Question 1

When Keynesians argue that "correlation does not necessarily imply causation," they are probably criticizing

Accepted Answer

A)  structural-model evidence.
B)  reduced-form evidence.
C)  indirect-model evidence.
D)  black-box evidence.E) A) and B)
F) None of the above

Question 2

In the late 1990s,the stock market bubble ________ the value of Tobin's q,and caused ________ in business equipment.

Accepted Answer

A)  increased;underinvestment
B)  increased;overinvestment
C)  decreased;underinvestment
D)  decreased;overinvestmentE) A) and B)
F) B) and D)

Question 3

The monetary transmission mechanism that links monetary policy to GDP through real interest rates and investment spending is called the

Accepted Answer

A)  traditional interest-rate channel.
B)  Tobins' q theory.
C)  wealth effects.
D)  cash flow channel.E) B) and C)
F) A) and B)

Question 4

The monetarist-Keynesian debate on the importance of monetary policy is unresolved because monetarists and Keynesians focus on two different types of evidence that generate conflicting conclusions. Monetarists tend to focus on

Accepted Answer

A)  structural-model evidence,while Keynesians focus on reduced-form evidence.
B)  reduced-form evidence,while Keynesians focus on structural-model evidence.
C)  reduced-form evidence,while Keynesians focus on direct-model evidence.
D)  structural-model evidence,while Keynesians focus on direct-model evidence.E) A) and C)
F) B) and D)

Question 5

________ examines whether one variable affects another by using data to build a model that explains the channels through which this variable affects the other.

Accepted Answer

A)  Indirect-model evidence
B)  Organizational-model evidence
C)  Reduced-form evidence
D)  Structural-model evidenceE) A) and B)
F) All of the above D

Question 6

Early Keynesians concluded that changes in monetary policy had no impact on aggregate output because early empirical studies found no linkage between movements in ________ and ________.

Accepted Answer

A)  nominal interest rates;investment spending
B)  real interest rates;investment spending
C)  money supply;aggregate output
D)  investment spending;aggregate outputE) A) and B)
F) All of the above

Question 7

The monetarist statistical evidence examines the correlations between both ________ and ________ with ________.

Accepted Answer

A)  money;aggregate spending;the unemployment rate
B)  money;autonomous expenditures;the unemployment rate
C)  money;consumption spending;aggregate spending
D)  money;autonomous expenditures;aggregate spendingE) B) and C)
F) A) and D)

Question 8

Monetarists' preference for reduced-form models is based on their belief that

Accepted Answer

A)  reverse causation is a problem.
B)  structural models may understate money's effect on economic activity.
C)  money supply changes are always endogenous.
D)  monetary policy affects only investment spending.E) None of the above
F) A) and D) B

Question 9

Which of the following is NOT an advantage of a correctly specified structural model?

Accepted Answer

A)  Structural models may help us to more accurately predict the effect that monetary policy has on economic activity.
B)  A structural model provides more pieces of evidence about monetary policy's effect on economic activity.
C)  Structural models may allow economists to more accurately predict the impact institutional changes have on the link between monetary policy and income.
D)  A structural model imposes no restrictions on the way monetary policy affects the economy.E) B) and C)
F) A) and C)

Question 10

During the Great Depression,real interest rates

Accepted Answer

A)  rose to unprecedentedly high levels.
B)  rose only slightly above the long-run trend.
C)  fell to unprecedentedly low levels.
D)  fell only slightly below the long-run trend.E) C) and D)
F) B) and D)

Question 11

Analysis of the transmission mechanisms of monetary policy provides four basic lessons for a central bank's conduct of monetary policy. These lessons include the following.

Accepted Answer

A)  Rising interest rates indicate a tightening of monetary policy,whereas falling interest rates indicate an easing of monetary policy.
B)  Monetary policy can be highly effective in reviving a weak economy even if short-term interest rates are already near zero.
C)  Avoiding fluctuations in the level of unemployment is an important objective of monetary policy,thus providing a rationale for interest-rate stability as the primary long-run goal for monetary policy.
D)  Other asset prices beside those on short-term debt instruments do not contain important information about the stance of monetary policy because they are not important elements in various monetary policy transmission mechanisms.E) All of the above
F) B) and C)

Question 12

An expansionary monetary policy increases net exports by ________ interest rates and ________ the value of the dollar.

Accepted Answer

A)  lowering nominal;decreasing
B)  lowering real;decreasing
C)  raising nominal;increasing
D)  raising real;increasingE) B) and C)
F) A) and B)

Question 13

According to the traditional interest-rate channel,expansionary monetary policy lowers the real interest rate,thereby raising expenditure on

Accepted Answer

A)  business fixed investment.
B)  government expenditure.
C)  consumer nondurables.
D)  net exports.E) B) and C)
F) A) and B)

Question 14

From 1990s until 2012,the Japanese economy has experienced

Accepted Answer

A)  easy monetary policy as indicated by falling nominal interest rates.
B)  easy monetary policy as indicated by short-term interest rates near zero.
C)  tight monetary policy as indicated by falling asset prices.
D)  tight monetary policy as indicated by short-term interest rates near zero.E) C) and D)
F) B) and D) C

Question 15

Economic theory suggests that ________ interest rates are ________ important than ________ interest rates in explaining investment behavior.

Accepted Answer

A)  nominal;more;real
B)  real;less;nominal
C)  real;more;nominal
D)  market;more;realE) All of the above
F) B) and C)

Question 16

On the evening news you hear of a scientific study that directly links premature births to cigarette smoking. This is an example of

Accepted Answer

A)  direct-model evidence.
B)  informed voter-model evidence.
C)  structural-model evidence.
D)  reduced-form evidence.E) A) and B)
F) None of the above

Question 17

In a study published in 1963,Milton Friedman and Anna Schwartz found that in every business cycle they studied over nearly a hundred-year period,the growth rate of the ________ decreased before ________ decreased.

Accepted Answer

A)  money supply;interest rates
B)  money supply;output
C)  budget deficit;interest rates
D)  budget deficit;outputE) B) and C)
F) None of the above

Question 18

Analysis of the transmission mechanisms of monetary policy provides four basic lessons for a central bank's conduct of monetary policy. Which of the following is NOT one of these lessons?

Accepted Answer

A)  Rising interest rates indicate a tightening of monetary policy,whereas falling interest rates indicate an easing of monetary policy.
B)  Monetary policy can be highly effective in reviving a weak economy even if short-term interest rates are already near zero.
C)  Avoiding unanticipated fluctuations in the price level is an important objective of monetary policy,thus providing a rationale for price stability as the primary long-run goal for monetary policy.
D)  Other asset prices beside those on short-term debt instruments do not contain important information about the stance of monetary policy because they are important elements in various monetary policy transmission mechanisms.E) A) and D)
F) B) and C)

Question 19

If monetary policy can influence ________ prices and conditions in ________ markets,then it can affect spending through channels other than the traditional interest-rate channel.

Accepted Answer

A)  asset;labor
B)  asset;credit
C)  commodity;labor
D)  commodity;creditE) None of the above
F) A) and B)

Question 20

According to Tobin's q theory,when equity prices are low the market price of existing capital is ________ relative to new capital,so expenditure on fixed investment is ________.

Accepted Answer

A)  cheap;low
B)  dear;low
C)  cheap;high
D)  dear;highE) A) and B)
F) A) and C)

Exam 25: Transmission Mechanisms of Monetary Policy

When Keynesians argue that "correlation does not necessarily imply causation," they are probably criticizing

Correct AnswerverifiedShow Answer

In the late 1990s,the stock market bubble ________ the value of Tobin's q,and caused ________ in business equipment.

Correct AnswerverifiedShow Answer

The monetary transmission mechanism that links monetary policy to GDP through real interest rates and investment spending is called the

Correct AnswerverifiedShow Answer

The monetarist-Keynesian debate on the importance of monetary policy is unresolved because monetarists and Keynesians focus on two different types of evidence that generate conflicting conclusions. Monetarists tend to focus on

Correct AnswerverifiedShow Answer

________ examines whether one variable affects another by using data to build a model that explains the channels through which this variable affects the other.

Correct AnswerverifiedD

Early Keynesians concluded that changes in monetary policy had no impact on aggregate output because early empirical studies found no linkage between movements in ________ and ________.

Correct AnswerverifiedShow Answer

The monetarist statistical evidence examines the correlations between both ________ and ________ with ________.

Correct AnswerverifiedShow Answer

Monetarists' preference for reduced-form models is based on their belief that

Correct AnswerverifiedB

Which of the following is NOT an advantage of a correctly specified structural model?

Correct AnswerverifiedShow Answer

During the Great Depression,real interest rates

Correct AnswerverifiedShow Answer

Analysis of the transmission mechanisms of monetary policy provides four basic lessons for a central bank's conduct of monetary policy. These lessons include the following.

Correct AnswerverifiedShow Answer

An expansionary monetary policy increases net exports by ________ interest rates and ________ the value of the dollar.

Correct AnswerverifiedShow Answer

According to the traditional interest-rate channel,expansionary monetary policy lowers the real interest rate,thereby raising expenditure on

Correct AnswerverifiedShow Answer

From 1990s until 2012,the Japanese economy has experienced

Correct AnswerverifiedC

Economic theory suggests that ________ interest rates are ________ important than ________ interest rates in explaining investment behavior.

Correct AnswerverifiedShow Answer

On the evening news you hear of a scientific study that directly links premature births to cigarette smoking. This is an example of

Correct AnswerverifiedShow Answer

In a study published in 1963,Milton Friedman and Anna Schwartz found that in every business cycle they studied over nearly a hundred-year period,the growth rate of the ________ decreased before ________ decreased.

Correct AnswerverifiedShow Answer

Analysis of the transmission mechanisms of monetary policy provides four basic lessons for a central bank's conduct of monetary policy. Which of the following is NOT one of these lessons?

Correct AnswerverifiedShow Answer

If monetary policy can influence ________ prices and conditions in ________ markets,then it can affect spending through channels other than the traditional interest-rate channel.

Correct AnswerverifiedShow Answer

According to Tobin's q theory,when equity prices are low the market price of existing capital is ________ relative to new capital,so expenditure on fixed investment is ________.

Correct AnswerverifiedShow Answer

Correct Answer
verified

In the late 1990s,the stock market bubble the value of Tobin's q,and caused in business equipment.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
D

Early Keynesians concluded that changes in monetary policy had no impact on aggregate output because early empirical studies found no linkage between movements in and .

Correct Answer
verified

The monetarist statistical evidence examines the correlations between both and with .

Correct Answer
verified

Correct Answer
verified
B

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

An expansionary monetary policy increases net exports by interest rates and the value of the dollar.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
C

Economic theory suggests that interest rates are important than interest rates in explaining investment behavior.

Correct Answer
verified

Correct Answer
verified

In a study published in 1963,Milton Friedman and Anna Schwartz found that in every business cycle they studied over nearly a hundred-year period,the growth rate of the decreased before decreased.

Correct Answer
verified

Correct Answer
verified

If monetary policy can influence prices and conditions in markets,then it can affect spending through channels other than the traditional interest-rate channel.

Correct Answer
verified

According to Tobin's q theory,when equity prices are low the market price of existing capital is relative to new capital,so expenditure on fixed investment is .

Correct Answer
verified