, one-shot policy shift that's announced and credible?
Real business cycle
New classical
New Keynesian
Monetarist
Question 24According to the real business cycle model, in the economy's short run equilibrium,
According to the real business cycle model, in the economy's short run equilibrium,
output is as the full employment level.
the supply of money must be constant.
productivity must be zero.
inflation must be zero.
Question 25The liquidity preference theory was developed by
The liquidity preference theory was developed by
William Baumol.
Milton Friedman.
James Tobin.
John Maynard Keynes.
Question 26According to the real business cycle model, changes in the money supply will affect economic activity
According to the real business cycle model, changes in the money supply will affect economic activity
in the short run, but not the long run.
in the long run, but not the short run.
in both the short run and the long run.
in neither the short run nor the long run.
Question 27Movements in the growth rate of the money supply are
Movements in the growth rate of the money supply are
difficult to identify because the federal government has stopped collecting data on the money supply.
procylical.
countercyclical.
unrelated to the business cycle.
Question 28In the aggregate demand-aggregate supply model, if the Federal Reserve decides to decrease the nominal money supply,
In the aggregate demand-aggregate supply model, if the Federal Reserve decides to decrease the nominal money supply,
current output and the price level will both fall.
current output and the price level will both rise.
current output will rise, but the price level will fall.
current output will fall, but the price level will rise.
Question 29A classic example of hyperinflation occurred
A classic example of hyperinflation occurred
in Japan in the 1970s.
in Germany in the 1920s.
in the United States in the 1930s.
in the United Kingdom in the 1960s.
Question 30Unless ratified by policymakers, cost-push inflation will result in
Unless ratified by policymakers, cost-push inflation will result in
a recession.
hyperinflation.
persistent long-run inflation.
output beyond the full-employment level.
Question 31The velocity of money represents
The velocity of money represents
how quickly paper currency wears out and must be replaced.
the average number of times a dollar is spent on a purchase of final goods and services.
the speed with which one country's currency may be converted into another country's currency.
the total number of times a dollar is spent on a purchase of final goods and services.
Question 32Velocity equals
Velocity equals
MY/P.
MP/Y.
M/PY.
PY/M.
Question 33Which of the following would cause demand for M1 to increase?
Which of the following would cause demand for M1 to increase?
Early withdrawal penalties for certificates of deposit are eliminated.
Banks make taking out home equity loans easier.
The market for closed-end stock mutual funds becomes more liquid.
Several major corporations default on their commercial paper.
Question 34A recession begins, but Congress and the President take eighteen months to decide the details of the tax cut that will be used to stimulate the economy. This is an example of
A recession begins, but Congress and the President take eighteen months to decide the details of the tax cut that will be used to stimulate the economy. This is an example of
an implementation lag.
an impact lag.
a legislative lag.
a recognition lag.
Question 35At the natural rate of unemployment,
At the natural rate of unemployment,
the unemployment rate is zero.
only the structurally and the frictionally unemployed are without jobs.
the economy is producing at its maximum level of output.
only the frictionally unemployed are without jobs.
Question 36Expansionary fiscal policy will produce inflation only if
Expansionary fiscal policy will produce inflation only if
it takes the form of an increase in government spending.
it takes the form of a cut in personal income taxes.
it is accompanied by a sustained increase in the money supply.
it takes the form of a cut in corporate profit taxes.
Question 37In early 2007, the Bank of England raised its base interest rate unexpectedly. Which school of thought approach to monetary policy did this change in policy most reflect?
In early 2007, the Bank of England raised its base interest rate unexpectedly. Which school of thought approach to monetary policy did this change in policy most reflect?
New classical
Monetarist
New Keynesian
Real business cycle
Question 38Ben Bernanke and Alan Blinder found evidence that money is
Ben Bernanke and Alan Blinder found evidence that money is
not neutral in the short run.
not neutral in the short or long run.
neutral in the short run.
neutral in both the short and long run.
Question 39Expansionary shifts of the aggregate demand curve
Expansionary shifts of the aggregate demand curve
can originate in either the assets market or the goods market.
can originate in the assets market, but not the goods market.
cannot originate in either the assets market or the goods market.
can originate in the goods market, but not the assets market.
Question 40The correct expression for the equation of exchange is
The correct expression for the equation of exchange is
MV = PY.
VY = MP.
PV = MY.
M/P = VY.
Question 41Which of the following schools of thought among economists believe that unexpected changes in the money supply can affect output in the short run?
Which of the following schools of thought among economists believe that unexpected changes in the money supply can affect output in the short run?
Only new Keynesian and new classical
Only new Keynesian and real business cycle
New Keynesian, new classical, and real business cycle
Only new Keynesian
Question 42According to the Ricardian equivalence proposition,
According to the Ricardian equivalence proposition,
saving equals investment only at full employment.
the increase in current income from a tax cut is offset by higher taxes in the future to pay off the debt.
government spending is the equivalent of investment spending.
a decline in the demand for money results in an equivalent increase in the demand for nonmoney assets.
Question 43The low point in a business cycle is known as the
The low point in a business cycle is known as the
zero point.
trough.
peak.
lower limit.
Question 44Stanley Fischer has estimated that the annual excess burden in the United States of an inflation rate of 5% is approximately
Stanley Fischer has estimated that the annual excess burden in the United States of an inflation rate of 5% is approximately
$300 billion.
$30 million.
$30 billion.
$3 trillion.
Question 45Real money balances equal
Real money balances equal
MP.
nominal money balances.
M/P.
P/M.
Question 46According to Friedman, the opportunity cost of holding money is determined by all of the following EXCEPT
According to Friedman, the opportunity cost of holding money is determined by all of the following EXCEPT
expected inflation.
interest rate.
permanent income.
return on money.
Question 47Which of the following is true?
Which of the following is true?
The demand for real balances is unaffected by changes in real income.
The demand for real balances increases less than proportionately with real income.
The demand for real balances decreases as real income increases.
The demand for real balances increases more than proportionately with real income.
Question 48In the Baumol-Tobin view, a decrease in interest rates will cause individuals to hold
In the Baumol-Tobin view, a decrease in interest rates will cause individuals to hold
smaller money balances, and velocity will increase.
smaller money balances, and velocity will decrease.
larger money balances, and velocity will increase.
larger money balances, and velocity will decrease.
Question 49According to the new Keynesian approach, changes in the money supply will affect output
According to the new Keynesian approach, changes in the money supply will affect output
only if they are unexpected.
only if they affect the price level.
only if they are expected.
whether they are expected or unexpected.
Question 50Which of the following statements is correct according to both new classical and new Keynesian economists?
Which of the following statements is correct according to both new classical and new Keynesian economists?
An unexpected increase in government spending will increase only output in the short run.
An unexpected increase in the money supply will increase only prices in the short run, whereas an unexpected increase in government spending will increase both prices and output.
An unexpected increase in government spending will increase both prices and output in the short run.
Unexpected increases in the money supply or in government spending will increase only prices in the short run.