Macro Econ UNO Chapter 10

39) As the financial crisis became more severe in 2008, the Federal Reserve undertook a(n) ________ of monetary policy, an effect of which is to ________ inflation. 39) ______ A) contraction; raise B) easing; raise C) easing; lower D) contraction; lower E) none of the above

B) easing; raise

35) A shift of the MP curve ________. 35) ______ A) does not alter the relationship between inflation and the interest rate B) implies a direct policy action of the Federal Reserve C) implies an automatic adjustment of the interest rate D) all of the above E) none of the above

B) implies a direct policy action of the Federal Reserve

40) Throughout 2008, inflation and the real interest rate declined together. The cause is a combination of ________. 40) ______ 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 policy tightening and inversion of the MP curve E) none of the above

B) monetary policy easing and declining autonomous spending

34) A movement along the MP curve ________. 34) ______ 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 E) none of the above

C) implies an automatic adjustment of the interest rate

30) In the very short run ________. 30) ______ 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 rate D) all of the above E) none of the above

C) the real interest rate will be affected by changes in the nominal rate

26) The MP curve indicates the relationship between ________ and the ________. 26) ______ A) monetary policy; IS curve B) taxes; price level C) the real interest rate; inflation rate D) all of the above E) none of the above

C) the real interest rate; inflation rate

31) Which of the following is true about the Taylor principle? 31) ______ 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 E) none of the above

D) all of the above

36) The MP curve may be used to represent ________. 36) ______ A) movements of the real interest rate as a direct policy action of the Federal Reserve B) how the real interest rate is related to the inflation rate C) movements of the real interest rate that are independent of direct Federal Reserve action D) all of the above E) none of the above

D) all of the above

38) Before the financial crisis of 2007, inflation was on the rise. According to the MP curve, this would lead to ________. 38) ______ A) an upward shift of the MP curve, if policymakers opted for autonomous tightening B) an increase in the real interest rate C) a decrease in aggregate output D) all of the above E) none of the above

D) all of the above

44) Factors that shift the AD Curve include ________. 44) ______ A) government purchases B) taxes C) autonomous investment D) all of the above E) none of the above

D) all of the above

45) The liquidity preference theory ________. 45) ______ A) distinguishes between nominal and real quantities B) shows that demand for real balances depends on the nominal interest rate C) shows that demand for real balances depends on real income D) all of the above E) none of the above

D) all of the above

47) As the nominal interest rate increases ________. 47) ______ 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 E) none of the above

D) all of the above

48) Which of the following is true with regard to the supply of money? 48) ______ A) liquidity and the money supply are directly 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 E) none of the above

D) all of the above

49) A decrease in income ________. 49) ______ 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 E) none of the above

D) all of the above

50) A rightward shift of the money supply ________. 50) ______ A) leads to a decrease in interest rates ceteris paribus B) may come about from a decrease in the price level C) may come about from an increase in the quantity of money supplied by the Federal Reserve D) all of the above E) none of the above

D) all of the above

33) If expected inflation rises, monetary policy ________. 33) ______ 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 E) none of the above

D) is designed to increase the nominal interest rate by more than the increase in expected inflation

27) The exogenous variable in the monetary policy curve is ________. 27) ______ A) the real interest rate B) the autonomous component, C) the policy parameter, λ D) the federal funds rate E) the inflation rate

E) the inflation rate

28) The endogenous variable in the monetary policy curve is ________. 28) ______ A) the inflation rate B) the federal funds rate C) the policy parameter, λ D) the autonomous component, E) the real interest rate

E) the real interest rate

46) According to liquidity preference theory, an increase in the price level would ________. 46) ______ A) decrease the supply of real money balances B) decrease the real interest rate C) increase the demand for real money balances D) all of the above E) none of the above

A) decrease the supply of real money balances

29) A central bank can control the real interest rate precisely, so long as ________ remains constant. 29) ______ A) expected inflation B) the nominal interest rate C) monetary policy D) all of the above E) none of the above

A) expected inflation

37) The MP curve may be used to represent how ________. 37) ______ A) movements of the real interest rate are related to the 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 E) none of the above

A) movements of the real interest rate are related to the inflation rate

41) Referring to the graph above, a movement from point H to point I might represent ________. 41) ______ A) the automatic response of monetary policy to an increase in the inflation rate B) the increase in the inflation rate that occurs when the real interest rate rises C) an autonomous tightening of monetary policy D) any of the above E) none of the above

A) the automatic response of monetary policy to an increase in the inflation rate

32) If the central bank did not follow the Taylor principle, an increase in inflation would lead to a decrease in ________. 32) ______ A) the real interest rate B) aggregate output C) the nominal interest D) all of the above E) none of the above

A) the real interest rate