Accounting
Anthropology
Archaeology
Art History
Banking
Biology & Life Science
Business
Business Communication
Business Development
Business Ethics
Business Law
Chemistry
Communication
Computer Science
Counseling
Criminal Law
Curriculum & Instruction
Design
Earth Science
Economic
Education
Engineering
Finance
History & Theory
Humanities
Human Resource
International Business
Investments & Securities
Journalism
Law
Management
Marketing
Medicine
Medicine & Health Science
Nursing
Philosophy
Physic
Psychology
Real Estate
Science
Social Science
Sociology
Special Education
Speech
Visual Arts
Banking
Q:
According to the liquidity preference theory, the demand for money is ________ related to aggregate output and ________ related to interest rates.
A. negatively; negatively
B. negatively; positively
C. positively; negatively
D. positively; positively
Q:
In the Keynesian model the quantity of money demanded is ________ related to income and ________ related to the interest rate.
A. positively; positively
B. positively; negatively
C. negatively; negatively
D. negatively; positively
Q:
The ________ describes the combinations of interest rates and aggregate output for which the quantity of money demanded equals the quantity of money supplied.
A. IS curve
B. LM curve
C. consumption function
D. investment schedule
Q:
The money market is in equilibrium
A) at any point on the IS curve.
B) at any point on the LM curve.
C) at only one point on the LM curve.
D) only at the intersection of the IS and LM curves.
Q:
Because inflation was not a serious problem during the Great Depression, Keynes's analysis assumed
A. that unemployment also was not a problem.
B. that the money supply was fixed.
C. that the price level was fixed.
D. that monetary policy is not effective.
Q:
Ending the "Great Inflation" era in the 1970s is an example of
A. inflation targeting.
B. exchange rate targeting.
C. central bank independence.
D. appointment of a more conservative central banker.
E. all of the above.
Q:
Potential weaknesses of nominal GDP targeting include
A. it requires accurate estimates of potential GDP growth, which are not easy to achieve.
B. real GDP growth that is below potential or inflation that is below the inflation objective will encourage more expansionary monetary policy.
C. it is more complicated to explain to the public than inflation targeting and thus the public might be confused about the objectives of the central bank.
D. both A and C.
Q:
Potential weaknesses of nominal GDP targeting include
A. it is more complicated to explain to the public than inflation targeting and thus the public might be confused about the objectives of the central bank.
B. it implies that the central bank will respond to slowdowns in the real economy even if inflation is not falling.
C. real GDP growth that is below potential or inflation that is below the inflation objective will encourage more expansionary monetary policy.
D. it focuses not only on controlling inflation but also explicitly on stabilizing real GDP.
Q:
Potential weaknesses of nominal GDP targeting include
A. it requires accurate estimates of potential GDP growth, which are not easy to achieve.
B. it implies that the central bank will respond to slowdowns in the real economy even if inflation is not falling.
C. real GDP growth that is below potential or inflation that is below the inflation objective will encourage more expansionary monetary policy.
D. it focuses not only on controlling inflation but also explicitly on stabilizing real GDP.
Q:
Potential advantages of nominal GDP targeting include
A. it implies that the central bank will respond to slowdowns in the real economy even if inflation is not falling.
B. real GDP growth that is below potential or inflation that is below the inflation objective will encourage more expansionary monetary policy.
C. it focuses not only on controlling inflation but also explicitly on stabilizing real GDP.
D. all of the above.
Q:
Approaches to establishing central bank credibility include
A. inflation targeting.
B. nominal GDP targeting.
C. central bank independence.
D. appointment of a more conservative central banker.
E. all of the above.
Q:
Approaches to establishing central bank credibility include
A. inflation targeting.
B. exchange rate targeting.
C. central bank independence.
D. appointment of a more conservative central banker.
E. all of the above.
Q:
Approaches to establishing central bank credibility include
A. continued success at keeping inflation under control.
B. inflation targeting.
C. exchange rate targeting.
D. all of the above.
Q:
Approaches to establishing central bank credibility include
A. continued success at keeping inflation under control.
B. central bank independence.
C. appointment of a more conservative central banker.
D. all of the above.
Q:
The U.S. government can play an important role in establishing the credibility of anti-inflation policy by
A. demonstrating fiscal responsibility.
B. monitoring the Fed.
C. conducting fiscal policy.
D. all of the above.
Q:
Suppose that there is a negative aggregate supply shock and the central bank commits to an inflation rate target.
A. If the commitment is credible, the public's expected inflation will remain unchanged.
B. Credible policy produces better outcomes on both inflation and output in the short run.
C. Policies that are not credible produce worse economic contraction.
D. all of the above.
E. both A and C.
Q:
Suppose that there is a negative aggregate demand shock and the central bank commits to an inflation rate target. But if the commitment is not credible, then
A. the public's expected inflation will remain unchanged.
B. the short-run aggregate supply curve will rise.
C. economic contraction will be worse.
D. all of the above.
E. both B and C.
Q:
Suppose that there is a negative aggregate demand shock and the central bank commits to an inflation rate target. If the commitment is credible, then
A. the public's expected inflation will remain unchanged.
B. the short-run aggregate supply curve will rise.
C. over time inflation will fall.
D. all of the above.
E. both A and C.
Q:
Suppose that there is a positive aggregate demand shock and the central bank commits to an inflation rate target. But if the commitment is not credible, then
A. the public's expected inflation will remain unchanged.
B. the short-run aggregate supply curve will rise.
C. over time inflation will fall back down to the inflation target.
D. all of the above.
E. both A and B.
Q:
Suppose that there is a positive aggregate demand shock and the central bank commits to an inflation rate target. If the commitment is credible, then
A. the public's expected inflation will remain unchanged.
B. the short-run aggregate supply curve will not shift.
C. over time inflation will fall back down to the inflation target.
D. all of the above.
E. both A and B.
Q:
A credible nominal anchor
A. can help overcome the time-inconsistency problem by providing an expected constraint on discretionary policy.
B. can help to anchor inflation expectations, which leads to smaller fluctuations in inflation.
C. is required for a policy rule.
D. all of the above.
E. both A and B.
Q:
________ imposes a conceptual structure and inherent discipline on policy makers, but without eliminating all flexibility.
A. Constrained discretion
B. A policy rule
C. A discretionary policy
D. The Taylor rule
Q:
Arguments for discretionary policies include
A. policy rules can be too rigid because they cannot foresee every contingency.
B. policy rules do not easily incorporate the use of judgment.
C. discretion avoids the straightjacket that would lock in the wrong policy if the model that was used to derive the policy rule proved to be incorrect.
D. discretion enables policy makers to change policy settings when an economy undergoes structural changes.
E. all of the above.
Q:
Arguments for discretionary policies include
A. policy rules can be too rigid because they cannot foresee every contingency.
B. the time-inconsistency problem can lead to poor economic outcomes.
C. discretionary policies pursue overly expansionary monetary policies to boost employment in the short run but generate higher inflation in the long run.
D. all of the above.
Q:
Arguments for adopting a policy rule include
A. discretion avoids the straightjacket that would lock in the wrong policy if the model that was used to derive the policy rule proved to be incorrect.
B. discretion enables policy makers to change policy settings when an economy undergoes structural changes.
C. discretionary policies pursue overly expansionary monetary policies to boost employment in the short run but generate higher inflation in the long run.
D. all of the above.
Q:
Arguments for adopting a policy rule include
A. the time-inconsistency problem can lead to poor economic outcomes.
B. discretionary policies pursue overly expansionary monetary policies to boost employment in the short run but generate higher inflation in the long run.
C. policy makers and politicians cannot be trusted.
D. all of the above.
Q:
A policy in which the money supply is kept growing at a constant rate regardless of the state of the economy is
A. a Taylor rule.
B. a discretionary policy.
C. a policy rule advocated by monetarists.
D. advocated by activists.
Q:
According to the Lucas critique, if past increases in the short-term interest rate have always been temporary, thenA. the term-structure relationship using past data will then show only a weak effect of changes in the short-term interest rate on the long-term rate.B. the term-structure relationship using past data will show no effect of changes in the short-term interest rate on the long-term rate.C. one cannot predict the term-structure relationship as it depends on expectations.D. the term-structure relationship using past data will nevertheless show a strong effect of changes in the short-term interest rate on the long-term rate because of a change in the way expectations are formed.
Q:
A rise in short-term interest rates that is believed to be only temporary
A. is likely to have a significant effect on long-term interest rates.
B. will have a bigger impact on long-term interest rates than if the rise in short-term rates had been permanent.
C. is likely to have only a small impact on long-term interest rates.
D. cannot possibly affect long-term interest rates.
Q:
The interest rate thought to have the most important impact on aggregate demand is the
A. short-term interest rate.
B. T-bill rate.
C. rate on 90-day CDs.
D. long-term interest rate.
Q:
The Lucas critique is an attack on the usefulness of
A. conventional econometric models as forecasting tools.
B. conventional econometric models as indicators of the potential impacts on the economy of particular policies.
C. rational expectations models of macroeconomic activity.
D. the relationship between the quantity theory of money and aggregate demand.
Q:
The Lucas critique indicates that
A. advocates of discretionary policies' criticisms of rational expectations models are well-founded.
B. advocates of discretionary policies' criticisms of rational expectations models are not well-founded.
C. expectations are important in determining the outcome of a discretionary policy.
D. expectations are not important in determining the outcome of a discretionary policy.
Q:
The rational expectations hypothesis implies that when macroeconomic policy changes
A. the economy will become highly unstable.
B. the way expectations are formed will change.
C. people will be slow to catch on to the change.
D. people will make systematic mistakes.
Q:
Lucas argues that when policies change, expectations will change thereby
A. changing the relationships in econometric models.
B. causing the government to abandon its discretionary stance.
C. forcing the Fed to keep its deliberations secret.
D. making it easier to predict the effects of policy changes.
Q:
The argument that econometric policy evaluation is likely to be misleading if policymakers assume stable economic relationships is known as
A. the monetarist revolution.
B. the Lucas critique.
C. public choice theory.
D. new Keynesian theory.
Q:
Whether one views the discretionary policies of the 1960s and 1970s as destabilizing or believes the economy would have been less stable without these policies, most economists agree that
A. stabilization policies proved more difficult in practice than many economists had expected.
B. stabilization policies proved not to be inflationary.
C. the nondiscretionary policymakers were right in believing that the private economy is inherently stable.
D. the discretionary policymakers were right in believing that the private economy is inherently stable.
Q:
Everything else held constant, an increase in autonomous consumer spending will cause the IS curve to shift to the ________ and aggregate demand will ________.
A. right; increase
B. right; decrease
C. left; increase
D. left; decrease
Q:
Everything else held constant, an autonomous easing of monetary policy will cause
A. aggregate demand to increase.
B. aggregate demand to decrease.
C. the quantity of aggregate demand to increase.
D. the quantity of aggregate demand to decrease.
Q:
Everything else held constant, an autonomous tightening of monetary policy will cause
A. the quantity of aggregate demand to increase.
B. the quantity of aggregate demand to decrease.
C. aggregate demand to increase.
D. aggregate demand to decrease.
Q:
Everything else held constant, an autonomous easing of monetary policy will cause
A. the quantity of aggregate demand to increase.
B. the quantity of aggregate demand to decrease.
C. aggregate demand to decrease.
D. aggregate demand to increase.
Q:
Everything else held constant, an increase in government spending will cause
A. aggregate demand to increase.
B. aggregate demand to decrease.
C. the quantity of aggregate demand to increase.
D. the quantity of aggregate demand to decrease.
Q:
The aggregate demand curve is downward sloping because a higher inflation rate leads the central bank to ________ real interest rates, thereby ________ the level of equilibrium aggregate output., everything else held constant.
A. raise; lowering
B. raise; raising
C. reduce; lowering
D. reduce; raising
Q:
In deriving the aggregate demand curve a ________ inflation rate leads the central bank to ________ real interest rates, thereby ________ the level of equilibrium aggregate output.
A. higher; raise; lowering
B. lower; raise; lowering
C. higher; lower; lowering
D. higher; lower; raising
Q:
The aggregate demand curve is downward sloping because a higher inflation rate leads the central bank to raise ________ interest rates, thereby ________ the level of equilibrium aggregate output., everything else held constant.
A. real; lowering
B. real; raising
C. nominal; lowering
D. nominal; raising
Q:
When the financial crisis started in August 2007, inflation was rising and the Fed began an aggressive easing lowering of the federal funds rate, which indicated that
A. there was an upward movement along the monetary policy curve.
B. there was a downward movement along the monetary policy curve.
C. the monetary policy curve shifted upward.
D. the monetary policy curve shifted downward.
Q:
When the financial crisis started in August 2007, inflation was rising and the Fed began an aggressive easing lowering of the federal funds rate, which indicated that
A. the Fed pursued an autonomous monetary policy tightening.
B. the Fed pursued an autonomous monetary policy easing.
C. the Fed had an automatic negative response to inflation based on the Taylor rule.
D. the Fed had an automatic positive response to inflation based on the Taylor rule.
Q:
The Fed's policy actions of reacting to higher inflation by raising the real interest rate during 2004-2006 were
A. upward movements along the monetary policy curve.
B. downward movement along the monetary policy curve.
C. upward shifts of the monetary policy curve.
D. downward shifts of the monetary policy curve.
Q:
Inflationary pressures caused the FOMC to increase the federal funds rate by ¼ of a percentage point in June 2004, and by exactly the same amount at every subsequent FOMC meeting through June of Theses actions
A. caused an upward movement along the monetary policy curve.
B. caused a downward movement along the monetary policy curve.
C. shifted the monetary policy curve upward.
D. shifted the monetary policy curve downward.
Q:
Based on the Taylor Principle, a central bank's endogenous response of decreasing interest rates when inflation falls
A. causes an upward movement along the monetary policy curve.
B. causes a downward movement along the monetary policy curve.
C. shifts the monetary policy curve upward.
D. shifts the monetary policy curve downward.
Q:
Based on the Taylor Principle, a central bank's endogenous response of raising interest rates when inflation rises
A. causes an upward movement along the monetary policy curve.
B. causes a downward movement along the monetary policy curve.
C. shifts the monetary policy curve upward.
D. shifts the monetary policy curve downward.
Q:
An autonomous easing of monetary policy
A. causes an upward movement along the monetary policy curve.
B. causes a downward movement along the monetary policy curve.
C. shifts the monetary policy curve upward.
D. shifts the monetary policy curve downward.
Q:
An autonomous tightening of monetary policy
A. causes an upward movement along the monetary policy curve.
B. causes a downward movement along the monetary policy curve.
C. shifts the monetary policy curve upward.
D. shifts the monetary policy curve downward.
Q:
The Taylor Principle states that central banks raise nominal rates by ________ than any rise in expected inflation so that real interest rates ________ when there is a rise in inflation.
A. less; rise
B. more; fall
C. less; fall
D. more; rise
Q:
The upward slope of the MP curve indicates that
A. the central bank lowers real interest rates when inflation rises.
B. the central bank raises real interest rates when inflation falls.
C. the central bank raises nominal interest rates when inflation rises.
D. the central bank raises real interest rates when inflation rises.
Q:
The monetary policy (MP) curve indicates the relationship between
A. the Federal Funds Rate and the real interest rate.
B. the Federal Funds Rate and the inflation rate.
C. the inflation rate and the expected inflation rate.
D. the real interest rate the central bank sets and the inflation rate.
Q:
Because prices are sticky in the short-run, when the Federal Reserve raises the federal funds rate
A. nominal interest rates fall.
B. real interest rates rise.
C. inflation falls.
D. real interest rates fall.
Q:
Because prices are slow to move in the short-run, when the Federal Reserve lowers the federal funds rate
A. nominal interest rates rise.
B. real interest rates fall.
C. inflation falls.
D. real interest rates rise.
Q:
Everything else held constant, a decrease in government spending will cause the IS curve to shift to the ________ and aggregate demand will ________.
A. right; increase
B. right; decrease
C. left; increase
D. left; decrease
Q:
Everything else held constant, a depreciation of the domestic currency will cause the IS curve to shift to the ________ and aggregate demand will ________.
A. right; increase
B. right; decrease
C. left; increase
D. left; decrease
Q:
Everything else held constant, an appreciation of the domestic currency will cause the IS curve to shift to the ________ and aggregate demand will ________.
A. right; increase
B. right; decrease
C. left; increase
D. left; decrease
Q:
Everything else held constant, an increase in net taxes will cause the IS curve to shift to the ________ and aggregate demand will ________.
A. right; increase
B. right; decrease
C. left; increase
D. left; decrease
Q:
Everything else held constant, a decrease in net taxes will cause the IS curve to shift to the ________ and aggregate demand will ________.
A. right; increase
B. right; decrease
C. left; increase
D. left; decrease
Q:
Everything else held constant, a decrease in autonomous planned investment spending will cause the IS curve to shift to the ________ and aggregate demand will ________.
A. right; increase
B. right; decrease
C. left; increase
D. left; decrease
Q:
Everything else held constant, an increase in autonomous planned investment spending will cause the IS curve to shift to the ________ and aggregate demand will ________.
A. right; increase
B. right; decrease
C. left; increase
D. left; decrease
Q:
Everything else held constant, a decrease in autonomous consumer spending will cause the IS curve to shift to the ________ and aggregate demand will ________.
A. right; increase
B. right; decrease
C. left; increase
D. left; decrease
Q:
Which of the following does NOT shift the IS curve?
A. an increase in autonomous consumption
B. an increase in government spending
C. a decline in government spending
D. a fall in the interest rate
Q:
An appreciation of the U.S. dollar makes foreign goods cheaper relative to American goods, resulting in a ________ in net exports in the U.S. and a ________ shift of the IS curve in the U.S., everything else held constant.
A. fall; leftward
B. rise; leftward
C. fall; rightward
D. rise; rightward
Q:
A depreciation of the U.S. dollar makes American goods cheaper relative to foreign goods, resulting in a ________ in net exports in the U.S. and a ________ shift of the IS curve in the U.S., everything else held constant.
A. fall; leftward
B. rise; leftward
C. fall; rightward
D. rise; rightward
Q:
A shift in tastes toward foreign goods ________ net exports in the U.S. and causes the IS curve to shift to the ________ in the U.S., everything else held constant.
A. decreases; right
B. decreases; left
C. increases; right
D. increases; left
Q:
A shift in tastes toward American goods ________ net exports in the U.S. and causes the IS curve to shift to the ________ in the U.S., everything else held constant.
A. decreases; right
B. decreases; left
C. increases; right
D. increases; left
Q:
Everything else held constant, a shift in tastes in the U.S. towards American goods will ________ net exports in the U.S. and cause the quantity of aggregate output demanded to ________ in Mexico.
A. decrease; rise
B. decrease; fall
C. increase; rise
D. increase; fall
Q:
A shift in tastes toward American goods ________ net exports in the U.S. and causes the quantity of aggregate output demanded to ________ in the U.S., everything else held constant.
A. decreases; rise
B. decreases; fall
C. increases; rise
D. increases; fall
Q:
Everything else held constant, a shift in tastes in the U.S. toward Mexican goods will ________ net exports in the U.S. and cause the quantity of aggregate output demanded to ________ in Mexico.
A. decrease; rise
B. decrease; fall
C. increase; rise
D. increase; fall
Q:
A shift in tastes toward foreign goods ________ net exports in the U.S. and causes the quantity of aggregate output demanded to ________ in the U.S., everything else held constant.
A. decreases; rise
B. decreases; fall
C. increases; rise
D. increases; fall
Q:
An autonomous appreciation of the U.S. dollar makes American goods ________ expensive relative to foreign goods which ________ net exports in the U.S.
A. less; decreases
B. less; increases
C. more; decreases
D. more; increases
Q:
If young business professionals in America suddenly decide that driving German-made cars is an important status symbol, net exports will tend to ________ causing aggregate demand to ________, everything else held constant.
A. fall; fall
B. fall; rise
C. rise; fall
D. rise; rise
Q:
An autonomous depreciation of the U.S. dollar makes American goods ________ relative to foreign goods and results in a ________ in U.S. net exports, everything else held constant.
A. cheaper; decline
B. cheaper; rise
C. more expensive; decline
D. more expensive; rise
Q:
If American college students decide that drinking Mexican-brewed beer helps one get noticed, net exports will tend to fall, causing aggregate demand to ________ and the ________ curve to shift to the left, everything else held constant.
A. fall; LM
B. fall; IS
C. rise; LM
D. rise; IS
Q:
A tax cut ________ disposable income, ________ consumption expenditure, and shifts the IS curve to the ________, everything else held constant.
A. increases; increases; right
B. increases; decreases; right
C. decreases; increases; left
D. decreases; decreases; left
Q:
A tax increase ________ disposable income, ________ consumption expenditure, and shifts the IS curve to the ________, everything else held constant.
A. increases; increases; right
B. increases; decreases; left
C. decreases; increases; left
D. decreases; decreases; left