Question

13. An increase in nominal GDP increases the demand for money because:

		a. interest rates will rise
		b. bond prices will fall
		c. the opportunity cost of holding money will decline
		d. more money is needed to finance more transactions

14. Which of the following would reduce the money supply?:

		a. Commercial banks use excess reserves to buy government bonds from the public
		b. Commercial banks loan out excess reserves
		c. Commercial banks sell government bonds to the public
		d. A check clears from Bank A to Bank B

15. Contractionary monetary policy reduces investment spending and shifts the country’s aggregate demand curve to the right.

True

False

16. When there is an inflationary gap

		a. real output exceeds the full employment level of output and unemployment exceeds its natural rate
		b. real output exceeds the full employment level of output and unemployment is less than its natural rate
		c. real output is less than the full employment level of output and unemployment exceeds its natural rate
		d. real output is less than the full employment level of output and unemployment is less than its natural rate

17. If the economy is in a recessionary gap, one would recommend what type of policy?:

		a. contractionary fiscal policy
		b. expansionary monetary policy
		c. contractionary monetary policy
		d. none of the above

18. Long run economic growth depends almost entirely on:

		a. labor productivity growth
		b. population growth
		c. agricultural production growth
		d. number of hours worked

19. Suppose the Fed wishes to prevent a recession and enacts a monetary stimulus, but it takes too long to work. This is an example of the problem with

		a. time lags in fiscal policy
		b. time lags in monetary policy
		c. the mismeasurement of important macroeconomic variables
		d. the conflicting goals of monetary and fiscal policy

20. Full employment implies that:

		a. the economy has no frictional unemployment
		b. the unemployment rate is zero
		c. the economy has no structural unemployment
		d. none of the above are true

Answer 1

13. An increase in nominal GDP increases the demand for money because more money is needed to finance more transactions. Hence,option(D) is correct.

14. Commercial banks sell government bonds to the public would reduce the money supply. Hence,option(C) is correct.

15. FALSE because Contractionary monetary policy reduces investment spending and shifts the country's aggregate demand curve to the left.

16. When there is an inflationary gap , real output exceeds the full employment level of output and unemployment is less than its natural rate . Hence,option(B) is correct.

17. If the economy is in recessionary gap , then expansionary monetary policy could be used to close the gap , because by expansionary monetary policy aggregate demand curve shifts to the right . Hence, option(B) is correct.

18. Long run economic growth depends almost entirely on labor productivity growth.Hence,option(A) is correct.

19. Suppose the Fed wishes to prevent a recession and enacts a monetary stimulus, but it takes too long to work.This is an example of the problem with the time lags in monetary policy.

20. Full employment implies the unemployment is at natural rate , consists of structural and frictional unemployment. Hence,option(D) is correct.