Term
| The average number of times that a dollar is spent in buying the total amount of final goods and services during a time period is known as _______. |
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Definition
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Term
| In the late 1990s, the stock market bubble ________ the value of Tobin's q, and caused ________ in business equipment. |
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Definition
| increased; overinvestment |
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Term
According to Tobin's q theory, if q is ________, new plant and equipment capital is ________
relative to the market value of business firms, so companies can buy a lot of new investment
goods with only a ________ issue of stock |
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Definition
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Term
Regarding the transmission mechanisms of MP, because of the presence of asymmetric
information problems in credit markets, an expansionary monetary policy causes a ________ in
net worth, which ________ the adverse selection problem, thereby ________ increased lending
to finance investment spending |
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Definition
| Rise; Reduces; Encouraging |
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Term
Regarding the transmission mechanisms of MP, an expansionary monetary policy raises firms'
cash flows by ________ interest rates |
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Definition
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Term
Regarding the transmission mechanisms of MP, if a contractionary monetary policy lowers the
price level by more than expected, it raises the real value of consumer debt. This reduces
consumer expenditure through |
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Definition
| the household liquidity effect |
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Term
Regarding the transmission mechanisms of MP, corporate scandals involving Enron and
Arthur Andersen reduced investment and aggregate spending because these scandals |
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Definition
| Worsened adverse selection and moral hazard. |
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Term
In the aggregate S&D framework, by analyzing aggregate demand via its component parts, we
can conclude that changes in the money supply |
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Definition
| affect aggregate demand in the same direction as the change in government spending |
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Term
In the aggregate S&D framework, everything else held constant, a decrease in planned
investment expenditure ________ aggregate ________ |
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Definition
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Term
In the aggregate S&D framework, the long-run rate of unemployment to which an economy
always gravitates is the |
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Definition
| Natural Rate of Unemployment |
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Term
In the aggregate S&D framework, the short-run aggregate supply curve is upward sloping
because in the short run, costs of many factors that go into producing goods and services are
________, meaning that the price for a unit of output will ________ relative to input prices and
the profit per unit will rise. |
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Definition
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Term
Regarding the transmission mechanisms of MP, according to the traditional interest-rate
channel, expansionary monetary policy lowers the real interest rate, thereby raising expenditure
on |
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Definition
| Business Fixed Investment |
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Term
Regarding the transmission mechanisms of MP, if monetary policy can influence ________
prices and conditions in ________ markets, then it can affect spending through channels other
than the traditional interest-rate channel. |
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Definition
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Term
In the aggregate S&D framework, which of the following increases aggregate supply in the
short-run, everything else held constant? |
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Definition
| A technological improvement that increases worker productivity. |
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Term
In the aggregate S&D framework, assuming the economy is starting at the natural rate of
output and everything else held constant, the effect of ________ in aggregate ________ is a rise
in both the price level and output in the short-run, but in the long-run the only effect is a rise in
the price level. |
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Definition
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Term
In the aggregate S&D framework, suppose the economy is producing at the natural rate of
output. Assuming a fixed natural rate of output and everything else held constant, the
development of a new, more productive technology will cause ________ in the unemployment
rate in the long run and ________ in the aggregate price level in the short run. |
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Definition
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Term
| According to the Phillips Curve, the rate of inflation increases when |
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Definition
| The unemployment rate is less than the NAIRU |
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Term
| The Keynesian demand for real balances can be expressed as |
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Definition
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Term
Friedman's argument that competition among banks will tend to keep the difference between
the return on bonds and money relatively constant implies that changes in ________ will have |
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Definition
| interest rates; little effect |
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Term
The ________ sensitive is the demand for money to interest rates, the more unpredictable
velocity will be, and the link between the money supply and aggregate spending will be
________ clear. |
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Definition
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Term
| Evidence suggests that a liquidity trap is possible when ________. |
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Definition
| Nominal interest rates are at zero |
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Term
| In the liquidity trap, monetary policy ________. |
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Definition
| has no impact on the interest rates. |
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Term
In the aggregate S&D framework, suppose the economy is producing at the natural rate of
output. An increase in consumer and business confidence will cause ________ in real GDP in
the short run and ________ in the aggregate price level in the short run, everything else held
constant. |
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Definition
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Term
In the aggregate S&D framework, everything else held constant, when actual output exceeds
the natural rate of output ________ aggregate supply ________. |
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Definition
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Term
| A theory of aggregate economic fluctuations called real business cycle theory holds that_________. |
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Definition
| aggregate supply shocks do affect the natural rate of output |
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Term
In the aggregate S&D framework, the positively sloped short-run aggregate supply curve
reflects the assumption that factor prices (costs) are ___________ |
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Definition
| less flexible than output prices |
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Term
| Which of the following is an advantage of the Fed's "just do it" approach to monetary policy? |
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Definition
| It does not rely on the money-inflation relationship. |
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Term
| If the money supply is $500 and nominal income is $3,000, the velocity of money is |
|
Definition
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Term
| Keynes's liquidity preference theory indicates that the demand for money |
|
Definition
| is a function of both income and interest rates. |
|
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Term
|
Definition
| Nominal GDP or Total spending, (Price level × Y (aggregate output/income)), divided by the quantity of money, M. |
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Term
The classical economists' conclusion that nominal income is determined by movements in
the money supply rested on their belief that ________ could be treated as ________ in the short
run. |
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Definition
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Term
| According to the quantity theory of money demand, |
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Definition
| interest rates have no effect on the demand for money. |
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Term
| In the 20th century, velocity of money in the US has |
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Definition
|
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Term
| If the money supply is $500 and nominal income is $4,000, the velocity of money is |
|
Definition
|
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Term
| The Keynesian theory of money demand emphasizes the importance of |
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Definition
| interest rates on the demand for money. |
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Term
Keynes argued that the transactions component of the demand for money was primarily
determined by the level of people's ________, which he believed were proportional to ________. |
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Definition
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Term
Keynes hypothesized that the speculative component of money demand was primarily
determined by the level of |
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Definition
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Term
The type of monetary policy regime that the Federal Reserve has been following in recent
years can best be described as |
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Definition
| policy with an implicit nominal anchor |
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Term
If the desired intermediate target is an interest rate, then the preferred policy instrument will
be a(n) ________ variable like the ________. |
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Definition
| interest rate; federal funds rate |
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Term
The reason that economists are so interested in the stability of velocity is because if the
demand for money is not stable, then steady growth of the money supply |
|
Definition
| is an ineffective way to conduct monetary policy. |
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Term
During the years 1979 to 1982, the Federal Reserve's announced policy was monetary
targeting. During this time period the Federal Reserve |
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Definition
did not hit any of their monetary targets because it is believed that controlling the money
supply was not the intent of the Federal Reserve. |
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Term
| The monetary policy strategy that relies on a stable money-income relationship is |
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Definition
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Term
Which of the following is NOT an element of inflation targeting?
A) A public announcement of medium-term numerical targets for inflation
B) An institutional commitment to price stability as the primary long-run goal
C) An information-inclusive approach in which only monetary aggregates are used in making
decisions about monetary policy
D) Increased accountability of the central bank for attaining its inflation objectives |
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Definition
An information-inclusive approach in which only monetary aggregates are used in making
decisions about monetary policy |
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Term
| Which of the following is an advantage to money targeting? |
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Definition
| There is an immediate signal on the achievement of the target. |
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Term
| If the relationship between the monetary aggregate and the goal variable is weak, then |
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Definition
| monetary aggregate targeting will not work. |
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Term
| Which of the following is NOT an advantage of inflation targeting? |
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Definition
| There is an immediate signal on the achievement of the target. |
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Term
| The monetary policy strategy that suffers a lack of transparency is |
|
Definition
| the implicit nominal anchor. |
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Term
Franco Modigliani has found that an expansionary monetary policy can cause stock market
prices to ________ and consumption to ________. |
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Definition
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