Question 1

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 2

Which of the following may block the Keynesian transmission mechanism?

Accepted Answer

A)  the loanable funds market
B)  aggregate demand
C)  interest-insensitive investment
D)  the liquidity trap
E)  c and d

Question 3

If the investment demand curve is vertical, a decrease in the interest rate will __________ investment, and therefore aggregate demand will __________.

Accepted Answer

A)  increase; increase
B)  decrease; increase
C)  decrease; decrease
D)  decrease; remain unchanged
E)  not affect; remain unchanged

Question 4

When an economist states that the monetarist transmission mechanism is "direct" it means that a change in the money supply creates a direct impact on the goods and services market.

Accepted Answer

A) True 
 B)False

Question 5

According to the Keynesian transmission mechanism, an increase in the money supply causes a(n)  __________ in the interest rate and a(n)  __________ in investment, which in turn causes a(n)  __________ in total expenditures and aggregate demand.

Accepted Answer

A)  increase; decrease; decrease
B)  increase; increase; decrease
C)  decrease; increase; increase
D)  decrease; decrease; increase

Question 6

Exhibit 15-1
 
-Refer to Exhibit 15-l. A Keynesian monetary policy to eliminate a recessionary gap can be portrayed as a move between points

Accepted Answer

A)  A and B.
B)  B and C.
C)  C and D.
D)  D and A.

Question 7

Exhibit 15-3
 
-Refer to Exhibit 15-3. The economy is currently at point 4. The Fed increases the money supply and the economy ends up at point 8. Has monetary policy been effective at moderating the business cycle?

Accepted Answer

A)  Yes, since it eliminated the recessionary gap.
B)  Yes, since it decreased the unemployment rate.
C)  Yes, since it increased Real GDP.
D)  No, since it has moved the economy from a recessionary gap to an inflationary gap.
E)  a, b and c

Question 8

Which of the following statements is false?

Accepted Answer

A)  Keynesians would not advocate an expansionary monetary policy to eliminate a recessionary gap if they believed that investment demand was interest-insensitive.
B)  Keynesians would not advocate an expansionary monetary policy to eliminate a recessionary gap if they believed the money market was in the liquidity trap.
C)  Keynesians would advocate an expansionary monetary policy to eliminate a recessionary gap if they believed investment spending was insensitive to changes in the interest rate.
D)  Keynesians believe that money wages are inflexible in the downward direction.

Question 9

The quantity demanded of money is

Accepted Answer

A)  inversely related to the interest rate.
B)  directly related to the interest rate.
C)  inversely related to the general price level.
D)  inversely related to GDP.
E)  a, c, and d

Question 10

Exhibit 15-1
 
-Refer to Exhibit 15-1. A Keynesian would say that market forces work more quickly in taking the economy from point______________ than from point _______________.

Accepted Answer

A)  A to point D; D to point C
B)  A to point D; A to point B
C)  D to point C; B to point A
D)  C to point D; C to point B

Question 11

According to the Keynesian transmission mechanism, if the Fed conducts an open market sale of government securities, it may cause which of the following in the investment goods market?

Accepted Answer

A)  a rightward shift in the investment demand curve
B)  a leftward shift in the investment demand curve
C)  a movement down and along a given investment demand curve
D)  a movement up and along a given investment demand curve

Question 12

The demand-for-money curve illustrates the __________ relationship between the quantity demanded of money and __________.

Accepted Answer

A)  inverse; the interest rate
B)  direct; GDP.
C)  direct; the interest rate
D)  inverse; GDP

Question 13

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 14

The money supply increased and the AD curve did not shift to the right. This is consistent with the

Accepted Answer

A)  Keynesian transmission mechanism when there is either a liquidity trap or interest-insensitive investment.
B)  monetarist transmission mechanism when there is interest-insensitive investment.
C)  Keynesian transmission mechanism when there is a liquidity trap.
D)  monetarist transmission mechanism when there is a liquidity trap.
E)  c and d

Question 15

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 16

The money supply curve is usually horizontal.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following statements is true?

Accepted Answer

A)  The demand curve for money balances represents a direct relationship between the quantity demanded of money balances and the price of holding money balances.
B)  In the United States, the position of the money supply curve is determined exclusively by the Fed.
C)  The "money market" discussed in this chapter refers to the market for short-term securities.
D)  If, at a given interest rate, individuals want to hold less money than is supplied, this will put downward pressure on the interest rate.
E)  none of the above

Question 18

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.

Question 19

If Real GDP increases at an annual rate of 4 percent and velocity increases at a rate of 2 percent per year, then rules-based monetary policy advocates who wish to maintain a stable price level would set the annual money supply growth rate at

Accepted Answer

A)  -2 percent.
B)  0 percent.
C)  1 percent.
D)  2 percent.
E)  -1 percent.

Question 20

Suppose the money market is in the liquidity trap and that the economy is experiencing a recessionary gap. A Keynesian economist would most likely advocate

Accepted Answer

A)  expansionary monetary policy.
B)  contractionary monetary policy.
C)  expansionary fiscal policy.
D)  contractionary fiscal policy.

Exam 15: Monetary Policy

According to the Keynesian transmission mechanism, an increase in the money supply causes a(n) in the interest rate and a(n) in investment, which in turn causes a(n) __ in total expenditures and aggregate demand.

Correct Answer
verified

Exhibit 15-1 -Refer to Exhibit 15-1. A Keynesian would say that market forces work more quickly in taking the economy from point than from point _.

Correct Answer
verified

The money supply curve is usually horizontal.

Correct Answer
verified

Suppose the money market is in the liquidity trap and that the economy is experiencing a recessionary gap. A Keynesian economist would most likely advocate

Correct Answer
verified

If the investment demand curve is vertical, a decrease in the interest rate will investment, and therefore aggregate demand will .

Correct Answer
verified

Which of the following statements is true?

Correct Answer
verified

The money supply increased and the AD curve did not shift to the right. This is consistent with the

Correct Answer
verified

The demand-for-money curve illustrates the relationship between the quantity demanded of money and .

Correct Answer
verified

Correct Answer
verified

According to the Keynesian transmission mechanism, if the Fed conducts an open market sale of government securities, it may cause which of the following in the investment goods market?

Correct Answer
verified

Which of the following statements is false?

Correct Answer
verified

Monetarists believe that changes in the supply of money

Correct Answer
verified

The existence of a liquidity trap implies that

Correct Answer
verified

Exhibit 15-3 -Refer to Exhibit 15-3. The economy is currently at point 4. The Fed increases the money supply and the economy ends up at point 8. Has monetary policy been effective at moderating the business cycle?

Correct Answer
verified

When an economist states that the monetarist transmission mechanism is "direct" it means that a change in the money supply creates a direct impact on the goods and services market.

Correct Answer
verified

Which of the following may block the Keynesian transmission mechanism?

Correct Answer
verified

The quantity demanded of money is

Correct Answer
verified

If Real GDP increases at an annual rate of 4 percent and velocity increases at a rate of 2 percent per year, then rules-based monetary policy advocates who wish to maintain a stable price level would set the annual money supply growth rate at

Correct Answer
verified

Exhibit 15-1 -Refer to Exhibit 15-l. A Keynesian monetary policy to eliminate a recessionary gap can be portrayed as a move between points

Correct Answer
verified

Correct Answer
verified

Exam 15: Monetary Policy

According to the Keynesian transmission mechanism, an increase in the money supply causes a(n) __________ in the interest rate and a(n) __________ in investment, which in turn causes a(n) __________ in total expenditures and aggregate demand.

Correct AnswerverifiedShow Answer

Exhibit 15-1 -Refer to Exhibit 15-1. A Keynesian would say that market forces work more quickly in taking the economy from point______________ than from point _______________.

Correct AnswerverifiedShow Answer

The money supply curve is usually horizontal.

Correct AnswerverifiedShow Answer

Suppose the money market is in the liquidity trap and that the economy is experiencing a recessionary gap. A Keynesian economist would most likely advocate

Correct AnswerverifiedShow Answer

If the investment demand curve is vertical, a decrease in the interest rate will __________ investment, and therefore aggregate demand will __________.

Correct AnswerverifiedShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

The money supply increased and the AD curve did not shift to the right. This is consistent with the

Correct AnswerverifiedShow Answer

The demand-for-money curve illustrates the __________ relationship between the quantity demanded of money and __________.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

According to the Keynesian transmission mechanism, if the Fed conducts an open market sale of government securities, it may cause which of the following in the investment goods market?

Correct AnswerverifiedShow Answer

Which of the following statements is false?

Correct AnswerverifiedShow Answer

Monetarists believe that changes in the supply of money

Correct AnswerverifiedShow Answer

The existence of a liquidity trap implies that

Correct AnswerverifiedShow Answer

Exhibit 15-3 -Refer to Exhibit 15-3. The economy is currently at point 4. The Fed increases the money supply and the economy ends up at point 8. Has monetary policy been effective at moderating the business cycle?

Correct AnswerverifiedShow Answer

When an economist states that the monetarist transmission mechanism is "direct" it means that a change in the money supply creates a direct impact on the goods and services market.

Correct AnswerverifiedShow Answer

Which of the following may block the Keynesian transmission mechanism?

Correct AnswerverifiedShow Answer

The quantity demanded of money is

Correct AnswerverifiedShow Answer

If Real GDP increases at an annual rate of 4 percent and velocity increases at a rate of 2 percent per year, then rules-based monetary policy advocates who wish to maintain a stable price level would set the annual money supply growth rate at

Correct AnswerverifiedShow Answer

Exhibit 15-1 -Refer to Exhibit 15-l. A Keynesian monetary policy to eliminate a recessionary gap can be portrayed as a move between points

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

According to the Keynesian transmission mechanism, an increase in the money supply causes a(n) in the interest rate and a(n) in investment, which in turn causes a(n) __ in total expenditures and aggregate demand.

Correct Answer
verified

Exhibit 15-1 -Refer to Exhibit 15-1. A Keynesian would say that market forces work more quickly in taking the economy from point than from point _.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

If the investment demand curve is vertical, a decrease in the interest rate will investment, and therefore aggregate demand will .

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The demand-for-money curve illustrates the relationship between the quantity demanded of money and .

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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