d.
decreased and the Treasury interest rate had fallen.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debate: Should the Fed Use Unconventional Monetary Policies?
132. During the financial crisis of 2007–2009 the interest rate spread on mortgage-backed securities over Treasury bills
a.
increased tremendously.
b.
increased moderately.
c.
decreased moderately.
d.
decreased tremendously.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debate: Should the Fed Use Unconventional Monetary Policies?
133. By purchasing large amounts of mortgage-backed securities (MBS) in 2009, the Federal Reserve’s goal was to
a.
raise the price of MBS and raise their yields.
b.
raise the price of MBS and lower their yields.
c.
lower the price of MBS and raise their yields.
d.
lower the price of MBS and lower their yields.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debate: Should the Fed Use Unconventional Monetary Policies?
134. Which of the following was the result of the Federal Reserve’s purchase of mortgage-backed securities in 2009?
a.
MBS interest rates declined, home mortgage rates declined, and the Fed turned a profit on these operations.
b.
MBS interest rates declined, home mortgage rates declined, but the Fed had a loss on these operations.
c.
MBS interest rates increased, home mortgage rates declined, and the Fed turned a profit on these operations
d.
MBS interest rates increased, home mortgage rates increased, but the Fed had a loss on these operations
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debate: Should the Fed Use Unconventional Monetary Policies?
135. Treasury securities have ____ risk of default and mortgage-backed securities have ____ risk of default.
a.
b.
c.
d.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debate: Should the Fed Use Unconventional Monetary Policies?
136. Which of the following was not a reason that the Federal Reserve took on additional risks associated with
unconventional policy during the recession of 2007-2009?
a.
The large budget deficit constrained fiscal policy.
b.
The inflated price of Treasury bills made them too expensive to purchase in open market operations.
c.
Only the Federal Reserve acting as the central bank can serve as the lender of last resort.
d.
The Fed was able to act more quickly than Congress.
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Debate: Should the Fed Use Unconventional Monetary Policies?
137. Which of the following was a reason that the Federal Reserve took on additional risks associated with
unconventional policy during the recession of 2007-2009?
a.
The inflated price of Treasury bills made them too expensive to purchase in open market operations.
b.
The large budget deficit constrained conventional monetary policy.
c.
The U.S. Treasury was unable to sell Treasury bills in the primary market.
d.
The Fed was able to act more quickly than Congress.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debate: Should the Fed Use Unconventional Monetary Policies?
138. In utilizing unconventional monetary policy in 2009, the Federal Reserve purchased
a.
real estate worth more than $2 trillion.
b.
$800 billion in Treasury bills.
c.
over $1 trillion in mortgage backed securities.
d.
$600 billion in long-term Treasury bonds.
c
Moderate
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debate: Should the Fed Use Unconventional Monetary Policies?
139. In utilizing unconventional monetary policy in 2010, the Federal Reserve purchased
a.
real estate worth more than $2 trillion.
b.
$800 billion in Treasury bills.
c.
over $1 trillion in mortgage backed securities.
d.
$600 billion in long-term Treasury bonds.
Difficult
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Debate: Should the Fed Use Unconventional Monetary Policies?
140. Critics of the unconventional monetary policies in 2009 and 2010 argued that by deciding which financial institutions
would fail and which would not, the Fed was assuming authority that rightfully belonged to
a.
the FDIC.
b.
the U.S. Treasury.
c.
the President.
d.
Congress.
Moderate
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debate: Should the Fed Use Unconventional Monetary Policies?
141. Which of the following was not a criticism of the unconventional monetary policy used by the Fed in 2009 and
2010?
a.
tendency towards higher unemployment
b.
tendency towards higher inflation
c.
usurping authority which should be allocated to Congress
d.
determining which banks would be allowed to fail
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debate: Should the Fed Use Unconventional Monetary Policies?
142. In response to the Great Recession of 2007-2009, when did the Federal Reserve first cut the federal funds rate to
zero?
a.
December 2007
b.
June 2008
c.
December 2008
d.
January 2010
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debate: Should the Fed Use Unconventional Monetary Policies?
143. The current debate about fiscal and monetary policy tends to focus on
a.
which policy is less destabilizing.
b.
which policy is more effective.
c.
whether the Fed can control the money supply.
d.
which policy works more quickly.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debate: Should We Rely on Fiscal or Monetary Policy?
144. Which of the following is an example of active fiscal policy?
a.
Income tax revenues rise in an inflationary period.
b.
Income tax revenues fall in a recession.
c.
Congress passes a major tax increase in an inflationary period.
d.
Unemployment benefits increase in a recession.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debate: Should We Rely on Fiscal or Monetary Policy?
145. If investment spending is relatively insensitive to changes in the interest rate, then the most effective expansionary
policy would be
a.
a reduction in required reserves.
b.
Fed purchases of government securities.
c.
a personal income tax increase.
d.
a personal income tax cut.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debate: Should We Rely on Fiscal or Monetary Policy?
146. Contractionary fiscal policy would be most effective in decreasing inflation when
a.
the marginal propensity to consume low.
b.
investment spending is insensitive to interest rates.
c.
the economy has a high marginal tax rate.
d.
investment spending is sensitive to interest rates.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debate: Should We Rely on Fiscal or Monetary Policy?
147. If the demand for money is insensitive to the interest rate, then the most effective expansionary policy would be
a.
fiscal policy.
b.
monetary policy.
c.
neither fiscal nor monetary policy.
d.
both fiscal and monetary policy.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debate: Should We Rely on Fiscal or Monetary Policy?
148. It is often reported by financial news reports that higher interest rates reduce automobile sales. If this is true, we can
expect
a.
fiscal policy to be more effective.
b.
both fiscal and monetary policy to be more effective.
c.
monetary policy to be more effective.
d.
neither fiscal nor monetary policy to be more effective.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debate: Should We Rely on Fiscal or Monetary Policy?
149. A major advantage of monetary policy over fiscal policy is that monetary
a.
policy affects all sectors of the economy equally.
b.
policy can be put into effect more quickly.
c.
policy, once implemented, takes effect more quickly.
d.
authorities see the need for policy more quickly.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debate: Should We Rely on Fiscal or Monetary Policy?
150. The optimal time for the implementation of contractionary fiscal policy would be
a.
before inflation accelerated.
b.
after inflation accelerated.
c.
after unemployment increased.
d.
after the price level had risen significantly.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debate: Should We Rely on Fiscal or Monetary Policy?
151. Which of the following policies would a Keynesian expect to produce the largest increase in income?
a.
a reduction in government spending of $100 billion
b.
an increase in transfer payments of $100 billion
c.
an increase in government spending of $100 billion
d.
a tax cut of $100 billion
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debate: Should We Rely on Fiscal or Monetary Policy?
152. Which of the following policies would a Keynesian expect to produce the largest decrease in income?
a.
a reduction in government spending of $100 billion
b.
a decrease in transfer payments of $100 billion
c.
an increase in government spending of $100 billion
d.
a tax increase of $100 billion
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debate: Should We Rely on Fiscal or Monetary Policy?
153. Which of the following lags makes stabilization policy more problematic?
a.
expenditure lags
b.
recognition lags
c.
policy lags
d.
All of the above.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debate: Should We Rely on Fiscal or Monetary Policy?
154. Government spending affects aggregate demand directly, and tax changes affect aggregate demand indirectly.
Therefore, changes in
a.
taxes are ineffective in changing aggregate demand.
b.
government spending affect aggregate demand more quickly than changes in taxes.
c.
taxes are virtually useless as a stabilization tool.
d.
government spending should be used with great caution.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debate: Should We Rely on Fiscal or Monetary Policy?
155. Which of the following is the order of fastest to slowest acting policy, once enacted, in affecting aggregate demand?
a.
taxes, money, government spending
b.
taxes, government spending, money
c.
government spending, taxes, money
d.
government spending, money, taxes
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debate: Should We Rely on Fiscal or Monetary Policy?
156. The inability of Congress to pass a stimulus package after September 11, 2001, could be used as an argument for
a.
activist fiscal policy.
b.
activist monetary policy.
c.
expansionary fiscal policy.
d.
contractionary monetary policy.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debate: Should We Rely on Fiscal or Monetary Policy?
157. President George W. Bush’s tax cut in 2001 was a rare example of
a.
timely monetary policy.
b.
timely fiscal policy.
c.
the slow response of policy to events.
d.
the inability of Congress to react to policy needs.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debate: Should We Rely on Fiscal or Monetary Policy?
158. The contemporary consensus with regard to stabilization policy is that
a.
fiscal policy is, for now, the “only game in town.”
b.
fiscal policy is more effective than monetary policy.
c.
monetary policy is, for now, the “only game in town.”
d.
monetary policy is slightly more effective than fiscal policy.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debate: Should We Rely on Fiscal or Monetary Policy?
159. In what year did the technology stock bubble burst?
a.
2000
b.
2006
c.
2007
d.
2008
DISC: Measuring the Economy
United States – BPROG: Analytic
Measuring the Economy
Debate: Should Policy Makers Fight Asset Price Bubbles
160. In what year did the housing bubble burst?
a.
2000
b.
2006
c.
2008
d.
There was no such event.
Moderate
DISC: Measuring the Economy
United States – BPROG: Analytic
Measuring the Economy
Debate: Should Policy Makers Fight Asset Price Bubbles
161. Which of the following is an example of a company whose stock showed evidence of a price bubble?
a.
Facebook
b.
Google
c.
Amazon
d.
all of the above
Moderate
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debate: Should Policy Makers Fight Asset Price Bubbles
162. It is ____ to identify an asset bubble before it bursts ____ to identify an asset bubble after it bursts.
a.
simple; and also simple
b.
simple; but difficult
c.
difficult; but simple
d.
difficult; and also difficult
c
Moderate
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debate: Should Policy Makers Fight Asset Price Bubbles
163. Which of the following is a reason that the Fed does not traditionally attempt to limit asset price bubbles?
a.
The Fed’s actions could do more harm than good.
b.
It is nearly impossible to determine if a bubble exists before it bursts.
c.
The Fed’s policies cannot be targeted at only one sector of the economy.
d.
all of the above
Easy
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debate: Should Policy Makers Fight Asset Price Bubbles
164. Which of the following is a reason that the Fed does not traditionally attempt to limit asset price bubbles?
a.
The Fed’s policies cannot be targeted at only one sector of the economy.
b.
Price changes for one asset or one industry cannot have a substantial impact on the entire economy.
c.
The FDIC rather than the Fed is responsible for recognizing bad lending practices.
d.
all of the above
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debate: Should Policy Makers Fight Asset Price Bubbles
165. Historically, most harmful bubbles are characterized by
a.
investment in stocks.
b.
the sale of Treasury bills.
c.
heaving borrowing.
d.
reliance on technology.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debate: Should Policy Makers Fight Asset Price Bubbles
166. The subprime mortgage bubble featured ____ leverage and the technology stock bubble featured ____ leverage.
a.
significant; significant
b.
significant; limited
c.
limited; significant
d.
limited; limited
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debate: Should Policy Makers Fight Asset Price Bubbles
167. The objective of the Fed and the government is to
a.
prevent asset bubbles by recognizing them in real time.
b.
mitigate the consequences of asset bubbles by recognizing them in real time.
c.
prevent asset bubbles by recognizing bad lending practices.
d.
mitigate the consequences of asset bubbles by recognizing bad lending practices.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debate: Should Policy Makers Fight Asset Price Bubbles
168. The rapid speed with which the stimulus bill passed through both houses of Congress and was signed by the
President could be used as an argument for
a.
activist fiscal policy.
b.
activist monetary policy.
c.
expansionary fiscal policy.
d.
contractionary monetary policy.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debate: Should We Rely on Fiscal or Monetary Policy?
169. Which of the following was an argument for using fiscal policy in situations like the Great Recession?
a.
Congress can act quickly.
b.
The size of a recessionary gap may require the use of both fiscal and monetary policy.
c.
Once the federal funds rate is reduced to zero, monetary policy is less effective.
d.
all of the above
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debate: Should We Rely on Fiscal or Monetary Policy?
170. If the aggregate supply curve is flat,
a.
expansionary fiscal or monetary policy will cause a good deal of inflation with little increase in real output.
b.
expansionary fiscal or monetary policy will buy large gains in real output at low cost in terms of inflation.
c.
a contractionary stabilization policy is an effective way to reduce inflation.
d.
decreasing the income tax will not shift aggregate demand.
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Debate: The Shape of the Aggregate Supply Curve
171. If the aggregate supply curve is steep,
a.
increased aggregate demand will not lead to higher prices.
b.
greater demand for labor will not cause significant wage increases.
c.
business firms are probably producing near capacity.
d.
All of the above are correct.
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
172. Many economists maintain that
a.
the aggregate supply curve is nearly horizontal at low levels of real GDP.
b.
the aggregate supply curve is nearly vertical at very high levels of real GDP.
c.
any change in aggregate demand will have most of its effect on output when economic activity is low but on
prices when the economy is near full employment.
d.
All of the above are correct.
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Debate: The Shape of the Aggregate Supply Curve
173. If the aggregate supply curve is flat,
a.
contractionary fiscal or monetary policy will reduce inflation with little effect on real GDP.
b.
contractionary fiscal or monetary policy will cause significantly less inflation.
c.
expansionary fiscal or monetary policy will add significantly to real GDP will little effect on inflation.
d.
expansionary fiscal or monetary policy will add little to real GDP but will increase inflation significantly.
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Debate: The Shape of the Aggregate Supply Curve
174. In terms of the price-real GDP diagram, a given expansion of the money supply will have a greater effect on prices
the
a.
steeper the aggregate supply curve.
b.
flatter the aggregate supply curve.
c.
higher the initial price level.
d.
lower the initial price level.
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Debate: The Shape of the Aggregate Supply Curve
175. An expansionary monetary policy is most likely to produce an inflationary effect with little impact on output when
the economy
a.
is near full employment and the aggregate supply curve is horizontal.
b.
is near full employment and the aggregate supply curve is vertical.
c.
has substantial unemployment and the aggregate supply curve is vertical.
d.
has substantial unemployment and the aggregate supply curve is horizontal.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debate: The Shape of the Aggregate Supply Curve
176. A contractionary monetary policy is most likely to reduce output with little impact on inflation when the economy
a.
is near full employment and the aggregate supply curve is horizontal.
b.
is near full employment and the aggregate supply curve is vertical.
c.
has substantial unemployment and the aggregate supply curve is vertical.
d.
has substantial unemployment and the aggregate supply curve is horizontal.
DISC: Monetary and fiscal policy
United States – BPROG: Analytic
Monetary and fiscal policy
Debate: The Shape of the Aggregate Supply Curve
177. Keynesian belief that the aggregate supply curve is relatively flat in the short run means that they expect their
policies to cause
a.
small increases in output and much inflation.
b.
small increases in output and little inflation.
c.
large increases in output and little inflation.
d.
large increases in output and much inflation.
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Debate: The Shape of the Aggregate Supply Curve
178. Monetarists believe that the aggregate supply curve is relatively steep in the short and long runs. This means they
expect
a.
inflation with no change in output.
b.
increases in output to bring much inflation.
c.
increases in output to bring little inflation.
d.
decreases in output to bring much inflation.
DISC: Aggregate demand and aggre – DISC: Aggregate demand and aggregate supply
United States – BPROG: Analytic
Aggregate demand and aggregate s – Aggregate demand and aggregate supply
Debate: The Shape of the Aggregate Supply Curve
179. When will stabilization policy be most effective in combating inflation?
a.
when AS is flat
b.
when AS is very steep
c.
when AS has a moderately upward slope
d.
when AS has a moderately downward slope