Question 1

The Taylor Rule specifies that the federal funds rate target should be equal to

Accepted Answer

A)   0.5 ( inflation rate)  + 1.5 (GDP gap)  + 1
B)   1.5 (inflation rate)  + 0.5 (GDP gap)  + 1.
C)   interest rate - expected inflation rate.
D)   equilibrium federal funds rate + inflation rate +1

Question 2

Economist Jones favors a constant-money-growth-rate rule.She says that if the annual money supply growth rate each year is equal to the average annual growth rate in Real GDP,price stability will exist over time.What would economist Smith,who favors activist monetary policy,say to economist Jones?

Accepted Answer

A)   Your analysis assumes that Real GDP is constant over time, and it is not.
B)   Your analysis assumes that velocity is constant, and it is not.
C)   Your analysis assumes that you can correctly define the money supply.
D)   b and c
E)   a, b and c

Question 3

A decrease in the money supply will shift the aggregate __________ curve to the __________.

Accepted Answer

A)   supply; left
B)   supply; right
C)   demand; left
D)   demand; right

Question 4

Explain how,according to the theory of PSST (patterns of specialization and sustainable trade),economic activity can decline in the face of unchanged aggregate demand. Give a hypothetical example to help support your answer.

Accepted Answer

With a specialized labor force,there can...

Question 5

The existence of a liquidity trap implies that

Accepted Answer

A)   a decrease in the interest rate might not increase investment spending.
B)   an increase in the demand for money will be followed by an equal increase in the supply of money.
C)   an increase in the supply of money may not lower interest rates.
D)   a and c

Question 6

Monetarists believe that changes in the supply of money

Accepted Answer

A)   do not affect aggregate demand.
B)   affect aggregate demand through the loanable funds market only.
C)   affect only the investment component of aggregate demand.
D)   affect aggregate demand directly.

Question 7

Economists who propose a constant-money-growth-rate rule often argue that setting the annual growth rate in the money supply equal to the average annual growth rate in Real GDP

Accepted Answer

A)   maintains price level stability over time.
B)   is a way to raise Real GDP.
C)   will cause the price level to fall over time.
D)   a and b
E)   a, b and c

Question 8

Compared to the Keynesian transmission mechanism,the monetarist transmission mechanism is

Accepted Answer

A)   indirect and long.
B)   direct and long.
C)   direct and short.
D)   indirect and short.

Question 9

The liquidity trap is the

Accepted Answer

A)   vertical portion of the demand curve for money.
B)   horizontal portion of the demand curve for money.
C)   vertical portion of the supply curve of money.
D)   horizontal portion of the supply curve of money.
E)   vertical portion of the demand curve for investment.

Question 10

The money supply decreased and the AD curve shifted to the left.This is consistent with the

Accepted Answer

A)   Keynesian transmission mechanism when there is neither a liquidity trap nor interest-insensitive investment.
B)   monetarist transmission mechanism.
C)   Keynesian transmission mechanism when there is a liquidity trap.
D)   Keynesian transmission mechanism with interest-insensitive investment.
E)   a and b

Question 11

Last year,Leah bought a bond for $1,000 that promises to pay $110 a year.This year,a person who buys a bond for $1,000 receives $90 a year.If Leah were to sell her (old) bond,its price would be approximately

Accepted Answer

A)   $818.
B)   $846.
C)   $890.
D)   $1,222.
E)   $1,273.

Question 12

Suppose that an individual can hold her wealth in only two forms: money and bonds. A _______________ in the bond market would then imply that there is a ________________ in the money market.

Accepted Answer

A)   surplus; surplus
B)   shortage; shortage
C)   surplus; shortage
D)   shortage; surplus
E)   c and d

Question 13

Last year,Bentley bought a bond for $1,000 that promises to pay $115 a year.This year,a person who buys a bond for $1,000 receives $125 a year.If Bentley were to sell his (old) bond,its price would be approximately

Accepted Answer

A)   $920.
B)   $1,125.
C)   $1,087.
D)   $1,350.

Question 14

Last year,Danielle bought a bond for $1,000 that promises to pay $115 a year.This year,a person who buys a bond for $1,000 receives $120 a year.If Danielle were to sell her (old) bond,its price would be approximately

Accepted Answer

A)   $958.
B)   $1,043.
C)   $1,211.
D)   $1,115.

Question 15

The price of holding money balances is equal to the

Accepted Answer

A)   price of bonds that could have been purchased with those money balances.
B)   price of goods and services that could have been purchased with those money balances.
C)   the interest rate that could have been earned had those money balances been invested in an interest-bearing alternative (e.g., a bond) .
D)   any of the above

Question 16

Suppose the economy is experiencing an inflationary gap.Based on available data,the Fed starts implementing contractionary monetary policy,but this moves the economy into a recessionary gap.The most probable explanation is that,because of the total lag in monetary policy,the government did not realize that the economy was already healing itself,i.e.,that the

Accepted Answer

A)   AD curve was shifting rightward.
B)   AD curve was shifting leftward.
C)   SRAS curve was shifting rightward.
D)   SRAS curve was shifting leftward.

Exam 15: Monetary Policy

Last year,Leah bought a bond for $1,000 that promises to pay $110 a year.This year,a person who buys a bond for $1,000 receives $90 a year.If Leah were to sell her (old) bond,its price would be approximately

Correct Answer
verified

Last year,Bentley bought a bond for $1,000 that promises to pay $115 a year.This year,a person who buys a bond for $1,000 receives $125 a year.If Bentley were to sell his (old) bond,its price would be approximately

Correct Answer
verified

The price of holding money balances is equal to the

Correct Answer
verified

The liquidity trap is the

Correct Answer
verified

A decrease in the money supply will shift the aggregate curve to the .

Correct Answer
verified

Monetarists believe that changes in the supply of money

Correct Answer
verified

Correct Answer
verified

Economist Jones favors a constant-money-growth-rate rule.She says that if the annual money supply growth rate each year is equal to the average annual growth rate in Real GDP,price stability will exist over time.What would economist Smith,who favors activist monetary policy,say to economist Jones?

Correct Answer
verified

Explain how,according to the theory of PSST (patterns of specialization and sustainable trade),economic activity can decline in the face of unchanged aggregate demand. Give a hypothetical example to help support your answer.

Correct Answer
verified
With a specialized labor force,there can...
View Answer

The money supply decreased and the AD curve shifted to the left.This is consistent with the

Correct Answer
verified

Economists who propose a constant-money-growth-rate rule often argue that setting the annual growth rate in the money supply equal to the average annual growth rate in Real GDP

Correct Answer
verified

Compared to the Keynesian transmission mechanism,the monetarist transmission mechanism is

Correct Answer
verified

The Taylor Rule specifies that the federal funds rate target should be equal to

Correct Answer
verified

Last year,Danielle bought a bond for $1,000 that promises to pay $115 a year.This year,a person who buys a bond for $1,000 receives $120 a year.If Danielle were to sell her (old) bond,its price would be approximately

Correct Answer
verified

The existence of a liquidity trap implies that

Correct Answer
verified

Suppose that an individual can hold her wealth in only two forms: money and bonds. A _ in the bond market would then imply that there is a __ in the money market.

Correct Answer
verified

Exam 15: Monetary Policy

Last year,Leah bought a bond for $1,000 that promises to pay $110 a year.This year,a person who buys a bond for $1,000 receives $90 a year.If Leah were to sell her (old) bond,its price would be approximately

Correct AnswerverifiedShow Answer

Last year,Bentley bought a bond for $1,000 that promises to pay $115 a year.This year,a person who buys a bond for $1,000 receives $125 a year.If Bentley were to sell his (old) bond,its price would be approximately

Correct AnswerverifiedShow Answer

The price of holding money balances is equal to the

Correct AnswerverifiedShow Answer

The liquidity trap is the

Correct AnswerverifiedShow Answer

A decrease in the money supply will shift the aggregate __________ curve to the __________.

Correct AnswerverifiedShow Answer

Monetarists believe that changes in the supply of money

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Economist Jones favors a constant-money-growth-rate rule.She says that if the annual money supply growth rate each year is equal to the average annual growth rate in Real GDP,price stability will exist over time.What would economist Smith,who favors activist monetary policy,say to economist Jones?

Correct AnswerverifiedShow Answer

Explain how,according to the theory of PSST (patterns of specialization and sustainable trade),economic activity can decline in the face of unchanged aggregate demand. Give a hypothetical example to help support your answer.

Correct AnswerverifiedWith a specialized labor force,there can...View AnswerShow Answer

The money supply decreased and the AD curve shifted to the left.This is consistent with the

Correct AnswerverifiedShow Answer

Economists who propose a constant-money-growth-rate rule often argue that setting the annual growth rate in the money supply equal to the average annual growth rate in Real GDP

Correct AnswerverifiedShow Answer

Compared to the Keynesian transmission mechanism,the monetarist transmission mechanism is

Correct AnswerverifiedShow Answer

The Taylor Rule specifies that the federal funds rate target should be equal to

Correct AnswerverifiedShow Answer

Last year,Danielle bought a bond for $1,000 that promises to pay $115 a year.This year,a person who buys a bond for $1,000 receives $120 a year.If Danielle were to sell her (old) bond,its price would be approximately

Correct AnswerverifiedShow Answer

The existence of a liquidity trap implies that

Correct AnswerverifiedShow Answer

Suppose that an individual can hold her wealth in only two forms: money and bonds. A _______________ in the bond market would then imply that there is a ________________ in the money market.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
verified

A decrease in the money supply will shift the aggregate curve to the .

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
With a specialized labor force,there can...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Suppose that an individual can hold her wealth in only two forms: money and bonds. A _ in the bond market would then imply that there is a __ in the money market.

Correct Answer
verified