Macroeconomics ch 12

Question 1

Monetary policy is conducted by

Answer 1

The Fed

Question 2

If nominal GDP is $24,000 billion and the money supply is $20,000 billion, the velocity of money is

Answer 2

1.2

Question 3

The velocity of money is equal to

Answer 3

Nominal GDP divided by the money supply

Question 4

According to classical monetary theory

Answer 4

The velocity of money is constant

Question 5

If the money supply increases by 10%, Real GDP is constant, and velocity is constant, the price level mustL

Answer 5

Increase by 10%

Question 6

If the money supply increases by 10%, Real GDP increases by 3%, and velocity decreases by 4%, the price level must

Answer 6

Increase by about about 3%

Question 7

A difference between monetarism and classical theory is

Answer 7

Monetarism holds that AD affects Real GDP in the short run

Question 8

According to the Keynesian monetary transmission mechanism

Answer 8

An increase in investment leads to an increase in Total Expenditures

Question 9

The Keynesian monetary transmission mechanism

Answer 9

Is indirect, may fail because investment may be interest-insensitive, and may fail because of the liquidity trap

Question 10

If investors are insensitive to a decrease in interest rates

Answer 10

Expansionary monetary policy may have no effect on investment and expansionary monetary policy may have no effect on Real GDP

Question 11

The liquidity trap

Answer 11

Means that interest rates will only fall so low and may cause expansionary monetary policy to have no effect on interest rates

Question 12

Expansionary monetary policy

Answer 12

Means a decrease in the target for the federal funds rate and according to the Keynesian theory, would cause interest rates to decrease

Question 13

Contractionary monetary policy

Answer 13

Means a decrease in the target for the federal funds rate and according to the Keynesian theory, would cause interest rates to decrease

Question 14

Which of the following is true

Answer 14

Monetarists are generally opposed to activist policies

Question 15

A monetary rule

Answer 15

would link money supply growth to Real GDP growth

Question 16

When the Fed wants to make a change in monetary policy

Answer 16

NOT
it must first obtain the approval of the President and the proposed change must be approved by a majority of the Senate

Question 17

The primary source of income for the Fed is

Answer 17

interest on its holdings of U.S. government securities

Question 18

Financial Intermediation

Answer 18

Is the primary function of banks today and allows savers to reduce their risk of loss

Question 19

Between 1929 and 1932, real investment spending

Answer 19

decreased by 83%

Question 20

The high unemployment associated with the Great Depression lasted for

Answer 20

twelve years

Question 21

The New Deal policies beginning in 1933

Answer 21

according to classical economists, hobbled the economic recovery

Question 22

According to Keynesian economists, the Great Depression

Answer 22

Was ended by the expansionary fiscal and monetary policy associated with World War 2

Question 23

According to classical economists

Answer 23

NOT
the Great depression was caused by the inherent instability of a market economy and the great depression could have been quickly ended with higher tariff rates

Question 24

Alan Greenpan’s tenure as Chairman of the Federal Reserve Board was maked by:

Answer 24

A remarkable run of economic stability and low inflation

Question 25

According to Alan Greenspan

Answer 25

Free trade promotes both economic growth and democracy

Question 26

Alan Greenspan forecasts that by, 2030, U.S. Real GDP will be

Answer 26

75 percent larger than in 2006