Chapter 9&10

A shift of the MP curve ____. a) does not alter the relationship between inflation and the interest rate b) implies direct policy action of the Fed c) implies an automatic adjustment of the interest rate d) all of the above

B

An increase in the real interest rate will cause an increase in ____. a) net exports b) savings c) planned investment d) all of the above

B

As the financial crisis became more severe in 2008, the Fed undertook _____ of monetary policy, an effect of which is to _____ inflation . a) contraction; rise b) easing; rise c) easing; lower d) contraction; lower

B

A central bank can control the real interest rate precisely, so long ______ remains constant. a) expected inflation b) nominal interest rate c) monetary policy d) all of the above

A

According to the liquidity preference theory, an increase in the price level would ______. a) decrease the supply of real money balances b) decrease the real interest rate c) increase demand for real money balances d) all of the above

A

An increase in autonomous consumption _____. a) raises equilibrium output for any level of interest rate b) lowers planned expenditure c) causes a movement down along the IS curve d) all of the above

A

If the central bank did NOT follow the Taylor principle, an increase in inflation would lead to a decrease in ____. a) the real interest rate b) aggregate output c) the nominal interest d) all of the above

A

The MP curve may be used to represent how _____. a) movements of the real interest rate are related to inflation rate b) monetary policy responds to changes in the real interest rate c) movements of the inflation rate are determined by the real interest rate d) all of the above

A

Net exports ______. a) are heavily determined by domestic demand for domestic goods b) are heavily determined by foreign demand for domestic goods c) are independent of domestic interest rate fluctuations d) all of the above

B

Planned investment spending _____. a) is equal to the planned fixed investment spending plus government investment b) is heavily influenced by expectations about the future c) is unrelated to real interest rate d) all of the above

B

The 2009 fiscal stimulus package was passed _____. a) to prevent the real interest rate from rising b) to raise aggregate output at any interest rate c) to shift the IS curve to the right d) all of the above

B

The IS curve shifts to the left when ____. a) taxes decrease b) autonomous investment decreases c) autonomous consumption increases d) all of the above

B

Throughout 2008, inflation and the real interest rate declined together. The cause is a combination of _____. a) declining autonomous spending and movement along a fixed MP curve b) monetary policy easing and declining autonomous spending c) increased government spending and movement along a fixed MP curve d) monetary tightening and inversion of the MP curve

B

When the US real interest rate falls _____. a) US dollar assets earn a higher return relative to foreign assets b) imports will decrease c) it makes US exports more expensive in foreign currencies d) all of the above

B

When the US real interest rate rises _____. a) imports will decrease b) US dollar assets earn a higher return relative to foreign assets c) makes US exports cheaper in foreign currencies d) all of the above

B

A movement along the MP curve ____. a) implies an autonomous adjustment to the interest rate b) implies an autonomous adjustment of aggregate demand c) implies an automatic adjustment of the interest rate d) all of the above

C

Fixed investment is typically _____. a) calculated as the change in holdings of raw materials and finished goods b) smaller than inventory investment c) planned spending on equipment, structures, and new residential housing d) all of the above

C

The reason for the downward-sloping IS curve is that _____. a) lower interest rates lead to lower saving and lower output b) higher interest rates lead to lower saving and higher output c) lower interest rates lead to lower saving and higher output D) all of the above

C

If the government cuts taxes _____. a) the IS curve shifts to the left b) disposable income falls c) planned expenditure rises d) all of the above

C

In the very short run _____. a) the inflation rate is determined by the federal funds rate b) monetary policy has an immediate effect on inflation c) the real interest rate will be affected by changes in the nominal interest rate d) all of the above

C

The IS curve _____. a) shifts up when the real interest rate increases b) shifts to the left when autonomous investment increases c) shifts to the right when autonomous consumption increases d) all of the above

C

The IS curve shifts to the left when _____. a) autonomous investment increases b) autonomous consumption increases c) taxes increase d) all of the above

C

The MP curve indicates the relationship between _____ and the ____. a) monetary policy; IS curve b) taxes; price level c) the real interest rate; inflation rate d) all of the above

C

A decrease in income ____. a) lowers interest rates ceteris paribus b) leads to a leftward shift of the money demand curve c) lowers money demand for any given interest rate d) all of the above

D

A decrease in the real interest rate will cause an increase in _____. a) net exports b) consumption c) planned investment d) all of the above

D

A rightward shift of the money supply ____. a) leads to a decrease in interest rate ceteris paribus b) may come about from a decrease in price level c) may come about from increase in the quantity of money supplied by the Fed d) all of the above

D

As the nominal interest rate increases _____. a) the quantity of money demanded falls b) the opportunity cost of holding money rises c) it becomes more costly to hold money instead of bonds d) all of the above

D

Before the financial crisis of 2007, inflation was on the rise. According to the MP curve, this would lead to ____. a)an upward shift of the MP curve, if policymakers opted for autonomous tightening b) an increase in real interest rate c) a decrease in aggregate output d) all of the above

D

Factors that shift the AD curve include _____. a) government purchases b) taxes c) autonomous investment d) all of the above

D

If aggregate output is below its equilibrium level _____. a) actual output is below planned expenditure b) there is an excess demand for goods c) firms will tend to replenish their low inventories driving output up toward equilibrium d) all of the above

D

If expected inflation rises, monetary policy ___. a) will prevent any increase in the real interest rate b) is rendered ineffective c) must be tightened, to prevent further increases in inflation and expected inflation d) is designed to increase the nominal interest rate by more than the increase in expected inflation

D

If people feel optimistic about the future of the economy ____. a) autonomous investment might increase b) it might shift the IS curve to the right c) autonomous consumption might increase d) all of the above

D

If the government raises taxes _____. a) equilibrium output falls b) planned expenditures fall c) the IS curve shifts to the left d) all of the above

D

In the stock market boom _____. a) the IS curve might shift to the right b) autonomous investment might increase because a higher stock value for the firm helps firms raise funds for increased investment c) autonomous consumption might increase because stock holders might feel richer and consume more d) all of the above

D

Planned investment spending ______. a) is equal to planned fix investment spending plus the amount of inventory investment planned by firms b) is heavily influenced by expectations about the future c) is closely related to the real interest rate d) all of the above

D

Qualitatively, an increase in government purchases has the same impact as increase in autonomous _____. a) consumption b) net exports c) investment d) all of the above

D

The 2009 fiscal stimulus package did not work ____. a) because the increase in government spending was not enough to offset the decline in autonomous expenditure b) because most of the intended increase in government spending took too long to kick in c) in the IS curve did not shift to the right d) all of the above

D

The IS curve _____. a) traces out the points at which the goods market is in equilibrium b) tells us that as real interest rate rises planned expenditures go down leading to increases in savings that satisfy the goods market equilibrium c) tells us how consumption expenditures fall as the real interest rate rises d) all of the above

D

The MP curve may be used to represent ____. a) movements of the real interest rate as a direct policy action of the Fed b) how the real interest rate is related to inflation rate c) movements of the real interest rate that are independent of direct Fed action d) all of the above

D

The liquidity preference theory ______. a) distinguishes between nominal and real quantities b) shows that demand for real balances depend on nominal interest rate c) shows that demand for real balances depend on real income d) all of the above

D

Total planned expenditure is 14,000 when autonomous consumption expenditure is 450. When autonomous consumption expenditure falls to 400, total planned expenditure is 13,800. The marginal propensity to consume is _____. a) 0.99 b) 0.89 c) 0.03 d) 0.75 e) 0.44

D

Which of the following is true about the Taylor principle? a) it is the foundation for an upward sloping MP curve b) it reflects the practice of monetary policy c) it explains the link between higher inflation and higher real interest rates d) all of the above

D

Which of the following is true with regard to the supply of money? a) liquidity and the money supply are directed related b) an open market purchase of government securities will increase liquidity c) an open market sale of government securities will decrease liquidity d) all of the above

D

Total aggregate demand includes _____. a) planned investment spending b) net exports c) consumption expenditures d) all of the above

D. Y = C + I + G + NX

The endogenous variable in the monetary policy curve is _____. a) the inflation rate b) federal funds rate c) policy parameter d) autonomous component e) the real interest rate

E

The exogenous variable in the monetary policy curve is ____. a) the real interest rate b) the autonomous component c) the policy parameter d) the federal funds rate e) the inflation rate

E