Econ Final ch. 18

1) The MP curve represents A) the Fed's monetary policy actions in setting a target for the federal funds rate. B) the relationship between the money supply and the price level. C) a relationship between the real interest rate and manufacturing production. D) the relationship between real interest rates and potential GDP.

A

13) An increase in the expected profitability of investment will cause A) the IS curve to shift right. B) the IS curve to shift left. C) the MP curve to shift upward. D) the MP curve to shift downward.

A

17) The aggregate expenditure line is upward sloping since as GDP increases A) consumption increases. B) investment increases. C) government purchases increase. D) net exports increase.

A

4) In the IS-MP model, when the Fed increases the real interest rate A) the MP curve shifts up resulting in a decline in the output gap. B) the MP curve shifts up resulting in an increase in the output gap. C) the MP curve shifts down resulting in a decline in the output gap. D) the MP curve shifts down resulting in an increase in the output gap.

A

5) Which of the following would NOT cause a shift in the IS curve? A) an increase in the domestic real interest rate B) an increase in consumer confidence C) a decrease in the expected future profitability of capital D) a decrease in government purchases

A

7) Economists who have studied the Phillips curve have concluded that it can shift due to all of the following EXCEPT A) demand shocks. B) supply shocks. C) changes in household expectations of inflation. D) changes in firms' expectations of inflation.

A

8) Which of the following is the least likely to take place if the Fed responds to a negative demand shock by reducing the real interest rate? A) The IS curve shifts to the right. B) Output gap returns to zero. C) Inflation returns to its previous rate. D) The MP curve shifts down.

A

10) If a $10 billion increase in investment leads to a $20 billion increase in GDP, the multiplier is A) 0.5. B) 2. C) 10. D) 30.

B

10) Monetary policy can have substantial effects on the economy even when nominal interest rates are very low A) since real rates are what affect borrowing and spending decisions. B) by improving borrower and bank balance sheets. C) by reducing transactions costs. D) only when the policy is substantial.

B

6) Which of the following would NOT cause the IS curve to shift to the left? A) a decrease in government purchases B) an increase in consumer confidence C) a decrease in foreign demand for domestic products D) a decrease in the expected future profitability of capital

B

9) Changes in net worth and liquidity may significantly affect the volume of lending and economic activity according to the A) interest rate channel. B) balance sheet channel. C) money channel. D) bank lending channel.

B

1) The bank lending channel A) emphasizes the role of interest rates in the money supply process. B) emphasizes the importance of borrowers' net worth to the decision of lenders to grant loans. C) emphasizes the behavior of bank-dependent borrowers. D) is another name for the interest rate channel.

C

12) Which of the following is NOT generally recognized as a channel for monetary policy? A) interest rate channel B) balance sheet channel C) financial market channel D) bank lending channel

C

14) Which monetary policy channel focuses on the ability of money market mutual funds to purchase commercial paper issued by firms? A) interest rate channel B) commercial bank lending channel C) shadow bank lending channel D) balance sheet channel

C

15) An increase in the real interest rate causes A) the IS curve to shift to the right. B) the IS curve to shift to the left. C) a movement up the IS curve. D) a movement down the IS curve.

C

4) Which of the following statements is correct? A) Because in practice few borrowers are bank-dependent, the bank lending channel is of little real-world importance. B) In the interest rate channel, an expansionary monetary policy may cause a leftward shift in the AD curve. C) In the bank lending channel, an expansionary monetary policy can increase output in the short run even if it does not result in a decrease in the real interest rate. D) In the interest rate channel, an expansionary monetary policy affects spending but not output.

C

7) The balance sheet channel describes ways in which interest rate changes resulting from monetary policy affect A) the portfolio decisions of households. B) the portfolio decisions of businesses. C) borrowers' net worth. D) lenders' net worth.

C

9) The series of induced changes in consumption spending that result from an initial change in autonomous expenditure is called the A) induced effect. B) autonomous effect. C) multiplier effect. D) consumption effect.

C

11) In a simple model of the economy, if the MPC is 0.8, the multiplier will equal A) 0.2. B) 0.8. C) 1.25. D) 5.

D

2) In the bank lending channel, an important reason for output increases in the short run after an expansionary monetary policy is that A) the funds directly available for households and firms to spend will increase. B) prices will increase, making increased production more profitable for firms. C) the increase in government spending from an expansionary monetary policy increases output through the multiplier effect. D) the ability of banks to make loans will increase.

D

2) Which interest rate is most relevant in determining aggregate expenditures? A) federal funds rate B) short-term real interest rate C) long-term nominal interest rate D) long-term real interest rate

D

3) In a closed economy, the goods market is in equilibrium when A) Y = S + I + G. B) C + S = I + G. C) C + I = S + G. D) Y = C + I + G.

D

3) Which of the following is NOT true of the interest rate channel? A) Bank loans play no special role. B) The Fed changes the real interest rate which affects the components of aggregate expenditure. C) Borrowers are indifferent as to how and from whom they raise funds. D) Alternative sources of funds are not substitutes for each other.

D

6) For the goods market to be in equilibrium in a closed economy, which of the following must be TRUE? A) Y = S + I + G B) S + I = C + G C) S + G = Y + C D) S = I

D

6) The graph of the short-run relationship between the unemployment rate and inflation is called a(n) A) MP curve. B) LM curve. C) IS curve. D) Phillips curve.

D

7) All of the following are likely results of a negative demand shock EXCEPT A) a negative output gap. B) lower inflation. C) the IS curve shifts to the left. D) the Phillips curve shifts to the left.

D