Question 1 2  / 2  pts Menu costs of inflation are costs arising from Menu costs of inflation are costs arising from the failure to fully index the tax system for inflation. Correct! the need for firms to change prices during times of inflation. attempts by households and firms to avoid paying an inflation tax on money balances. high nominal interest rates. Question 2 2  / 2  pts Expansionary shifts of the aggregate demand curve Expansionary shifts of the aggregate demand curve Correct! can originate in either the assets market or the goods market. cannot originate in either the assets market or the goods market. can originate in the goods market, but not the assets market. can originate in the assets market, but not the goods market. Question 3 2  / 2  pts Despite its costs, governments typically resist eliminating inflation because Despite its costs, governments typically resist eliminating inflation because the increase in menu costs because of inflation increases the governments' tax revenues. Correct! doing so would result in lost output and jobs when the economy is near full employment. governments lack the knowledge of how to eliminate inflation. as net lenders, governments benefit from inflation. Question 4 0  / 2  pts According to new Keynesians, which of the following is NOT an important source of price stickiness? According to new Keynesians, which of the following is NOT an important source of price stickiness? Long-term nominal wage contracts You Answered Imperfect competition among sellers in the goods market Long-term nominal price contracts Correct Answer Government wage and price controls Question 5 0  / 2  pts In the quantity theory of money demand, In the quantity theory of money demand, the demand for real balances is determined by the price level. You Answered velocity is assumed to vary with the price level. the price level is assumed to be constant. Correct Answer velocity is assumed to be constant. Question 6 2  / 2  pts Which of the following best describes a price taker? Which of the following best describes a price taker? Firms taking the aggregate price level as given Prices being set by long-term contracts Price strategies found in monopolistically competitive markets Correct! A firm taking the market price as given Question 7 2  / 2  pts Milton Friedman and Anna Schwartz found in their study of money and business cycles from the Civil War to 1960 that Milton Friedman and Anna Schwartz found in their study of money and business cycles from the Civil War to 1960 that there is no consistent relationship between money and output over the business cycle. the growth rate of the money supply rises before output declines in every business cycle. the growth rate of the money supply falls before output declines during some business cycles and rises before output declines during other business cycles. Correct! the growth.

1. Question 1
2
/ 2
pts
Menu costs of inflation are costs arising from
Menu costs of inflation are costs arising from
the failure to fully index the tax system for inflation.
Correct!
the need for firms to change prices during times of inflation.
attempts by households and firms to avoid paying an inflation
tax on money balances.
high nominal interest rates.
Question 2
2
/ 2
pts
Expansionary shifts of the aggregate demand curve

2. Expansionary shifts of the aggregate demand curve
Correct!
can originate in either the assets market or the goods market.
cannot originate in either the assets market or the goods market.
can originate in the goods market, but not the assets market.
can originate in the assets market, but not the goods market.
Question 3
2
/ 2
pts
Despite its costs, governments typically resist eliminating
inflation because
Despite its costs, governments typically resist eliminating
inflation because
the increase in menu costs because of inflation increases the
governments' tax revenues.
Correct!

3. doing so would result in lost output and jobs when the economy
is near full employment.
governments lack the knowledge of how to eliminate inflation.
as net lenders, governments benefit from inflation.
Question 4
0
/ 2
pts
According to new Keynesians, which of the following is NOT
an important source of price stickiness?
According to new Keynesians, which of the following is NOT
an important source of price stickiness?
Long-term nominal wage contracts
You Answered
Imperfect competition among sellers in the goods market
Long-term nominal price contracts

4. Correct Answer
Government wage and price controls
Question 5
0
/ 2
pts
In the quantity theory of money demand,
In the quantity theory of money demand,
the demand for real balances is determined by the price level.
You Answered
velocity is assumed to vary with the price level.
the price level is assumed to be constant.
Correct Answer
velocity is assumed to be constant.

5. Question 6
2
/ 2
pts
Which of the following best describes a price taker?
Which of the following best describes a price taker?
Firms taking the aggregate price level as given
Prices being set by long-term contracts
Price strategies found in monopolistically competitive markets
Correct!
A firm taking the market price as given
Question 7
2
/ 2
pts
Milton Friedman and Anna Schwartz found in their study of
money and business cycles from the Civil War to 1960 that

6. Milton Friedman and Anna Schwartz found in their study of
money and business cycles from the Civil War to 1960 that
there is no consistent relationship between money and output
over the business cycle.
the growth rate of the money supply rises before output declines
in every business cycle.
the growth rate of the money supply falls before output declines
during some business cycles and rises before output declines
during other business cycles.
Correct!
the growth rate of the money supply falls before output declines
in every business cycle.
Question 8
2
/ 2
pts
Demand-pull inflation results from
Demand-pull inflation results from
Correct!
policymakers' attempts to increase aggregate demand for current
output above the full-employment level.

7. attempts by financial markets to deal with bracket creep.
attempts by the public to receive higher after-tax returns on
their savings.
workers' pressure for higher wages.
Question 9
0
/ 2
pts
Attempts by policymakers to keep the rate of unemployment
below the natural rate of unemployment for a sustained period
of time will result in
Attempts by policymakers to keep the rate of unemployment
below the natural rate of unemployment for a sustained period
of time will result in
a recession.
Correct Answer
demand-pull inflation.

8. a shift of the
LRAS
curve to the left.
You Answered
permanently higher levels of output.
Question 10
0
/ 2
pts
The Federal Reserve pursued an expansionary monetary policy
during 1964 in order to
The Federal Reserve pursued an expansionary monetary policy
during 1964 in order to
counteract the effects of a deep cut in federal income taxes.
Correct Answer
keep interest rates from rising.
You Answered
pull the United States out of a deep recession.

9. bring down the inflation rate.
Question 11
2
/ 2
pts
According to the Ricardian equivalence proposition,
According to the Ricardian equivalence proposition,
a decline in the demand for money results in an equivalent
increase in the demand for nonmoney assets.
saving equals investment only at full employment.
Correct!
the increase in current income from a tax cut is offset by higher
taxes in the future to pay off the debt.
government spending is the equivalent of investment spending.

10. Question 12
2
/ 2
pts
New Keynesian and new classical economists agree that
New Keynesian and new classical economists agree that
production beyond the full-employment level of output is
impossible, even in the short run.
the
LRAS
curve slopes up.
in the long run the inflation rate must be zero.
Correct!
policymakers cannot permanently maintain the unemployment
rate below the natural rate.
Question 13
0
/ 2

11. pts
Long-term inflation is principally
Long-term inflation is principally
You Answered
the result of chronic federal budget deficits.
Correct Answer
a monetary phenomenon.
the result of the slowdown in the growth rate of aggregate
supply since 1973.
caused by excess wage demands by unionized workers.
Question 14
2
/ 2
pts
Real business cycle analysis differs from both the new classical
and the new Keynesian analyses in holding that
Real business cycle analysis differs from both the new classical
and the new Keynesian analyses in holding that
changes in aggregate demand can affect output in the long run.

12. money is neutral in the long run, but not in the short run.
Correct!
the aggregate supply curve is vertical even in the short run.
prices are sticky in the short run.
Question 15
0
/ 2
pts
A decrease in the willingness or ability of banks to lend has a
significant impact on the economy because
A decrease in the willingness or ability of banks to lend has a
significant impact on the economy because
Correct Answer
some borrowers from banks are unable to borrow from
nonmoney markets.
You Answered
it causes the short-run aggregate supply curve to shift to the

13. left.
bank profits decline and employment in the banking sector
contracts.
it causes the short-run aggregate supply curve to shift to the
right.
Question 16
0
/ 2
pts
Which of the following central banks continues to emphasize
the growth of the money supply in its conduct of monetary
policy?
Which of the following central banks continues to emphasize
the growth of the money supply in its conduct of monetary
policy?
You Answered
The Fed
Correct Answer
ECB

14. Neither the Fed nor the ECB
Both the Fed and ECB
Question 17
2
/ 2
pts
An increase in oil prices will shift the short-run aggregate
supply curve
An increase in oil prices will shift the short-run aggregate
supply curve
down and to the right, causing the level of current output to fall.
up and to the left, causing the level of current output to rise.
Correct!
up and to the left, causing the level of current output to fall.
down and to the right, causing the level of current output to

15. rise.
Question 18
0
/ 2
pts
Which of the following will NOT shift the short-run aggregate
supply function?
Which of the following will NOT shift the short-run aggregate
supply function?
You Answered
Changes in the expected price level
Correct Answer
Changes in the price level
Changes in labor costs
Changes in the costs of nonlabor inputs

16. Question 19
2
/ 2
pts
The liquidity preference theory emphasizes
The liquidity preference theory emphasizes
the effect of price level changes on the demand for real
balances.
Correct!
the sensitivity of money demand to changes in interest rates.
the transactions motive for holding money.
the precautionary motive for holding money.
Question 20
0
/ 2
pts
Which of the following is a likely causative factor in the
movement of M1 velocity during the 1980s?

17. Which of the following is a likely causative factor in the
movement of
M1
velocity during the 1980s?
Correct Answer
Movements in interest rates
You Answered
Exchange rate fluctuations
Changes in marginal tax rates
Political instability in Eastern Europe
Question 21
2
/ 2
pts
According to Keynes, if the interest rate on bond falls, but
aggregate income doesn't change,
According to Keynes, if the interest rate on bond falls, but
aggregate income doesn't change,
the price level will decrease.

18. Correct!
velocity will decrease.
velocity will increase.
the demand for money will decrease.
Question 22
0
/ 2
pts
The existence of cost of living adjustments in many wage
contracts
The existence of cost of living adjustments in many wage
contracts
is being phased out under recent federal legislation.
You Answered
assures that these wages fully adjust to aggregate nominal
disturbances.

19. results in these wages being completely rigid.
Correct Answer
does not result in these wages fully adjusting to aggregate
nominal disturbances.
Question 23
0
/ 2
pts
According to the new Keynesian view, upturns and downturns in
economic activity
According to the new Keynesian view, upturns and downturns in
economic activity
You Answered
are always the result of unexpected changes in the money
supply.
cannot be offset by stabilization policy.
Correct Answer
may represent times when the economy is not at its long-run
equilibrium.

20. are unrelated to movements in aggregate demand.
Question 24
2
/ 2
pts
A disinflation policy that lacks credibility
A disinflation policy that lacks credibility
Correct!
will increase the lost output and jobs that result from the policy.
will have no effect on inflation.
will work only if the economy is experiencing a hyperinflation.
results in a leftward shift of the
AD
curve.

21. Question 25
0
/ 2
pts
If during a particular year, the money supply grows 7%, output
grows 2%, and velocity falls 2%, the inflation rate will be
If during a particular year, the money supply grows 7%, output
grows 2%, and velocity falls 2%, the inflation rate will be
Correct Answer
3%.
11%.
7%.
You Answered
9%.
Question 26
2
/ 2
pts

22. Which events made the inflation that began in the late 1960s
worse?
Which events made the inflation that began in the late 1960s
worse?
Correct!
The oil supply shocks of the mid-1970s
The large increases in the exchange value of the dollar in the
early 1970s
The large tax cuts of the early 1970s
The large reductions in the government spending in the late
1970s
Question 27
0
/ 2
pts
The tendency of individuals to hold money to pay for
unexpected transactions is known as
The tendency of individuals to hold money to pay for
unexpected transactions is known as

23. Keynesian motive.
Correct Answer
precautionary motive.
You Answered
speculative motive.
conditional motive.
Question 28
0
/ 2
pts
Which of the following statements is correct?
Which of the following statements is correct?
You Answered
Prices have fallen in the majority of years since 1939.
Correct Answer
Throughout U.S. history prices have fallen in more years than
they have risen.

24. Prices fell every year in the 1980s.
Prices have risen every year in the United States since 1800.
Question 29
2
/ 2
pts
Monetary neutrality refers to the fact that changes in the money
supply
Monetary neutrality refers to the fact that changes in the money
supply
affect only output in the long run.
Correct!
have no effect on output in the long run.
have a greater effect on prices in the short run than in the long
run.

25. affect output more in the long run than in the short run.
Question 30
0
/ 2
pts
The typical firm will find that its payoff to reducing price
increases after the announcement of a disinflation policy
The typical firm will find that its payoff to reducing price
increases after the announcement of a disinflation policy
Correct Answer
increases if it believes that the policy will actually be carried
out.
decreases if it believes that the policy will actually be carried
out.
is independent of whether the policy is actually carried out.
You Answered
depends on movements in the
LRAS
curve.

26. Question 31
0
/ 2
pts
Suppose the Fed sets an inflation target of 2% a year. If
economic growth averages 3% per year and velocity grows by
1% per year, by how much should it increase the money supply
each year?
Suppose the Fed sets an inflation target of 2% a year. If
economic growth averages 3% per year and velocity grows by
1% per year, by how much should it increase the money supply
each year?
5%
6%
Correct Answer
4%
You Answered
2%

27. Question 32
2
/ 2
pts
If in the short run prices did not respond at all to changes in
aggregate demand, the short-run aggregate supply curve would
If in the short run prices did not respond at all to changes in
aggregate demand, the short-run aggregate supply curve would
slope down.
Correct!
be horizontal.
be vertical.
slope up.
Question 33
0
/ 2
pts

28. Keynes assumed that the return on money was
Keynes assumed that the return on money was
Correct Answer
zero.
the nominal interest rate minus the expected inflation rate.
the same as the return on bonds.
You Answered
the same as the return on bonds, adjusted for capital gains.
Question 34
0
/ 2
pts
If credit card companies imposed a per purchase charge for
using their cards,
If credit card companies imposed a per purchase charge for
using their cards,
money balances would fall, and the velocity of money would
rise.

29. Correct Answer
money balances would rise, and the velocity of money would
fall.
both money balances and the velocity of money would fall.
You Answered
both money balances and the velocity of money would rise.
Question 35
0
/ 2
pts
According to New Keynesians, why does an expected change in
the money supply affect output in the short run?
According to New Keynesians, why does an expected change in
the money supply affect output in the short run?
Correct Answer
Many prices are set by long-term contracts and thus cannot
respond quickly to increases in the money supply.
Prices are flexible in the short run.

30. You Answered
People expect central banks to increase the money supply in
response to increases in output.
Firms have imperfect information.
Question 36
0
/ 2
pts
According to Baumol and Tobin, the transactions demand for
money is
According to Baumol and Tobin, the transactions demand for
money is
positively related to market interest rates, but the velocity of
money is negatively related to market interest rates.
Correct Answer
negatively related to market interest rates, but the velocity of
money is positively related to market interest rates.

31. You Answered
positively related to market interest rates, as is the velocity of
money.
negatively related to market interest rates, as is the velocity of
money.
Question 37
2
/ 2
pts
The book in which Milton Friedman and Anna Schwartz
reported on their study of the relation between money and the
business cycle is
The book in which Milton Friedman and Anna Schwartz
reported on their study of the relation between money and the
business cycle is
Correct!
A Monetary History of the United States.
Money and the Cycle.
The General Theory of Employment, Interest, and Money.

32. Money through the Ages.
Question 38
0
/ 2
pts
Which of the following is true of the new classical view of
stabilization policy?
Which of the following is true of the new classical view of
stabilization policy?
You Answered
It is necessary during recessions but not during booms.
It has been very successful in the period since the Great
Depression.
Correct Answer
It is unnecessary because households and firms make use of all
available information in forming expectations of the price level.
It is necessary, but it should not be overused.

33. Question 39
0
/ 2
pts
An important distinction between Friedman's and Keynes' view
of money demand was that
An important distinction between Friedman's and Keynes' view
of money demand was that
Correct Answer
Friedman thought that interest rates had a smaller effect than
Keynes.
Keynes emphasized the effect of expected average lifetime
income.
Friedman thought that interest rates had a larger effect than
Keynes.
You Answered
Friedman assumed the return on money was zero.

34. Question 40
0
/ 2
pts
Which of the following schools of thought among economists
believe that activist stabilization policy is ever desirable?
Which of the following schools of thought among economists
believe that activist stabilization policy is ever desirable?
Only new Keynesian and new classical
You Answered
Only new Keynesian and real business cycle
New Keynesian, new classical, and real business cycle
Correct Answer
Only new Keynesian
Question 41
0
/ 2
pts
During the late 1970s, households, businesses, and

35. policymakers shifted to the opinion that
During the late 1970s, households, businesses, and
policymakers shifted to the opinion that
You Answered
higher inflation was acceptable provided it resulted in higher
employment.
a reduction in inflation should take place provided it did not
result in disinflation.
higher inflation was acceptable provided it resulted in higher
output.
Correct Answer
reducing inflation was necessary even if it resulted in lower
levels of employment and output.
Question 42
2
/ 2
pts
If oil prices fall at the same time that the federal government
increases its spending, in the short run

36. If oil prices fall at the same time that the federal government
increases its spending, in the short run
aggregate output and the price level will both fall.
Correct!
aggregate output will increase, but the price level may either
increase or decrease.
aggregate output and the price level will both increase.
aggregate output will increase, but the price level will fall.
Question 43
2
/ 2
pts
Which of the following is true of the new Keynesian view of
stabilization policy?
Which of the following is true of the new Keynesian view of
stabilization policy?
It is unnecessary because output fluctuations reflect
productivity disturbances.

37. It is unnecessary because output fluctuations are largely the
result of policy mistakes by the Fed.
It is necessary during recessions but not during booms.
Correct!
It is necessary because shifts in aggregate demand are the main
source of movements in current output.
Question 44
0
/ 2
pts
When economists state that money is neutral in the long run,
they mean that in the long run,
When economists state that money is neutral in the long run,
they mean that in the long run,
You Answered
the price level is independent of the nominal money supply.
Correct Answer
the level of output is independent of the nominal money supply.

38. fluctuations in the money supply are equally likely to lead to
recessions as to expansions.
changes in the money supply have the same impact on the rich
as they do on the poor.
Question 45
0
/ 2
pts
Money's convenience yield is
Money's convenience yield is
Correct Answer
the amount of interest sacrificed in exchange for money's
safety, liquidity, and low information costs.
You Answered
the nominal interest rate paid on money balances plus the
expected inflation rate.
the nominal interest rate paid on money balances minus the
expected inflation rate.

39. the interest rate on T-bills minus the interest rate on money.
Question 46
0
/ 2
pts
Most economists believe that the aggregate supply curve is
Most economists believe that the aggregate supply curve is
upward-sloping in the long run, but vertical in the short run.
Correct Answer
upward-sloping in the short run, but vertical in the long run.
You Answered
vertical in both the short run and in the long run.
upward-sloping in both the short run and in the long run.

40. Question 47
0
/ 2
pts
The inclusion in M1 of interest-bearing substitutes for
conventional checkable deposits in the early 1980s
The inclusion in
M1
of interest-bearing substitutes for conventional checkable
deposits in the early 1980s
You Answered
increased the demand for
M1
at each level of nominal GDP, thereby increasing velocity.
decreased the demand for
M1
at each level of nominal GDP, thereby decreasing velocity.
decreased the demand for
M1
at each level of nominal GDP, thereby increasing velocity.
Correct Answer
increased the demand for
M1
at each level of nominal GDP, thereby decreasing velocity.

41. Question 48
0
/ 2
pts
Milton Friedman and Anna Schwartz conclude that
Milton Friedman and Anna Schwartz conclude that
Correct Answer
changes in money growth cause output fluctuations.
there is no causal link between the money supply and output.
You Answered
output fluctuations cause changes in money growth.
there is no evidence for changes in the money supply that are
not influenced by changes in output or by third factors that
influenced both money and output.
Question 49
0
/ 2
pts
The argument that changes in output cause changes in the

42. money supply is known as
The argument that changes in output cause changes in the
money supply is known as
the money multiplier effect.
You Answered
direct causation.
the liquidity effect.
Correct Answer
reverse causation.
Question 50
0
/ 2
pts
Which of the following is the correct expression for short-run
aggregate supply in the new classical view?
Which of the following is the correct expression for short-run
aggregate supply in the new classical view?
Y
= Y + a

43. (
P -
P
e
)
You Answered
Y = Y
+ a
(
P +
P
e
)
Correct Answer
Y = Y
+ a
(
P -
P
e
)
Y
= Y + a
(
P +
P
e
)

44. Quiz Score:
38
out of 100