Question 1

If there is an exogenous decrease in investment spending, Monetarists argue that there would be little or no effect on real output because the interest rate would __________, investment would __________, saving would __________, and consumption would __________.

Accepted Answer

A)   decline; increase; increase; decrease
B)   decline; increase; decrease; increase
C)   rise; decrease; decrease; increase
D)   rise; decrease; increase; increaseE) A) and C)
F) C) and D)

Question 2

The income effect implies that there is a positive relationship between

Accepted Answer

A)   income and the unemployment rate.
B)   the unemployment rate and the inflation rate.
C)   aggregate supply and aggregate demand.
D)   monetary growth and interest rates.E) B) and C)
F) All of the above

Question 3

A relatively steep aggregate demand curve indicates that

Accepted Answer

A)   velocity is relatively constant.
B)   the economy is near full employment.
C)   inflation is relatively high.
D)   spending is insensitive to changes in the price level.E) B) and C)
F) A) and B)

Question 4

According to the Monetarists, the money supply is a major factor determining

Accepted Answer

A)   aggregate supply.
B)   aggregate demand.
C)   velocity.
D)   real wages.E) A) and B)
F) A) and C)

Question 5

The essence of the monetarists view on crowding out is that higher government spending which is not financed by new money creation simply

Accepted Answer

A)   reduces private spending by an equal amount.
B)   decreases the demand for money.
C)   increases investment.
D)   increases aggregate demand in the in the long run.E) A) and B)
F) A) and C)

Question 6

Keynesians argue that the stabilizing effects of a fall in investment and the resulting decline in the price level assumed by the monetarists

Accepted Answer

A)   will not happen because the price level will actually rise.
B)   will happen.
C)   is not likely to happen because the price level rarely ever falls.
D)   may or may not happen depending on what happens to interest rates.E) A) and D)
F) All of the above

Question 7

A Classical aggregate supply curve is

Accepted Answer

A)   vertical.
B)   upward-sloping.
C)   horizontal.
D)   downward-sloping.E) None of the above
F) A) and B)

Question 8

The Keynesians argue that even if the interest rate does __________ in response to a decrease in investment, there is __________ guarantee that spending will increase very much.

Accepted Answer

A)   increase; no
B)   increase; a
C)   decrease; no
D)   decrease; aE) A) and D)
F) B) and D)

Question 9

If policymakers are expected to increase the money supply, Monetarists argue that there is __________ effect. There is __________ effect that raises prices when the money supply actually increases.

Accepted Answer

A)   a small liquidity; an income
B)   no; an income
C)   a small income; a liquidity
D)   no; a liquidityE) A) and B)
F) A) and C)

Question 10

The relationship between unemployment and inflation is

Accepted Answer

A)   nonexistent.
B)   positive.
C)   negative.
D)   None of the above.E) None of the above
F) B) and C)

Question 11

What method of financing government spending leads to the least crowding-out?

Accepted Answer

A)   Money creation
B)   Taxation
C)   Selling bonds to the public
D)   Selling government assets, like national parksE) A) and B)
F) A) and C)

Question 12

Monetarists consider timing variations in the relationship between money supply changes and income changes to be

Accepted Answer

A)   a fundamental problem of counter-cyclical monetary policy.
B)   inconsequential relative to the problem of instability in the velocity of money.
C)   a fundamental long-run problem but not a significant problem in the short run.
D)   offset by predictable changes in the money multiplier.E) A) and D)
F) B) and D)

Question 13

Monetarists have argued that since velocity __________, this shows that shifts to the investment demand function must __________.

Accepted Answer

A)   is rather stable; cause the private economy to be unstable
B)   is rather stable; be offset by interest rate changes
C)   moves counter-cyclically; cause the private economy to be unstable
D)   moves counter-cyclically; be offset by interest rate changesE) None of the above
F) A) and B)

Question 14

Monetarists argue that an exogenous fall in investment spending leads to

Accepted Answer

A)   declining real output.
B)   declining money supply.
C)   declining velocity.
D)   declining interest rates.E) B) and D)
F) All of the above

Question 15

When the aggregate demand curve shifts to the left, real GDP falls unless the aggregate supply curve is

Accepted Answer

A)   horizontal.
B)   upward-sloping.
C)   vertical.
D)   upward-sloping or vertical.E) A) and D)
F) C) and D)

Question 16

According to Monetarists, a direct substitution between cash balances and real goods results from a change in

Accepted Answer

A)   investment spending.
B)   consumption spending.
C)   government spending.
D)   the money supply.E) A) and B)
F) A) and D)

Question 17

A positive relationship exists between monetary growth and interest rates when the

Accepted Answer

A)   aggregate supply curve is horizontal.
B)   aggregate demand curve is horizontal.
C)   price level is fixed.
D)   income effect offsets the liquidity effect.E) B) and D)
F) A) and B)

Question 18

__________ argue that any exogenous decrease in investment spending would be countered automatically by either increased consumption or interest-sensitive investment spending.

Accepted Answer

A)   Monetarists
B)   Keynesians
C)   Classical economists
D)   None of the above.E) A) and B)
F) None of the above

Question 19

The assumption that people may choose to hold excess money balances when there is an increase in the money supply is emphasized by

Accepted Answer

A)   supply-side economists.
B)   Monetarists.
C)   Keynesians.
D)   rational expectations theorists.E) A) and C)
F) C) and D)

Question 20

If inflation becomes a serious problem, a Monetarist-oriented President is likely to favor a policy emphasizing

Accepted Answer

A)   slower monetary growth.
B)   lower interest rates.
C)   higher taxes.
D)   wage and price controls.E) A) and B)
F) All of the above

Exam 26: An Aggregate Supply and Demand Perspective on Money and Economic Stability

Monetarists argue that an exogenous fall in investment spending leads to

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The Keynesians argue that even if the interest rate does __________ in response to a decrease in investment, there is __________ guarantee that spending will increase very much.

Correct AnswerverifiedShow Answer

Monetarists consider timing variations in the relationship between money supply changes and income changes to be

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The income effect implies that there is a positive relationship between

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The essence of the monetarists view on crowding out is that higher government spending which is not financed by new money creation simply

Correct AnswerverifiedShow Answer

A Classical aggregate supply curve is

Correct AnswerverifiedShow Answer

If there is an exogenous decrease in investment spending, Monetarists argue that there would be little or no effect on real output because the interest rate would __________, investment would __________, saving would __________, and consumption would __________.

Correct AnswerverifiedShow Answer

A relatively steep aggregate demand curve indicates that

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__________ argue that any exogenous decrease in investment spending would be countered automatically by either increased consumption or interest-sensitive investment spending.

Correct AnswerverifiedShow Answer

A positive relationship exists between monetary growth and interest rates when the

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What method of financing government spending leads to the least crowding-out?

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Monetarists have argued that since velocity __________, this shows that shifts to the investment demand function must __________.

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According to the Monetarists, the money supply is a major factor determining

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The assumption that people may choose to hold excess money balances when there is an increase in the money supply is emphasized by

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When the aggregate demand curve shifts to the left, real GDP falls unless the aggregate supply curve is

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Keynesians argue that the stabilizing effects of a fall in investment and the resulting decline in the price level assumed by the monetarists

Correct AnswerverifiedShow Answer

The relationship between unemployment and inflation is

Correct AnswerverifiedShow Answer

If policymakers are expected to increase the money supply, Monetarists argue that there is __________ effect. There is __________ effect that raises prices when the money supply actually increases.

Correct AnswerverifiedShow Answer

If inflation becomes a serious problem, a Monetarist-oriented President is likely to favor a policy emphasizing

Correct AnswerverifiedShow Answer

According to Monetarists, a direct substitution between cash balances and real goods results from a change in

Correct AnswerverifiedShow Answer

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The Keynesians argue that even if the interest rate does in response to a decrease in investment, there is guarantee that spending will increase very much.

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If there is an exogenous decrease in investment spending, Monetarists argue that there would be little or no effect on real output because the interest rate would , investment would , saving would , and consumption would .

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Monetarists have argued that since velocity , this shows that shifts to the investment demand function must .

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If policymakers are expected to increase the money supply, Monetarists argue that there is effect. There is effect that raises prices when the money supply actually increases.

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