Chapter 15 Macro Quiz

A change in the money supply will change investment when

a. the money supply is a function of the price level.

b. investment is interest-sensitive.

c. investment depends only on the level of GDP.

d. investment is interest-insensitive.

The correct answer is:

investment is interest-sensitive.

A decrease in the money supply will shift the aggregate __________ curve to the __________.

a. supply; left

b. supply; right

c. demand; left

d. demand; right

The correct answer is:

demand; left

A general definition of the "transmission mechanism" is: the routes or channels that ripple effects created in the

a. market for goods and the services travel to affect the money market.

b. money market travel to affect the market for goods and services.

c. labor market travel to affect the market for goods and services.

d. market for goods and services travel to affect the labor market.

The correct answer is:

money market travel to affect the market for goods and services.

A person who opposes the deliberate use of fiscal and monetary policies is called a(n)

a. Keynesian.

b. fiscalist.

c. nonactivist.

d. activist.

The correct answer is:

nonactivist.

A rules-based monetary policy

a. is advocated by activists.

b. is advocated by nonactivists.

c.could not involve a predetermined steady growth rate in the money supply.

d. assumes that wages and prices are inflexible.

The correct answer is:

is advocated by nonactivists.

According to economist Arnold Kling's perspective on the economy, economic activity is best viewed by focusing on

a. aggregate demand.

b. the actions of the Federal Reserve.

c. changes in spending.

d. specialization and trade.

The correct answer is:

specialization and trade.

According to the Keynesian transmission mechanism (and assuming there is no liquidity trap and investment is not interest insensitive), if the money supply increases, the interest rate __________, investment spending __________ and the AD curve shifts to the __________.

a. falls; falls; left

b. rises; rises; right

c. falls; rises; left

d. falls; rises; right

The correct answer is:

falls; rises; right

Figure 15-2 (shown)

Refer to Figure 15-2. A(n)__________ in the money supply from S1 to S2 would have a tendency to __________ the amount of investment, assuming investment is sensitive to changes in the interest rate.

a. decrease; raise

b. decrease; lower

c. increase; raise

d. increase; lower

The correct answer is:

increase; raise

Figure 15-2 (shown)

Refer to Figure 15-2. If the interest rate is i2 and the relevant money supply curve is S1, then there is a

a. shortage of money between points B and A.

b. surplus of money between points B and A.

c. surplus of money between points C and D.

d. shortage of money between points C and D.

The correct answer is:

shortage of money between points C and D.

Figure 15-4 (shown)

Refer to Figure 15-4. Assume that the economy starts out in short-run equilibrium. An economist who believes that the economy is not self-regulating would assert that the government should use _________________ fiscal policy to close the existing ___________________ gap.

a. expansionary; inflationary

b. expansionary; recessionary

c. contractionary; recessionary

d. contractionary; inflationary

The correct answer is:

contractionary; inflationary

Table 15-1

​

Assume that people have only two choices when it comes to holding their wealth: in money or in bonds.

State of the Money Market

State of the Bond Market

Shortage

(A)

Surplus

(B)

Equilibrium

(C)

​

​

Refer to Table 15-1. Identify the appropriate state of the bond market that would fill in blanks (A), (B), and (C), respectively.

a. surplus; shortage; equilibrium

b. shortage; surplus; equilibrium

c. surplus; surplus; equilibrium

d. shortage; shortage; equilibrium

The correct answer is:

surplus; shortage; equilibrium

The existence of a liquidity trap implies that

a. a decrease in the interest rate might not increase investment spending.

b. an increase in the demand for money will be followed by an equal increase in the supply of money.

c. an increase in the supply of money may not lower interest rates.

d. a decrease in the supply of money will raise interest rates.

The correct answer is:

an increase in the supply of money may not lower interest rates.

The quantity demanded of money is

a. inversely related to the interest rate.

b. directly related to the interest rate.

c. inversely related to the general price level.

d. inversely related to GDP.

The correct answer is:

inversely related to the interest rate.

The routes or channels that ripple effects created in the money market travel to impact the goods-and-services market are known as

a. the transmission lag.

b. monetary policy.

c. the liquidity trap.

d. the transmission mechanism.

The correct answer is:

the transmission mechanism.

The Keynesian transmission mechanism could be blocked by either interest-insensitive investment or by the liquidity trap.

Select one:

True

False

The correct answer is:

True.