- According to Keynesians, an increase in the money supply will:
a. decrease the interest rate, and increase investment, aggregate demand, prices, real GDP, and employment.
b. decrease the interest rate, and decrease investment, aggregate demand, prices, real GDP, and employment.
c. increase the interest rate, and decrease investment, aggregate demand, prices, real GDP, and employment.
d. only increases prices.
2. If there is a recession, the Fed would most likely:
a. encourage banks to provide loans by lowering the discount rate.
b. encourage banks to provide loans by raising the discount rate.
c. restrict bank lending by lowering the discount rate.
d. restrict bank lending by raising the discount rate.
e. restrict bank lending by lowering the federal funds rate.
3. If the economy is inflationary, the Fed would most likely:
a. encourage banks to provide loans by lowering the discount rate.
b. encourage banks to provide loans by raising the discount rate.
c. restrict bank lending by lowering the discount rate.
d. restrict bank lending by raising the discount rate.
e. restrict bank lending by lowering the federal funds rate.
4. An increase in the money supply:
a. lowers the interest rate, causing a decrease in investment and an increase in GDP.
b. lowers the interest rate, causing an increase in investment and a decrease in GDP.
c. lowers the interest rate, causing an increase in investment and an increase in GDP.
d. raises the interest rate, causing an increase in investment and an increase in GDP.
e. raises the interest rate, causing a decrease in investment and a decrease in GDP.
5. A decrease in the money supply:
a. lowers the interest rate, causing a decrease in investment and a decrease in GDP.
b. lowers the interest rate, causing a decrease in investment and an increase in GDP.
c. raises the interest rate, causing an increase in investment and a decrease in GDP.
d. raises the interest rate, causing an increase in investment and an increase in GDP.
e. raises the interest rate, causing a decrease in investment and a decrease in GDP.
6. Keynes called the money people hold in order to buy bonds, stocks, or other nonmoney financial assets the:
a. transactions demand for holding money.
b. precautionary demand for holding money.
c. speculative demand for holding money.
d. unit of account demand for holding money.
7. One reason that people hold money is to pay for unexpected car repairs and other unpredictable expenses. This motive for holding money is called:
a. transactions demand.
b. precautionary demand.
c. speculative demand.
d. noncyclical demand.
8. The stock of money people hold to pay everyday predictable expenses is the:
a. transactions demand for holding money.
b. precautionary demand for holding money.
c. speculative demand for holding money.
d. store of value demand for holding money.
9. Under adaptive expectations theory, a decrease in the short-run aggregate demand curve ____the inflation rate and the unemployment rate.
a. increases; increases
b. increases, decreases
c. decreases, increases
d. decreases, decreases
10. Under adaptive expectations theory, an increase in the short-run aggregate demand curve ____the inflation rate and the unemployment rate.
a. increases; increases
b. increases; decreases
c. increases, does not change
d. decreases, increases
11. According to rational expectations theory, predictable expansionary monetary and fiscal policies to reduce the unemployment rate are:
a. desirable because the result is to lower inflation.
b. harmful because the only result is higher inflation.
c. ineffective on the price level.
d. None of the above.
Exhibit 5 Short-run and long-run Phillips curve
e.
12. Suppose the government shown in Exhibit 5 uses contractionary monetary policy to reduce inflation from 9 to 6 percent. If people have adaptive expectations, then:
a. the economy will remain stuck at point E1.
b. the natural rate will permanently increase to 8 percent.
c. unemployment will rise to 8 percent in the short run.
d. unemployment will remain at 6 percent as the inflation rate falls.
13. Suppose the government shown in Exhibit 5 uses contractionary monetary policy to reduce inflation from 9 to 6 percent. If people have rational expectations, then:
a. the economy will remain stuck at point E1.
b. the natural rate will permanently increase to 8 percent.
c. unemployment will rise to 8 percent in the short run.
d. unemployment will remain at 6 percent as the inflation rate falls.