1. An increase in the money supply is an example of a(n) policy.
a. countercyclical
b. procyclical
c. contractionary
d. expansionary
2. The Fed uses monetary policy to cause the economy to grow faster in the short run. A(n) in the money
supply is an example of such a policy.
a. expansionary; decrease
b. expansionary; increase c.
contractionary; increase d.
contractionary; decrease
3. A decrease in the money supply is an example of a(n) policy.
a. countercyclical
b. procyclical
c. contractionary
d. expansionary
4. The Fed uses monetary policy to cause the economy to grow slower in the short run. A(n) in the money
supply is an example of such a policy.
a. expansionary; a decrease
b. expansionary; an increase
c. contractionary; an increase
d. contractionary; a decrease
5. In comparison to when monetary policy is not expansionary, under an expansionary monetary policy, the
unemployment rate is and the inflation rate is over time.
a. higher; higher
b. higher; lower
c. lower; lower
d. lower; higher
6. In comparison to when monetary policy is not contractionary, under a contractionary monetary policy, the
unemployment rate is and the inflation rate is over time.
a. higher; higher
b. higher; lower
c. lower; lower
d. lower; higher
7. When the Fed adopts a contractionary monetary policy, the interest rate at which the Fed lends to other banks will
be expected to and the money supply in the economy would be expected to .
a. decrease; decrease
b. decrease; increase
c. increase; decrease
d. increase; increase
8. When the Fed uses its policy tools to smooth out the business cycle, the policy is referred to as a(n)
a. stabilization policy.
b. Pareto-efficient policy.
c. contractionary policy.
d. expansionary policy.
9. In case of business cycles, if output rises above the trend line
a. unemployment and inflation both rise.
b. unemployment and inflation both fall.
c. unemployment rises and inflation falls.
d. unemployment falls and inflation rises.
10. In case of business cycles, if output falls below the trend line
a. unemployment and inflation both rise.
b. unemployment and inflation both fall.
c. unemployment rises and inflation falls.
d. unemployment falls and inflation rises.
11. The lag that arises because policymakers may not immediately get up–to-date statistics on economic variables is
known as the lag.
a. implementation
b. recognition
c. data
d. decision
12. The lag that arises because the random nature of economic data may make it difficult for policy makers to fully
understand the state of the economy is referred to as the lag.
a. implementation
b. recognition
c. effectiveness
d. decision
13. The lag that arises because it takes time for policymakers to choose a course of action is referred to as the
lag.
a. implementation
b. recognition
c. effectiveness
d. decision
14. The lag between when a change in policy is decided and when it is put into action is referred to as the lag.
a. implementation
b. recognition
c. effectiveness
d. decision
15. The time it takes from when a policy is enacted to when it affects the economy is known as the lag.
a. implementation
b. recognition
c. effectiveness
d. decision
16. The longest economic expansion in U.S. history occurred from
a. 1929 to 1939.
b. 1956 to 1966.
c. 1970 to 1980.
d. 1991 to 2001.
17. Monetary policy can affect the level of output
a. only in the short run.
b. only in the long run.
c. in both the short run and long run.
d. in neither the short run nor the long run.
18. The amount of output that would be produced by an economy if resources were being utilized at a high rate that is
sustainable in the long run is referred to as the
a. potential output.
b. natural output.
c. Walrasian output.
d. partial-equilibrium output.
19. In the U.S., data on potential output come from
a. estimates made by the Congressional Budget Office.
b. data calculated by the Bureau of Trade.
c. estimates generated by the National Bureau of Economic Research.
d. forecasts from the United Nations Development Program.
20. The unemployment rate when the economy is producing output equal to its potential is known as
a. the rate of disguised unemployment.
b. the potential rate of unemployment.
c. the natural rate of unemployment.
d. equilibrium rate of unemployment.
21. Which of the following statements is true?
a. Both expansionary and contractionary monetary policy has the drawback of increasing unemployment.
b. Both expansionary and contractionary monetary policy has the drawback of increasing inflation.
c. Expansionary monetary policy has the drawback of increasing unemployment, while contractionary monetary
policy has the drawback of increasing inflation.
d. Expansionary monetary policy has the drawback of increasing inflation, while contractionary monetary policy
has the drawback of increasing unemployment.
22. The cost that firms incur to change prices is referred to as
a. menu costs.
b. inflation tax.
c. pseudo costs.
d. transaction costs.
23. In case of positive inflation rates,
a. both borrowers and lenders of fund lose out.
b. both borrowers and lenders of fund gain.
c. lenders of funds gain, while borrowers lose out.
d. borrowers of funds gain, while lenders lose out.
24. Which of the following is NOT a cost of anticipated inflation but arises only if inflation is unanticipated?
a. Inflation interacts with the tax system to hurt savings and investment in physical capital.
b. Inflation represents an implicit tax on holding money.
c. Firms face menu costs of changing prices.
d. Higher inflation leads to greater uncertainty about the future inflation rate.
25. A graph plotting the real value of a mortgage payment over time when the inflation rate is positive and the mortgage
is a standard nominal-rate loan illustrates the
a. present–value formula.
b. securitization issue.
c. real-interest rate conundrum.
d. mortgage-tilt problem.
26. If the mortgage-tilt problem does not exist in an economy, it implies that the
percent.
a. inflation
b. unemployment
c. interest
d. average tax
27. Typically, the ideal inflation rate is taken to be
a. increasing over time.
b. decreasing over time.
c. positive and constant over time.
d. zero percent.
28. The ideal inflation rate is also referred to as the
a. steady state inflation rate.
b. NAIRU.
c. inflation target.
d. minimal inflation rate.
rate in the economy is zero
29. If actual output is denoted y and potential output is denoted y*, the output gap is
a. [(y − y*)/ y*] × 100.
b. [(y − y*)/ y] × 100.
c. [(y* − y)/ y*] × 100.
d. [(y* − y)/ y] × 100.
30. If actual output is $11.7 trillion and potential output is $12.8 trillion, then the output gap is approximately
a. +9.4 percent.
b. +8.6 percent.
c. −8.6 percent.
d. −9.4 percent.
31. If potential output is $22.7 trillion and the output gap is 12.8%, then actual output is
a. 14.2 trillion.
b. 16 trillion.
c. 19.8 trillion.
d. 20.6 trillion.
32. Since 1960, in which of the following years was the output gap highest in the U.S.?
a. 1970.
b. 1975.
c. 1982.
d. 2001.
33. Which of the following statements is true of the U.S. economy?
a. In the second half of the 1960s, the output gap was mostly negative while in the first half of the 1990s, the
output gap was mostly positive.
b. In the second half of the 1960s, the output gap was mostly positive while in the first half of the 1990s, the
output gap was mostly negative.
c. In the second half of the 1960s and the first half of the 1990s, the output gap was mostly negative.
d. In the second half of the 1960s and the first half of the 1990s, the output gap was mostly positive.
34. The unemployment rate minus the natural rate of unemployment is known as the
a. nominal rate of unemployment.
b. ideal unemployment rate.
c. unemployment gap.
d. non-accelerating inflation rate of unemployment (NAIRU).
35. If the natural rate of unemployment is 5.2 percent and the unemployment rate is 5.5 percent, then the unemployment
gap is
a. −5.8 percent.
b. −0.3 percent.
c. +0.3 percent.
d. +5.8 percent.
36. If the natural rate of unemployment is 5.2 percent and the unemployment gap is –0.8 percent, then the unemployment
rate must be
a. 0.8 percent.
b. 1.6 percent.
c. 3.2 percent.
d. 4.4 percent.
37. In the U.S., the output gap is equal to
a. –1 time the unemployment gap.
b. -2 times the unemployment gap.
c. 1 time the unemployment gap.
d. 2 times the unemployment gap.