Q&A Hero

Q: Suppose the economy is producing at the natural rate of output. An increase in consumer and business confidence will cause ________ in real GDP in the short run and ________ in inflation in the short run, everything else held constant. A. an increase; an increase B. a decrease; a decrease C. no change; an increase D. no change; a decrease

Q: Suppose the economy is producing at the natural rate of output. Assuming a fixed natural rate of output and everything else held constant, the development of a new, more productive technology will cause ________ in the unemployment rate and ________ in the inflation in the long run. A. an increase; an increase B. a decrease; a decrease C. a decrease; an increase D. no change; no change

Q: Suppose the economy is producing at the natural rate of output. Assuming a fixed natural rate of output and everything else held constant, the development of a new, more productive technology will cause ________ in the unemployment rate in the long run and ________ in inflation in the short run. A. an increase; an increase B. a decrease; a decrease C. no change; a decrease D. no change; no change

Q: Suppose the economy is producing at the natural rate of output. Assuming a fixed natural rate of output and everything else held constant, the development of a new, more productive technology will cause ________ in the unemployment rate in the short run and ________ in inflation in the short run. A. an increase; an increase B. a decrease; a decrease C. a decrease; an increase D. no change; no change

Q: Assuming the economy is starting at the natural rate of output and everything else held constant, the effect of ________ in aggregate ________ is a rise in both inflation and output in the short-run, but in the long-run the only effect is a rise in inflation. A. a decrease; supply B. a decrease; demand C. an increase; supply D. an increase; demand

Q: The fact that an economy always returns to the natural rate level of output is known as A. the excess demand hypothesis. B. the price-adjustment mechanism. C. the self-correcting mechanism. D. the natural rate of unemployment.

Q: Which of the followings does NOT shift the short-run aggregate supply curve? A. supply shocks. B. persistent positive output gap. C. changes in expected inflation. D. an increase in output gap.

Q: The short-run aggregate supply curve shifts to the right when A. output gap is higher. B. output gap is lower. C. expected inflation is higher. D. expected inflation is lower.

Q: The long-run aggregate supply curve shifts to the right when there is A. an increase in the total amount of capital in the economy. B. an increase in the available technology. C. a decrease in the natural rate of unemployment. D. A and B. E. A, B, and C.

Q: The long-run aggregate supply curve shifts to the right when there is A. a decrease in the total amount of capital in the economy. B. a decrease in the total amount of labor supplied in the economy. C. a decrease in the available technology. D. a decline in the natural rate of unemployment.

Q: Which of the following increases aggregate supply in the short-run, everything else held constant? A. an increase in the price of crude oil B. a successful wage push by workers C. expectations of a higher inflation D. a technological improvement that increases worker productivity

Q: Everything else held constant, a change in workers' expectations about inflation will cause ________ to change. A. aggregate demand B. short-run aggregate supply C. the production function D. long-run aggregate supply

Q: Everything else held constant, if workers expect an increase in inflation, ________ aggregate supply ________. A. long-run; increases B. long-run; decreases C. short-run; decreases D. short-run; increases

Q: Everything else held constant, when actual output exceeds the natural rate of output ________ aggregate supply ________. A. short-run; decreases B. short-run; increases C. long-run; increases D. long-run; decreases

Q: ________ flexible wages and prices imply that the short-run aggregate supply curve is ________. A. More; flatter B. Less; steeper C. less; vertical D. More; steeper

Q: The long-run aggregate supply curve is a vertical line passing through A. the natural rate of output. B. the natural-rate price level. C. the actual rate of unemployment. D. the expected rate of inflation.

Q: The long-run aggregate supply curve is A. a vertical line through the non-inflationary rate of output. B. a vertical line through the current level of output. C. a vertical line through the natural rate level of output. D. a horizontal line through the current level of output.

Q: The long-run rate of unemployment to which an economy always gravitates is the A. normal rate of unemployment. B. natural rate of unemployment. C. neutral rate of unemployment. D. inflationary rate of unemployment.

Q: The aggregate supply curve shows the relationship between A. the level of inputs and aggregate output. B. the inflation rate and the level of inputs. C. the wage rate and the level of employment. D. the inflation rate and the level of aggregate output supplied.

Q: The aggregate supply curve is the total quantity of A. raw materials offered for sale at different inflation rates. B. final goods and services offered for sale at the current inflation rate. C. final goods and services offered for sale at different inflation rates. D. intermediate and final goods and service offered for sale at different inflation rates.

Q: Explain through the component parts of aggregate demand why the aggregate demand curve slopes down with respect to the inflation rate. Be sure to discuss two channels through which changes in inflation rates affect demand.

Q: Everything else held constant, which of the following does NOT cause aggregate demand to increase? A. an increase in net exports B. an increase in government spending C. an increase in taxes D. an increase in consumer optimism

Q: Everything else held constant, aggregate demand increases when A. net exports decrease. B. taxes increase. C. planned investment spending increases. D. the money supply decreases.

Q: Everything else held constant, aggregate demand increases when A. taxes are cut. B. government spending is reduced. C. animal spirits decrease. D. the money supply is reduced.

Q: Everything else held constant, a decrease in planned investment expenditure ________ aggregate ________. A. increases; demand B. decreases; demand C. decreases; supply D. increases; supply

Q: Everything else held constant, an increase in planned investment expenditure ________ aggregate ________. A. increases; demand B. decreases; demand C. decreases; supply D. increases; supply

Q: Everything else held constant, a decrease in net exports ________ aggregate ________. A. increases; demand B. decreases; demand C. decreases; supply D. increases; supply

Q: Everything else held constant, an increase in net exports ________ aggregate ________. A. increases; demand B. decreases; demand C. decreases; supply D. increases; supply

Q: Everything else held constant, a balanced budget increase in government spending (that is, an increase in government spending that is matched by an identical increase in net taxes) will A. increase aggregate demand, but not by as much as if just government spending increases. B. increase aggregate demand by more than if just government spending increases. C. not affect aggregate demand. D. decrease aggregate demand.

Q: Everything else held constant, an increase in net taxes ________ aggregate ________. A. increases; demand B. decreases; demand C. decreases; supply D) increases; supply

Q: Everything else held constant, a decrease in net taxes ________ aggregate ________. A. increases; demand B. decreases; demand C. decreases; supply D. increases; supply

Q: Everything else held constant, a decrease in government spending ________ aggregate ________. A. increases; demand B. decreases; demand C. decreases; supply D. increases; supply

Q: Everything else held constant, an increase in government spending ________ aggregate ________. A. increases; demand B. decreases; demand C. decreases; supply D. increases; supply

Q: Everything else held constant, an increase in financial frictions ________ aggregate ________. A. increases; demand B. decreases; demand C. decreases; supply D. increases; supply

Q: Everything else held constant, when financial frictions increase, the real cost of borrowing ________ so that planned investment spending ________ at any given inflation rate. A. increases; falls B. decreases; falls C. decreases; rises D. increases; rises

Q: Everything else held constant, an autonomous monetary policy tightening ________ aggregate ________. A. increases; demand B. decreases; demand C. decreases; supply D. increases; supply

Q: Everything else held constant, an autonomous monetary policy easing ________ aggregate ________. A. increases; demand B. decreases; demand C. decreases; supply D. increases; supply

Q: Which of the followings is NOT true about the word "autonomous" that economists use? A. Changes in autonomous components are associated with shifts of a curve. B. The autonomous component of a variable is exogenous. C. The autonomous component of a variable is independent of other variables in the model. D. The autonomous component of a variable is induced by other variables in the model.

Q: Which of the followings is NOT true about the word "autonomous" that economists use? A. Changes in autonomous components are associated with movements along a curve. B. Changes in autonomous components are associated with shifts of a curve. C. The autonomous component of a variable is exogenous. D. The autonomous component of a variable is independent of other variables in the model.

Q: By looking at aggregate demand via its component parts, we can conclude that the aggregate demand curve is downward sloping because A. a lower inflation rate causes the real interest rate to fall, and stimulates planned investment spending. B. a lower inflation rate causes the real interest rate to rise, and stimulates planned investment spending. C. a higher inflation rate causes the real interest rate to fall, and stimulates planned investment spending. D. a higher inflation rate causes the real interest rate to rise, and stimulates planned investment spending.

Q: By analyzing aggregate demand through its component parts, we can conclude that, everything else held constant, a decline in the inflation rate causes A. an increase in real interest rates, an increase in investment spending, and a decline in aggregate output demand. B. a decline in real interest rates, a decrease in investment spending, and an increase in aggregate output demand. C. a decline in real interest rates, an increase in investment spending, and an increase in aggregate output demand. D. an increase in real interest rates, a decline in investment spending, and a decline in aggregate output demand.

Q: One way to derive aggregate demand is by looking at its four component parts, which are A. consumer expenditures, planned investment spending, government spending, and net exports. B. consumer expenditures, actual investment spending, government spending, and net exports. C. consumer expenditures, planned investment spending, government spending, and gross exports. D. consumer expenditures, planned investment spending, government spending, and taxes.

Q: The total quantity of an economy's final goods and services demanded at different inflation rates is A. the aggregate supply curve. B. the aggregate demand curve. C. the Phillips curve. D. the aggregate expenditure function.

Q: The aggregate demand curve is the total quantity of an economy's A. intermediate goods demanded at different inflation rates. B. intermediate goods demanded at a particular inflation rate. C. final goods and services demanded at a particular inflation rate. D. final goods and services demanded at different inflation rates.

Q: In the late 1990s, M2 velocity ________, suggesting a ________ normal relationship between M2 and macroeconomic variables. A. stabilized; less B. stabilized; more C. slowed; less D. slowed; more

Q: In the early 1990s, M2 growth underwent a dramatic ________, which some researchers believe ________ be explained by traditional money demand functions. A. surge; cannot B. surge; can C. slowdown; cannot D. slowdown; can

Q: Researchers at the Federal Reserve found that M2 money demand functions performed ________ in the 1980s, with M2 velocity moving ________ with the opportunity cost of holding M2. A. poorly; erratically B. poorly; closely C. well; erratically D. well; closely

Q: Conventional money demand functions tended to ________ money demand in the middle and late 1970s, and ________ velocity beginning in A. overpredict; overpredict B. overpredict; underpredict C. underpredict; overpredict D. underpredict; underpredict

Q: Starting in 1974, the conventional M1 money demand function began to severely ________ the demand for money. Stephen Goldfeld labeled this phenomenon "the case of the missing ________." A. underpredict; velocity B. overpredict; velocity C. underpredict; money D. overpredict; money

Q: Starting in 1974, the conventional M1 money demand function began to A. severely underpredict the demand for money. B. severely overpredict the demand for money. C. predict more precisely the demand for money. D. do none of the above.

Q: In one of the earliest studies on the link between interest rates and money demand using United States data, James Tobin concluded that the demand for money is A. sensitive to interest rates. B. not sensitive to interest rates. C. not sensitive to changes in income. D. not sensitive to changes in bond values.

Q: What factors determine the demand for money in the Baumol-Tobin analysis of transactions demand for money? How does a change in each factor affect the quantity of money demanded?

Q: The speculative demand for money may not exist because A. banks now pay interest on some types of checkable deposits. B. there are alternative riskless assets paying higher returns than the return on money. C. the transactions demand can be shown to depend on interest rates. D. government regulations have eliminated risk in the financial markets.

Q: Because Treasury bills pay a higher return than money and have no risk A. the transactions demand for money may be zero. B. the precautionary demand for money may be zero. C. the speculative demand for money may be zero. D. all three of the above motives for holding money will be zero.

Q: Tobin's model of the speculative demand for money shows that people can reduce their ________ by ________ their asset holdings. A. wealth; diversifying B. risk; specializing C. return; diversifying D. risk; diversifying

Q: Tobin's model of the speculative demand for money shows that people hold money as a ________ as a way of reducing ________. A. medium of exchange; transaction costs B. medium of exchange; risk C. store of wealth; transaction costs D. store of wealth; risk

Q: Tobin's model of the speculative demand for money shows that people hold money as a store of wealth as a way of A. reducing risk. B. reducing income. C. avoiding taxes. D. reducing transactions cost.

Q: Tobin's model of the speculative demand for money improves on Keynes's analysis by showing that A. the speculative demand for money is interest insensitive. B. the transactions demand for money is interest insensitive. C. people will hold a diversified portfolio. D. people will hold money or bonds but not both.

Q: In the Baumol-Tobin analysis of transactions demand, scale economies imply that an increase in real income increases the quantity of money demanded ________, while an increase in the price level increases the quantity of money demanded ________. A. proportionately; less than proportionately B. more than proportionately; proportionately C. less than proportionately; proportionately D. proportionately; more than proportionately

Q: In the Baumol-Tobin analysis of the demand for money, either an increase in ________ or an increase in ________ increases money demand. A. income; interest rates B. brokerage fees; interest rates C. interest rates; the price level D. brokerage fees; income

Q: In the Baumol-Tobin analysis of transactions demand for money, either an increase in ________ or a decrease in ________ increases money demand. A. income; interest rate B. interest rates; brokerage fees C. brokerage fees; income D. interest rate; income

Q: The Baumol-Tobin analysis suggests that a decrease in the brokerage fee for buying and selling bonds will cause the demand for money to ________ and the demand for bonds to ________. A. increase; increase B. increase; decrease C. decrease; decrease D. decrease; increase

Q: The Baumol-Tobin analysis suggests that an increase in the brokerage fee for buying and selling bonds will cause the demand for money to ________ and the demand for bonds to ________. A. increase; increase B. increase; decrease C. decrease; increase D. decrease; decrease

Q: The Baumol-Tobin analysis suggests that A. velocity is relatively constant. B. the transactions component of the demand for money is negatively related to the level of interest rates. C. the speculative motive is nonexistent. D. velocity is unrelated to the transactions motive.

Q: In the Baumol-Tobin model, given that total costs for an individual equals + , where T0 = monthly income, b = brokerage costs, and C = amount raised from each bond transaction, derive the so-called square root rule.

Q: Comparing Tobin's model of the speculative demand for money with Keynesian speculative demand A. both models imply that individuals hold only money or only bonds. B. the Keynesian model implies individuals diversify their asset holdings, while the Tobin model predicts that individuals hold only money or only bonds. C. the Tobin model implies individuals diversify their asset holdings, while the Keynesian model predicts that individuals hold only money or only bonds. D. both models imply that individuals diversify their asset holdings.

Q: If there are economies of scale in the transactions demand for money, as income increases, money demand A. increases proportionately. B. increases less than proportionately. C. increases more than proportionately. D. does not change.

Q: The absence of money illusion means that A. as real income doubles, the demand for money doubles. B. as interest rates double, the demand for money doubles. C. as the money supply doubles, the demand for money doubles. D. as the price level doubles, the demand for money doubles.

Q: Describe what the liquidity trap is. Explain how it can be problematic for monetary policymakers.

Q: The reason that economists are so interested in the stability of velocity is because if the demand for money is not stable, then steady growth of the money supply A. is going to promote price stability at the expense of low unemployment. B. is going to promote low unemployment at the expense of price stability. C. is an ineffective way to conduct monetary policy. D. can still be used to conduct monetary policy if the goal is price stability.

Q: Evidence suggests that a liquidity trap is possible when A. real interest rates are at zero. B. real interest rates are at or just above zero. C. nominal interest rates are at zero. D. nominal interest rates are at or just above zero.

Q: In the liquidity trap, the money demand curve A. is horizontal. B. is vertical. C. is negatively sloped. D. is positively sloped.

Q: In the liquidity trap, monetary policy A. has a large impact on interest rates. B. has a small impact on interest rates. C. has no impact on interest rates. D. has a proportionate impact on interest rates.

Q: In a liquidity trap, monetary policy has ________ effect on aggregate spending because a change in the money supply has ________ effect on interest rates. A. no; no B. no; a large C. no; a small D. a large; a large

Q: In the liquidity trap a small change in interest rates produces ________ change in the quantity of money demanded. A. a small B. no C. a proportionate D. a very large

Q: The evidence on the interest sensitivity of the demand for money suggests that the demand for money is ________ to interest rates, and there is ________ evidence that a liquidity trap exists. A. sensitive; substantial B. sensitive; little C. insensitive; substantial D. insensitive; little

Q: The theory of portfolio choice indicates that factors affecting the demand for money include A. income. B. nominal interest rate. C. riskiness of money. D. all the above.

Q: The theory of portfolio choice indicates that factors affecting the demand for money include A. income. B. nominal interest rate. C. liquidity of other assets. D. all the above.

Q: The theory of portfolio choice indicates that higher interest rates make money ________ desirable, and the demand for real money balances ________. A. less; falls B. more; falls C. less; rises D. more; rises

Q: As interest rates rise, the expected absolute return of money ________, money's expected return relative to bonds ________. A. does not change; decrease B. rises; decrease C. does not change; increase D. falls; decrease