A depreciation of the dollar

A.

makes U.S. exports more expensive in terms of foreign currency and imports less expensive in terms of thedollar, increasing net exports.

B.

makes U.S. exports more expensive in terms of foreign currency and imports less expensive in terms of thedollar, decreasing net exports.

C.

makes U.S. exports less expensive in terms of foreign currency and imports more expensive in terms of thedollar, decreasing net exports.

D.

makes U.S. exports less expensive in terms of foreign currency and imports more expensive in terms of thedollar, increasing net exports.

Other thingsconstant, the quantity theory of money suggests that any increase in the money supply

A.

causes the aggregate level of nominal Gross Domestic Product(GDP) to fall.

B.

causes a reduction in the demand for money.

C.

results in a proportionate increase in the price level.

D.

results in a decrease in the aggregate price level.

The number of times peryear, onaverage, that a dollar is spent on final goods and services is known as

A.

the equation of exchange.

B.

the money supply.

C.

the price of money.

D.

the income velocity of money.To alter the rate of growth of the moneysupply, the Fed can do all but which one of thefollowing?

A.

Change the discount rate

B.

Shift the demand for money curve by altering the interest rate

C.

Engage in open market operations

D.

Change the required reserve ratio.

Suppose the actual federal funds rate is below the rate implied by a particular inflation goal.

In thissituation, the Taylor rule implies that

A.

fiscal policy is contractionary.

B.

monetary policy is expansionary.

C.

monetary policy is neither expansionary or contractionary.

D.

monetary policy is contractionary.

In theinterest-rate-based transmissionmechanism, a decrease in the money supply will

A.

reduce the rate of interest and the level of investment.

B.

reduceinvestment, shift the aggregate demand functioninward, and lower real Gross Domestic Product(GDP).

C.

shift the aggregate supply function inward and increase real Gross Domestic Product(GDP).

D.

increase the price level.

QuantityofMoney

InterestRate

Ms

M's

Md

r1

r2

The image shows Panel 1 of a graph. The graph shows equilibrium in a money market. The horizontal axis measures the quantity of money, while the vertical axis measures the rate of interest. The graph shows a downward-sloping, linear curve labeled M subscript d. The graph also shows two vertical lines labeled M subscript s and M superscript I subscript s. The curve M superscript I subscript s lies to the right of M subscript s. M subscript d intersects both M subscript s and M superscript I subscript s. The point where M subscript d intersects M subscript s corresponds to an interest rate of r subscript 1. The point where M subscript d intersects M superscript I subscript s corresponds to an interest rate of r subscript 2. The point of intersection between M subscript d and M superscript I subscript s lies below and to the right of the point of intersection between M subscript d and M subscript s.

PlannedInvestment

InterestRate

I1

I2

I

The image shows Panel 2 of a graph. The graph shows the relationship between interest rate and planned investment. The horizontal axis measures the level of planned investment, while the vertical axis measures the rate of interest. The graph shows a downward-sloping, linear curve labeled I. A point on curve I corresponds to I subscript 1 level of investment. A horizontal dotted line from the vertical axis meets the point on curve I. A point to the right of the initial point on I corresponds to I subscript 2 level of investment. A horizontal dotted line from the vertical axis meets the point on curve I.

RealGDPperYear($tril)

PriceLevel

AD1

AD2

SRAS2

SRAS1

LRAS

B

D

C

A

The image shows Panel 3 of a graph. The graph shows equilibrium in a market in the short run and in the long run. The horizontal axis measures real GDP per year in trillions of dollars, while the vertical axis measures the price level. The graph shows two downward-sloping, linear aggregate demand curves, AD subscript 1 and AD subscript 2. AD subscript 2 lies to the right of AD subscript 1. The graph also shows two upward-sloping, short-run aggregate supply curves. One upward-sloping curve is labeled SRAS subscript 1. There is a vertical straight line that represents the long-run aggregate supply curve, LRAS. The economy is initially in equilibrium at point A where AD subscript 1 intersects SRAS subscript 1 on LRAS. SRAS subscript 1 intersects AD subscript 2 at point B, which lies to the right of point A on SRAS subscript 1. SRAS subscript 2 intersects AD subscript 2 at point C on LRAS, which lies to the left of point B on AD subscript 2. SRAS subscript 2 intersects AD subscript 1 at point D, which lies to the left of point C on SRAS subscript 2.

In the abovefigure, if the economy is initially at an equilibrium output at point A and the interest rate is r1, then an open market purchase of bonds by the Fed will

A.

not have any impact onshort-run orlong-run equilibrium real Gross Domestic Product(GDP).

B.

cause interest rates to increase and output to decline.

C.

cause interest rates to decline to r2, investment todecline, and aggregate demand to shift inward to the left.

D.

cause interest rates to decline to r2, investment to increase to I2, and the AD curve to shift upward to the right.According to traditionalKeynesians, monetary policy as a tool to fight a recession

A.

is ineffective because interest rates will not fall.

B.

is very effective because interest rates will fall immediately.

C.

cannot be determined because traditional Keynesians do not consider monetary policy at all.

D.

has an uncertain effect on theeconomy, depending on the direction of fiscal policy.Which of the following statements has been proposed as a benefit of passivepolicymaking?

A.

When using passive policymaking there is no tradeoff between price stability and unemployment.

B.

Passive policymaking allows for making immediate changes in response to an anticipated change in economic performance.

C.

Passive policymaking does not wait for the time lag between recognition of a problem and policy action before engaging in economic policies to stabilize the economy.

D.

Passive policymaking utilizes the rational expectations hypothesis.

What types of unemployment will still exist when the economy is at the natural rate ofunemployment?

A.

frictional, structural, and cyclical unemployment

B.

structural and cyclical unemployment only

C.

frictional and structural unemployment only

D.

frictional and cyclical unemployment only

Refer to the figure at right. Unexpected expansionary monetary policy has caused the aggregate demand curve to shift to AD2. In the short run,

A.

real GDP will be Y1, and the price level will be P1.

B.

real GDP will be Y2, and the price level will be P2.

C.

real GDP will be Y1, and the price level will be above P2.

D.

real GDP will be between Y1 and Y2 , and the price level will be between P1 and P2.

During arecession, the overall unemployment rate

A.

equals the inflation rate.

B.

falls below the natural rate of unemployment.

C.

falls rapidly.

D.

exceeds the natural rate of unemployment.

In the shortrun, unanticipated inflation typically leads to

A.

workers' thinking the real wage has been reduced.

B.

decreases in aggregate demand.

C.

higher rates of unemployment.

D.

lower rates of unemployment.

The Phillips Curve will shift when

A.

the overall employment rate remains unchanged.

B.

the expected inflation rate changes.

C.

the price level falls.

D.

none of the above.

An unexpected decrease in aggregate demand

A.

will decreaselong-run aggregate supply.

B.

will decrease the price level.

C.

will decrease the average duration of unemployment.

D.

will decrease realGDP, but will not affect the rate and duration of unemployment.

The rational expectations hypothesis states that

A.

people combine the effects of past policy changes on important economic variables with their own judgments about the future effects of current and future policy changes.

B.

the government combines the effects of past policy changes on important economic variables with accepted views about the effects of current and future policy changes.

C.

people understand how the economy operates and use their knowledge in making expectations about thefuture, but are uninformed about how fiscal and monetary policies are made and carried out.

D.

people combine the effect of past policy changes on important economic variables with unpredictable views on what policy makers will do to determine what the economy will do in the future.

According to the policy irrelevanceproposition, real Gross Domestic Product(GDP) is determined by

A.

theeconomy's aggregate demand curve.

B.

a combination of fiscal policy and monetary policy.

C.

the rate of inflation only.

D.

theeconomy's long-run aggregate supply curve.

In the figure atright, if we start at AD1 and SRAS1, and the money supply increasesunexpectedly, what would be thelong-run equilibrium?

A.

E3

B.

E1

C.

E2

D.

P1

RealGDPperYear($trillions)

PriceLevel

LRAS

SRAS1

AD1

AD2

SRAS2

P1

P2

P3

E1

E2

Menu costs are

A.

the costs that deter firms from changing prices in reaction to demand changes.

B.

the cost of compliance with government regulations.

C.

the constantly changing resource prices that make planning for firms difficult.

D.

the advertised prices for final products that firms guarantee for a certain period of time.

If a group of economists believes the following points areTRUE, which is likely to be their policymakingstance?

Aggregate demand shocks have no long run effect on real Gross Domestic Product(GDP) or unemployment.

Pure competition is widespread throughout the economy.

Real wages are flexible.

The Phillips Curvetrade-off does not exist in the long run.

A.

They will argue that any attempt at economic policymaking is futile.

B.

They will support active policymaking.

C.

They will support discretionary policymaking.

D.

They will support passive policymaking.