True / False
1. The differences between monetarist and Keynesian theories are more apparent than real.
a.
True
b.
False
True
Easy
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Issue: Should We Forsake Stabilization Policy?
2. During the financial crisis of 2007-2009, both fiscal and monetary policy turned more expansionary.
a.
True
b.
False
True
Easy
DISC: Measuring the Economy
United States – BPROG: Analytic
Measuring the Economy
Issue: Should We Forsake Stabilization Policy?
3. Velocity is calculated as nominal GDP/money stock.
a.
True
b.
False
True
Easy
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Velocity and the Quantity Theory of Money
4. The velocity of circulation is the number of times per year a dollar is spent.
a.
True
b.
False
Easy
5. The velocity of circulation has remained constant over long periods of time.
a.
True
b.
False
False
Moderate
6. If the velocity of circulation is 10 and the money supply is $250, the value of transactions will be $25.
a.
True
b.
False
False
Moderate
7. The equation of exchange is M × Y = P × V.
a.
True
b.
False
False
Moderate
8. If velocity is a constant, then the equation of exchange is an economic model.
a.
True
b.
False
True
Moderate
9. Data indicate that the velocity of M1 is greater than the velocity of M2.
a.
True
b.
False
True
Moderate
10. The substantial fluctuations in velocity make the equation of exchange more useful in predicting changes in nominal
GDP.
a.
True
b.
False
False
Difficult
11. The equation of exchange states that the money value of GDP must be equal to the product of the money stock times
its velocity.
a.
True
b.
False
True
12. If velocity remains relatively constant, changes in the money supply can have a predictable effect on nominal GDP.
a.
True
b.
False
True
Moderate
13. Both M1 and M2 are monetary values much larger than nominal GDP.
a.
True
b.
False
False
Easy
Models
14. The equation of exchange is an accounting identity, not an economic theory.
a.
True
b.
False
True
Moderate
15. When salaries are paid more frequently, the velocity of money speeds up because individuals hold more cash.
a.
True
b.
False
False
Moderate
16. Over long periods of time, M2 velocity has been relatively constant.
a.
True
b.
False
True
Moderate
17. The increased use of PayPal will decrease the velocity of money.
a.
True
b.
False
False
Moderate
18. As the interest rate increases, the velocity of money will increase as well.
a.
True
b.
False
True
Moderate
19. As individuals hold more of their financial assets in the form of money market accounts and mutual funds, the velocity
of money will decrease.
a.
True
b.
False
False
Moderate
20. Expansionary monetary policy will decrease interest rates and decrease the velocity of money.
a.
True
b.
False
True
Moderate
21. Scatter diagrams of money growth rates and inflation rates between 1982 and 2010 show a clear relationship of cause
and effect.
a.
True
b.
False
False
Moderate
22. More economists adopted monetarism in the early 1990s.
a.
True
b.
False
False
23. Once the federal funds rate is reduced to zero, conventional expansionary monetary policy is no longer an option.
a.
True
b.
False
True
Moderate
24. Once the federal funds rate is reduced to zero, conventional restrictive monetary policy is no longer an option.
a.
True
b.
False
False
Easy
25. The Federal Reserve reduced the fed funds rate to the 0-0.25 percent range in 2008 in response to the Lehman
Brother’s catastrophe.
a.
True
b.
False
True
Moderate
26. As a result of the Fed’s unconventional purchase of over $1 trillion of mortgage-backed securities in 2009, interest
rates on both mortgage-backed securities and home mortgages increased.
a.
True
b.
False
False
Moderate
27. The fiscal stimulus bills of 2001, 2008, and 2009 were unusual examples of rapid implementation of fiscal policy.
a.
True
b.
False
True
Moderate
28. Policy lags are typically much shorter for monetary policy than for fiscal policy.
a.
True
b.
False
True
Moderate
29. Critics of the Fed’s unconventional policies in 2009 and 2010 argued that determining which financial institutions
would be bailed out and which would be allowed to fail was a political decision that rightfully belonged to Congress.
a.
True
b.
False
True
Easy
30. Although asset price bubbles seem obvious after the fact, it is much more difficult to draw such a conclusion before
the fact.
a.
True
b.
False
True
Moderate
31. The Federal Reserve has policy instruments that it can aim directly at a specific category of asset price bubble.
a.
True
b.
False
False
Moderate
32. Most economists think that it is impossible to prevent asset price bubbles.
a.
True
b.
False
True
Easy
33. Whether prices or real GDP exhibit the greater response to increased aggregate demand depends on the degree of
capacity utilization in the economy.
a.
True
b.
False
True
Difficult
34. On a steeply sloped aggregate supply curve, monetary policy will affect primarily output.
a.
True
b.
False
False
Moderate
35. The longer and more unpredictable that the policy lags are, the stronger the case for active stabilization policy.
a.
True
b.
False
False
Difficult
36. Advocates of activist policy making point to the swift response of the Fed after September 11, 2001, as an example of
effective policy making.
a.
True
b.
False
True
Moderate
37. The “Taylor rule” is an example of a fixed rule for making monetary policy.
a.
True
b.
False
Moderate
38. After September 11, 2001, a small group of economists argued that the economy’s self-correcting mechanism would
work to counteract the recessionary effects of the attack.
a.
True
b.
False
True
Moderate
39. Advocates of fixed rules believe that politicians focus more on re-election than on sound policy.
a.
True
b.
False
True
Easy
40. The monetary stimulus post-September 11, 2001, achieved some desired effects within the year.
a.
True
b.
False
True
Moderate
41. The main policy tool for manipulating consumer spending is personal income tax, but this tool takes time to have an
effect.
a.
True
b.
False
True
Easy
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debate: Should We Rely on Fiscal or Monetary Policy?
42. The question of whether the government should intervene at all in economic matters is entirely political.
a.
True
b.
False
False
Moderate
DISC: Monetary and fiscal policy
United States – BPROG: Reflective Thinking – BPROG: Analysis
Monetary and fiscal policy
Debate: Should the Government Intervene at All?
43. Over the years, economists in universities and government agencies have developed a number of fairly accurate
techniques to assist them in predicting what the economy will do.
a.
True
b.
False
False
Moderate
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Dimensions of the Rules-versus-Discretion Debate
Multiple Choice
44. Critics of macroeconomic stabilization policies argue that
a.
economists are unable to influence policy.
b.
stabilization policies often do more harm than good.
c.
stabilization theory has no practical effect.
d.
policy makers need practical advice, not theory.
Moderate
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Issue: Should We Forsake Stabilization Policy?
45. During the financial crisis of 2007-2009, the proper policy response was
a.
contractionary monetary and fiscal policy.
b.
contractionary monetary and expansionary fiscal policy.
c.
expansionary monetary and fiscal policy.
d.
expansionary monetary and contractionary fiscal policy.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Issue: Should We Forsake Stabilization Policy?
46. Which of the following is the formula for velocity?
a.
Velocity = nominal GDP/real GDP
b.
Velocity = real GDP/M
c.
Velocity = (P × Y)/(M × V)
d.
Velocity = nominal GDP/M
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Velocity and the Quantity Theory of Money
47. The equation of exchange is written as
a.
M × V = P × Y.
b.
M × P = V × Y.
c.
M × Y = P × V.
d.
M × Y = Y × P.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Velocity and the Quantity Theory of Money
48. In the equation of exchange, velocity of money increases when
a.
Y increases without any changes in P and M.
b.
Y falls without any changes in P.
c.
M increases without any changes in P and Y.
d.
P falls without any changes in Y and M.
United States – BPROG: Analytic
Understanding and applying econo – Understanding and applying economic models
Velocity and the Quantity Theory of Money
49. The velocity of circulation is the
a.
speed at which the multiplier takes effect.
b.
speed at which money circulates.
c.
speed at which tax cuts get spent.
d.
rate at which money creation takes place.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Velocity and the Quantity Theory of Money
50. Velocity can be calculated as the ratio of the value of transactions to
a.
the price level.
b.
level of real GDP.
c.
the money stock.
d.
the inflation rate.
The study of economics, and defi – The study of economics, and definitions of economics
Velocity and the Quantity Theory of Money
51. If you divide the amount of nominal GDP by the stock of money, you have computed the
a.
multiplier.
b.
price level.
c.
velocity of circulation.
d.
inflation rate.
c
Easy
United States – BPROG: Analytic
Understanding and applying econo – Understanding and applying economic models
Velocity and the Quantity Theory of Money
52. Which is likely to be larger, the velocity of M1 or M2?
a.
M1, because M2 is a larger number.
b.
M2, because M1 is a larger number.
c.
The velocities of both are approximately equal.
d.
The numbers of velocity switch in relative size.
a
Moderate
United States – BPROG: Analytic
Understanding and applying econo – Understanding and applying economic models
Velocity and the Quantity Theory of Money
53. The equation M × V = P × Y is called the
a.
multiplier formula.
b.
transactions formula.
c.
equation of exchange.
d.
balanced exchange formula.
c
Moderate
United States – BPROG: Analytic
Velocity and the Quantity Theory of Money
54. If nominal GDP is $7,700 billion and M1 is $1,000 billion, then velocity is
a.
10.7.
b.
7.7.
c.
7.1.
d.
7.0.
Moderate
United States – BPROG: Analytic
Understanding and applying econo – Understanding and applying economic models
Velocity and the Quantity Theory of Money
55. A look at the historical data indicates that velocity for M1
a.
has been more variable than the velocity for M2, but both have been fairly constant for the past 65 years.
b.
and M2 have both trended downward, but velocity for M2 has been more erratic than velocity for M11.
c.
has been fairly constant for the past 65 years, but velocity for M2 has trended downward.
d.
has trended upward in the past 65 years, but velocity for M2 has been more constant.
Moderate
DISC: Measuring the Economy
United States – BPROG: Analytic
Measuring the Economy
Velocity and the Quantity Theory of Money
56. In 1996, if nominal GDP was about $8.5 thousand billion. The stock of money was
a.
about the same as this.
b.
much less than this.
c.
much more than this.
d.
unrelated to this number.
Easy
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Velocity and the Quantity Theory of Money
57. In 2009, nominal GDP was $14,050 billion and M1 was $1,587 billion. Velocity was
a.
0.11.
b.
8.85.
c.
11.30.
d.
14.25.
c
Moderate
United States – BPROG: Analytic
Understanding and applying econo – Understanding and applying economic models
Velocity and the Quantity Theory of Money
58. The speed with which money circulates through the economy is called the
a.
oversimplified multiplier.
b.
velocity of circulation.
c.
exchange rate.
d.
money multiplier.
Easy
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Velocity and the Quantity Theory of Money
59. If nominal GDP is 8,100 billion florins and the money supply is 900 billion florins, the velocity of circulation is
a.
900.0.
b.
90.0.
c.
81.0.
d.
9.0.
e.
8.1.
Moderate
United States – BPROG: Analytic
Understanding and applying econo – Understanding and applying economic models
Velocity and the Quantity Theory of Money
60. The most common estimate of the value of transactions used to estimate velocity is
a.
real GDP.
b.
total sales.
c.
nominal GDP.
d.
cash balances.
United States – BPROG: Analytic
Understanding and applying econo – Understanding and applying economic models
Velocity and the Quantity Theory of Money
61. Velocity is commonly calculated by which of the following formulas?
a.
(Value of money stock)/(Value of nominal GDP)
b.
(Value of transactions)/(money stock)
c.
(Value of financial transactions)/(GDP)
d.
(Value of output)/(Value of input)
United States – BPROG: Analytic
Understanding and applying econo – Understanding and applying economic models
Velocity and the Quantity Theory of Money
62. The equation of exchange can be written as
a.
Velocity × Nominal GDP = Price Index
b.
Real GDP × Price Index = Money supply
c.
Money supply × Price Index = Real GDP
d.
Money supply × Velocity = Nominal GDP
United States – BPROG: Analytic
Understanding and applying econo – Understanding and applying economic models
Velocity and the Quantity Theory of Money
63. Is the equation of exchange an economic model?
a.
Yes, it is a simple but powerful model.
b.
No, economic models cannot be equations.
c.
No, it is merely an arithmetic statement.
d.
Yes, it is a cause-and-effect model.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Velocity and the Quantity Theory of Money
64. In order to consider the equation of exchange an economic model, what must we assume?
a.
Real GDP is a constant value.
b.
Changes in GDP cause changes in the money supply.
c.
The money supply is constant.
d.
Changes in velocity are small and predictable.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Velocity and the Quantity Theory of Money
65. If you assume that the equation of exchange is a dependable economic model, then the Fed can control
a.
real GDP.
b.
aggregate supply.
c.
nominal GDP.
d.
economic growth.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Velocity and the Quantity Theory of Money
66. The historical data on velocity shows that velocity for
a.
M1 has fallen since 1929 and has become more stable since 1981.
b.
M1 has risen since 1949 and has become more volatile since 1981.
c.
both M1 and M2 have increased since 1949 but have become more stable since 1979.
d.
both M1 and M2 have declined since 1949.
Moderate
DISC: Measuring the Economy
United States – BPROG: Analytic
Measuring the Economy
Velocity and the Quantity Theory of Money
67. What do most economists think is the most accurate statement about velocity?
a.
It is fairly constant in the short run, but varies considerably in the long run, complicating predictions about
nominal GDP.
b.
M1 velocity is more stable in the short run than M2 velocity, and it has been a superior tool in predicting
changes in nominal GDP.
c.
It is not constant in the short run, and predictions about nominal GDP have not fared well.
d.
M2 velocity has been less stable than M1 velocity, but both are reliable enough to make accurate predictions
about changes in nominal GDP.
c
Difficult
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Velocity and the Quantity Theory of Money
68. The quantity theory of money assumes that
a.
velocity varies inversely with interest rates.
b.
if velocity equals six, the Fed can increase nominal GDP by 30 percent if it increases the money supply by 5
percent.
c.
changes in the money supply affect output but not prices.
d.
changes in velocity are so small that velocity can be considered constant.
Moderate
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Velocity and the Quantity Theory of Money
69. Nominal GDP is proportional to money stock when
a.
velocity of money is volatile.
b.
velocity of money is constant.
c.
there are major changes in the value of velocity of money.