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The M2 money supply
a. includes M1.
b. is commonly referred to as the broad definition of the money supply.
c. includes savings deposits.
d. is larger than M1.
e. all of the above
Samuelson and Solow, in their 1960 study of the Phillips curve as it applies to the U.S.
experience, argued that there was a tradeoff between inflation and unemployment. Later
experience showed their analysis to be
a. entirely correct in every situation.
b. generally correct, but it could not explain stagflation.
c. wholly wrong in every situation.
d. in general agreement with rational expectations theory.
e. capable of explaining stagflation, but not other economic scenarios.
Suppose the following: (1) the wage rate falls, (2) business taxes decline, (3) any
change in SRAS is greater than any change in AD. Based on this information, in the
short run Real GDP will __________ and the price level will __________.
a. rise; rise
b. fall; rise
c. fall; fall
d. rise; fall
e. none of the above
The base year is the year
a. in which prices are unstable.
b. in which prices are lowest.
c. in which prices are highest.
d. that serves as a reference point or benchmark.
e. in which nominal output is largest.
If the natural unemployment rate is 5 percent and the current unemployment rate is 6
percent, then the economy is
a. producing a level of Real GDP that is greater than the level of natural Real GDP.
b. in an inflationary gap.
c. producing a level of Real GDP that is less than the level of natural Real GDP.
d. a and b
e. b and c
A laissez-faire macroeconomic policy, based on a __________ in self regulating
properties of the economy, implies __________ by the government.
a. belief; active policymaking
b. belief; noninterference
c. disbelief; active policymaking
d. disbelief; noninterference
The velocity of money is the __________ number of times a dollar is spent to buy final
goods and services in a year.
a. total
b. average
c. marginal
d. statistical
A change in the money supply will change investment when
a. the money supply is a function of the price level.
b. investment is interest-sensitive.
c. investment depends only on the level of GDP.
d. investment is interest-insensitive.
e. the supply for money is a function of the interest rate.
Exhibit 15-1
A monetarist would claim that in a recessionary gap, the economy would move on its
own from point
a. B to point C.
b. B to point A.
c. A to point B.
d. D to point C.
When commercial banks need more Federal Reserve Notes,
a. they call the Bureau of Engraving and Printing, which delivers the requested amount.
b. they call the Board of Governors of the Fed, which delivers the requested amount.
c. they ask their customers to exchange their Federal Reserve Notes for U.S. Treasury
securities.
d. they call the Treasury, which delivers the requested amount.
e. they call their Federal Reserve District Bank, which delivers the requested amount.
Situation 4-1
During the winter of 1973-74, a general system of wage and price controls (including a
price ceiling on gasoline) was in force in the United States. At the beginning of 1974,
some oil-producing countries imposed an oil embargo (a legal prohibition on
commerce) on the West. In the spring of 1974, price controls were abolished. Because
price controls were in effect at the time the embargo occurred, an economist would have
most likely predicted that
a. the number of dollars one would need to pay at the pump (legally) for a full tank of
gasoline would increase sharply.
b. the number of dollars one would need to pay at the pump (legally) for a full tank of
gasoline would decline sharply.
c. long waiting lines and black markets would appear.
d. a surplus of gasoline would result.
