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Monetary Policy and Macro Theories Flashcards | StudBud
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Monetary Policy and Macro Theories
Monetary Policy and Macro Theories
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1
Classical economists point out that:
government spending can affect AD.
monetary policy can increase potential GDP.
an increase in the MS leads to an equal rise in price level.
there is a trade off between unemployment and inflation.
2
Classical economists believed that
rational expectations were held by most of the public.
monetary policy was not useful in fighting recessions.
potential GDP can increase in expansionary fiscal policies.
short run goals were more important than long run goals.
3
During an expansion, economists generally believe that an economy should
balance its budget.
run a budget surplus.
run a budget deficit.
be able to pay off all its debt.
4
As people get used to inflation:
the long run AD adjusts more slowly.
wages adjust faster and SRAS shifts quickly right.
wages adjust faster, and SRAS quickly shifts left.
the short run AD curve adjust more rapidly.
5
During an inflationary gap:
the unemployment rate is equal to NRU.
the unemployment rate is less than the NRU.
actual output is less than potential output.
the unemployment rate is zero.
6
Monetarists believe that:
GDP will grow steadily if the MS grows steadily.
GDP will grow steadily if government spending grows steadily
price fluctuations are likely to occur in short or long runs
short run problems are not likely to occur.
7
If technology advances:
physical capital is less productive.
GDP per capita declines.
workers can produce more with fixed amounts of capital.
human capital is less useful.
8
Monetizing the debt occurs when:
the government raises taxes.
the Fed buys back debt via open market purchases.
transfer payments are decreased.
the budget is approved by Congress.
9
Contractionary monetary policy involves
decreasing the money supply and increasing interest rates.
decreasing money supply and interest rates.
increasing money supply and interest rates.
decreasing money supply and decreasing interest rates.
10
The Rule of 70 applies:
only to GDP per capita.
only to GDP.
only to developed countries.
to any growth rate.
11
Stagflation is a combination of:
unemployment and inflation.
restrictive trade policies and inflation.
budget deficits and trade deficits.
unemployment and higher taxes.
12
An increase in interest rates will lead to a(n)
increase in the money supply.
increase in aggregate demand.
increase in aggregate supply.
decrease in aggregate demand.
13
An increase in the expected rate of inflation:
shifts the SRPC down.
shifts the SRPC up.
moves us along the SRPC to higher rates of unemployment.
moves us along the SRPC to higher rates of inflation.
14
If the Fed reduces the inflation rate from 5% to 3%, it is:
increasing unemployment.
engaging in disinflation.
following a policy rule.
raising economic growth.
15
In the long run, the only effect of monetary policy is on:
the aggregate price level.
the long run aggregate supply.
the aggregate output level.
the interest rate.
16
A liquidity trap results from the:
Fisher effect.
zero bound of the real interest rate.
inflation tax.
zero bound of the nominal interest rate
17
Macroeconomic policy activism is:
allowing Congress sole responsibility for economic policy.
the primary theory of classical economics.
using monetary & fiscal policy to smooth out busines cycle.
a strict monetary rule for slow growth o the money supply.
18
An increase in the capital stock would shift the production function ___.
inward
to the right
to the left
upward
19
Monetary policy attemps to affect overall level of spending by changing
interest rates and quantity of money.
taxes and spending.
taxes.
imports and exports.
20
If the Fed conducts an open market purchase, one can expect
the money supply to increase.
interest rates in the money market to rise.
interest rates in the money market to remain unchanged.
interest rates in the money market to fall.
21
The aggregate production function exhibits:
constant returns to physical capital.
negative returns to physical capital.
diminishing returns to physical capital.
increasing returns to physical capital.
22
Monetary Neutrality implies that in the long run:
aggregate supply is independent from monetary policy.
monetary policy is effective at increasing supply.
aggregate demand is independent from monetary policy.
monetary policy does not affect level of economic activity.
23
Deflation:
can cause increases in output.
can cause decreases in output.
will not affect output.
can cause budget surpluses.
24
When measuring a nation's standard of living, of the following, the best measure is:
real GDP per capita.
real GDP.
market GDP.
nominal GDP.
25
For the most part, Keynesians believe that:
fiscal policy is best at fighting recessions.
balancing the budget is the best prescription to follow.
the economy will self-correct in the long run to NRU
monetary policy is best at fighting recessions.
26
If the public holds $300b in monetary purchasing power & inflation is 5%; then inflation tax is
$1500 billion.
$5 billion.
$15 billion.
$60 billion.
27
According to Keynesian theory:
the LRAS and SRAS are identical.
a decrease in AD leads to decreases in output and prices.
a decrease in AD will decrease prices but not output.
the short run in relatively unimportant.
28
When inflation is high:
people will decrease their level of real money holdings.
people will save more.
lenders gain at the expense of borrowers.
people will increase their level of real money holdings.
