Question 1

The notion that anticipated monetary policy has no effect on the real aggregate output is commonly called the ________.

Accepted Answer

A)   Lucas critique
B)   policy ineffectiveness proposition
C)   natural rate hypothesis
D)   new Keynesian propositionE) A) and C)
F) A) and D)

Question 2

Figure 27-4 
-In the new classical model in Figure 27-4,an anticipated increase in aggregate demand that is less than expected ________.

Accepted Answer

A)   moves the economy from point 1 to point 2 to point 3
B)   moves the economy from point 1 to point 5 to point 3
C)   moves the economy from point 1 to point 4 to point 3
D)   moves the economy from point 1 to point 3E) B) and D)
F) A) and B)

Question 3

Figure 27-3 
-In the new classical model in Figure 27-3,the initial impact of an unanticipated monetary contraction ________.

Accepted Answer

A)   increases output from Yn to Y2, and the inflation rate from P1 to P2
B)   decreases output from Yn to Y4, and the inflation rate from P3 to P4
C)   does not change output and increases the inflation rate from P1 to P3
D)   does not change output and decreases the inflation rate from P3 to P1E) None of the above
F) B) and D)

Question 4

In a study published in 1963,Milton Friedman and Anna Schwartz found that in every business cycle they studied over nearly a hundred-year period,________.

Accepted Answer

A)   the growth rate of the money supply decreased before output decreased
B)   interest rates decreased before output decreased
C)   the growth rate of federal government spending decreased before output decreased
D)   the growth rate of state and local government spending decreased before output decreasedE) C) and D)
F) A) and D)

Question 5

In response to the early Keynesians,monetarists contended that ________.

Accepted Answer

A)   monetary policy during the Great Depression was not easy
B)   bank failures during the Great Depression were not the cause of the decline in the money supply
C)   evidence from the Great Depression demonstrated the ineffectiveness of monetary policy
D)   there is a weak link between interest rates and investment spendingE) A) and B)
F) A) and C)

Question 6

Which of the following is not an advantage of a correctly specified structural model?

Accepted Answer

A)   Structural models may help us to more accurately predict the effect that monetary policy has on economic activity.
B)   A structural model provides more pieces of evidence about monetary policy's effect on economic activity.
C)   Structural models may allow economists to more accurately predict the impact institutional changes have on the link between monetary policy and income.
D)   A structural model imposes no restrictions on the way monetary policy affects the economy.E) All of the above
F) A) and B)

Question 7

Early Keynesians felt that ________ policy was ________,so they stressed the importance of ________ policy.

Accepted Answer

A)   fiscal; ineffective; monetary
B)   monetary; ineffective; fiscal
C)   monetary; potent; monetary
D)   fiscal; too potent; monetaryE) All of the above
F) B) and C)

Question 8

A disadvantage of ________ evidence is that it cannot rule out ________.

Accepted Answer

A)   reduced-form, reverse causation
B)   reduced-form; adverse selection
C)   structural model; reverse causation
D)   structural model; adverse selectionE) C) and D)
F) B) and D)

Question 9

In the new classical model,an expansionary monetary policy will lead to a decline in aggregate output if ________.

Accepted Answer

A)   the increase in money supply is less than anticipated
B)   the increase in money supply is greater than anticipated
C)   the increase in money supply comes as a surprise
D)   the Bank of Canada announces the policy decision prior to its implementationE) A) and B)
F) A) and C)

Question 10

What do you know about the reduced-form evidence in describing the transmission mechanism of monetary policy? Provide a brief description.

Accepted Answer

The quantity theory approach to aggregat...

Question 11

To say that inflation is a monetary phenomenon seems to beg the question: ________.

Accepted Answer

A)   Why does inflationary monetary policy occur?
B)   Why do politicians seek reelection?
C)   Why is the Fed independent?
D)   Why does the US Treasury print so much money?E) All of the above
F) B) and C)

Question 12

The time it takes to pass legislation to implement a particular policy is called ________.

Accepted Answer

A)   the data lag
B)   the recognition lag
C)   the legislative lag
D)   the implementation lag
E)   the effectiveness lagF) B) and D)
G) B) and C)

Question 13

If policymakers set a target for unemployment that is too low because it is less than the natural rate of unemployment,this can set the stage for a higher rate of money growth and ________.

Accepted Answer

A)   cost-push inflation
B)   demand-pull inflation
C)   cost-pull inflation
D)   demand-push inflationE) B) and C)
F) None of the above

Question 14

The monetarist reduced-form evidence does not specify the working of the economy and thus is considered to be a ________.

Accepted Answer

A)   scientific model
B)   open model
C)   black box
D)   black holeE) A) and B)
F) B) and C)

Question 15

Movements of ________ interest rates indicate that,contrary to the early Keynesians' beliefs,monetary policy was ________ during the Great Depression.

Accepted Answer

A)   nominal; tight
B)   nominal; easy
C)   real; tight
D)   real; easyE) A) and B)
F) A) and C)

Question 16

Monetarists assert that monetary policy may affect aggregate demand through ________.

Accepted Answer

A)   only an interest rate channel
B)   only an exchange rate channel
C)   only two channels: interest rates and exchange rates
D)   many channelsE) B) and C)
F) A) and D)

Question 17

Most Keynesians currently believe that ________.

Accepted Answer

A)   monetary policy does matter
B)   monetary policy is irrelevant
C)   fiscal policy does matter
D)   Both A and CE) B) and C)
F) B) and D)

Question 18

The ________ held the view that monetary policy does not matter at all for movements in aggregate output.

Accepted Answer

A)   new Keynesian economists
B)   early Keynesians
C)   early monetarists
D)   early classical economistsE) A) and D)
F) All of the above

Question 19

In the new classical model,________.

Accepted Answer

A)   wages and prices are sticky with respect to expected changes in the price level
B)   unanticipated policy has no effect on aggregate output and unemployment
C)   an anticipated increase in the money supply will increase aggregate output temporarily
D)   only unanticipated policy can affect aggregate output and unemploymentE) B) and C)
F) A) and D)

Question 20

On the evening news you hear of a scientific study that directly links premature births to cigarette smoking.This is an example of ________.

Accepted Answer

A)   direct-model evidence
B)   informed voter-model evidence
C)   structural-model evidence
D)   reduced-form evidenceE) All of the above
F) None of the above

Exam 25: Monetary Policy Theory

To say that inflation is a monetary phenomenon seems to beg the question: ________.

Correct AnswerverifiedShow Answer

Figure 27-3 -In the new classical model in Figure 27-3,the initial impact of an unanticipated monetary contraction ________.

Correct AnswerverifiedShow Answer

The monetarist reduced-form evidence does not specify the working of the economy and thus is considered to be a ________.

Correct AnswerverifiedShow Answer

A disadvantage of ________ evidence is that it cannot rule out ________.

Correct AnswerverifiedShow Answer

Monetarists assert that monetary policy may affect aggregate demand through ________.

Correct AnswerverifiedShow Answer

The time it takes to pass legislation to implement a particular policy is called ________.

Correct AnswerverifiedShow Answer

If policymakers set a target for unemployment that is too low because it is less than the natural rate of unemployment,this can set the stage for a higher rate of money growth and ________.

Correct AnswerverifiedShow Answer

On the evening news you hear of a scientific study that directly links premature births to cigarette smoking.This is an example of ________.

Correct AnswerverifiedShow Answer

The notion that anticipated monetary policy has no effect on the real aggregate output is commonly called the ________.

Correct AnswerverifiedShow Answer

What do you know about the reduced-form evidence in describing the transmission mechanism of monetary policy? Provide a brief description.

Correct AnswerverifiedThe quantity theory approach to aggregat...View AnswerShow Answer

In the new classical model,an expansionary monetary policy will lead to a decline in aggregate output if ________.

Correct AnswerverifiedShow Answer

In response to the early Keynesians,monetarists contended that ________.

Correct AnswerverifiedShow Answer

Figure 27-4 -In the new classical model in Figure 27-4,an anticipated increase in aggregate demand that is less than expected ________.

Correct AnswerverifiedShow Answer

Early Keynesians felt that ________ policy was ________,so they stressed the importance of ________ policy.

Correct AnswerverifiedShow Answer

In a study published in 1963,Milton Friedman and Anna Schwartz found that in every business cycle they studied over nearly a hundred-year period,________.

Correct AnswerverifiedShow Answer

The ________ held the view that monetary policy does not matter at all for movements in aggregate output.

Correct AnswerverifiedShow Answer

Movements of ________ interest rates indicate that,contrary to the early Keynesians' beliefs,monetary policy was ________ during the Great Depression.

Correct AnswerverifiedShow Answer

Which of the following is not an advantage of a correctly specified structural model?

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Most Keynesians currently believe that ________.

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In the new classical model,________.

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A disadvantage of evidence is that it cannot rule out .

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The quantity theory approach to aggregat...
View Answer

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Early Keynesians felt that policy was ,so they stressed the importance of policy.

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Movements of interest rates indicate that,contrary to the early Keynesians' beliefs,monetary policy was during the Great Depression.

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