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Exam 15: Monetary Policy

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Question 31

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Economist Smith favors an activist monetary policy.He says that if the economy is going to be stabilized over time,it is necessary to fine-tune the money supply to the particular economic conditions that exist.What would economist Jones,who favors rules-based monetary policy,say to economist Smith?

A) Because of long lags,activist monetary policy is likely to be destabilizing rather than stabilizing.
B) There have been times when activist monetary policy has worked well.
C) There have been times when a constant-money-growth-rate rule has worked poorly.
D) Flexibility is desirable when it comes to monetary policy.

E) A) and B)
F) B) and C)

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Question 32

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To eliminate a recessionary gap the Fed typically uses __________ monetary policy,and to eliminate an inflationary gap the Fed typically uses __________ monetary policy.

A) expansionary;expansionary
B) expansionary;contractionary
C) contractionary;contractionary
D) contractionary;expansionary

E) A) and D)
F) B) and D)

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Question 33

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Last year,Danielle bought a bond for $10,000 that promises to pay $1,150 a year.This year,a person who buys a bond for $10,000 receives $1,210 a year.If Danielle were to sell her (old) bond,its price would be approximately

The Keynesian transmission mechanism might get blocked if

Persons who argue that monetary and fiscal policy should be deliberately used to smooth out the business cycle are called

If people have only two ways of holding their wealth,money or bonds,a surplus in the money market implies a surplus in the bond market.

In the monetarist transmission mechanism,changes in the money market directly affect aggregate demand.

If the money market is in the liquidity trap,it is operating in the __________ segment of the __________ demand curve.

Exhibit 15-2 -Refer to Exhibit 15-2.A(n) __________ in the money supply from S₁ to S₂ would have a tendency to __________ the opportunity cost of holding money.

As the interest rate __________,the quantity supplied of money __________ and the quantity demanded of money __________.

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

Economists who believe that the economy is self-regulating are more likely to be nonactivists than activists.

If the money market is in the liquidity trap,then people

A general definition of the "transmission mechanism" is: the routes or channels that ripple effects created in the

Describe the Keynesian transmission mechanism for a decrease in the money supply.Assuming that no liquidity trap exists,that investment is interest-sensitive,and that the economy is in the horizontal portion of the AS curve,what happens to Real GDP and the price level? How can you tell if this is a direct transmission mechanism or an indirect one?

Under a gold standard,if the market price of gold is below the official price of gold (set by the monetary authority) ,people will be more likely to sell gold __________________,which will cause the money supply to _______________ and the price level.to _______________.

The routes or channels that ripple effects created in the money market travel to impact the goods-and-services market are known as

Assume the Keynesian transmission mechanism is operational and the economy is currently operating in the horizontal portion of the AS curve.If the money supply increases and the demand for money curve is downward sloping and investment is interest ____________,then Real GDP will ___________________.

According to the Keynesian transmission mechanism,an increase in the money supply will __________ the interest rate,causing a __________ in investment,which then __________ Real GDP.

According to the Keynesian transmission mechanism (and assuming there is no liquidity trap and investment is not interest insensitive) ,if the money supply increases,the interest rate __________,investment spending __________ and the AD curve shifts to the __________.