In the long run, when the economy is at full employment, any change in money sup

Question

In the long run, when the economy is at full employment, any change in money supply: leads to a change in velocity only. leads to a change in aggregate output only. leads to a change in prices. is brought about by a change in tax policy. 24. In the equation of exchange, if M = $2 trillion, P = 1.5, and Q = $8 trillion: the velocity of money (V) = 6. nominal GDP is $16 trillion. the velocity of money (V) = 4. real GDP is $12 trillion. 25. Keynesian theory: states that open market operations and an increase in the money supply lead people to buy bonds, causing bond prices to rise and interest rates to fall, and increase the investment component of aggregate demand. states that changes in the money supply have no impact on GDP in either the short or long run. is the same as the classical transmission mechanism in all essential elements. states that an increase in the money supply will lower interest rates and thereby shift the long-run aggregate supply curve to the right. 26. Milton Friedman and Anna Schwartz are most famous for: monetary theory. fiscal theory. comparative advantage theory. their tenures on the Federal Reserve Board. 27. Which economists believe the economy will always self-adjust, so that intervention is unnecessary? monetarists Keynesians classical economists Fisherites 28. What occurs during a negative demand shock? Output and price level increase. Output and price level decrease. Output increases; price level decreases. Output decreases; price level increases. 29. A financial instrument backed by a collection of mortgages is called a(n): adjustable-rate mortgage. collateralized debt obligation. credit default swap. collateralized mortgage obligation. 30. The American Recovery and Reinvestment Act, signed into law in February 2009, was designed to shift aggregate: demand rightward. demand leftward. supply rightward. supply leftward. 31. Which of the following was a change in banks' lending practices that contributed to a housing bubble? Lenders began to require borrowers to provide proof of income. Banks began to originate subprime loans they did not intend to keep. Banks developed fixed-rate mortgage loans. Banks began to rigorously check borrowers' credit quality. 32. According to the Phillips curve analysis, the way to solve inflation is to _______ unemployment or _______ increase; increase productivity increase; decrease productivity decrease; increase the money supply increase; increase the money supply 33. Statements by members of the Federal Reserve Board of Governors indicate a desire to boost economic growth by increasing the money supply. If unions form expectations rationally, then they will: wait for prices to rise before demanding higher wages. ask the Federal Reserve to hold off on changing monetary policy. immediately demand wage increases. wait and see whether the new policy works before demanding any wage increases. 34. Wages above market-clearing rates, intended to improve morale and reduce turnover, are: efficiency wages. high-cost wages. undeserved wages. profit-impediment wages. 35. “The balance of payments must balance.” This means that: a deficit in either the current or capital account must be offset by an equal surplus in the other account. income inflows must equal income outflows. imports always equal exports. net transfers equal the trade balance. 36. In recent years, China has _____ U.S. dollars to increase Chinese _____. bought; exports bought; imports sold; exports sold; imports 37. If the exchange rate is US$1.28/euro, it takes _____ to buy 1 euro and it takes _____ to buy $1. $0.78; 1.28 euros $1; 1.28 euros $1.28; 0.78 euro $1.28; 1 euro 38. A car sells for $20,000 in the United States and for 2.4 million yen in Japan. Which exchange rate is consistent with purchasing power parity? 120 yen for US$1. 1 yen for US$120. 20 yen for US$120. 1 yen for US$20. 39. The concept of purchasing power parity implies that the: Big Mac should cost about the same in all countries. Big Mac should cost more in countries that are large beef consumers, because the demand for hamburgers is greater. Big Mac is a poor value. cost of a Big Mac cannot be predicted across countries because it is only one product. 40. If the dollar depreciates relative to the yuan, then American exports to China will: increase. decrease. remain the same. fall to zero. In the long run, when the economy is at full employment, any change in money supply: leads to a change in velocity only. leads to a change in aggregate output only. leads to a change in prices. is brought about by a change in tax policy.

Explanation / Answer

23. leads to a change in prices.

24. the velocity of money (V) = 6.

25. states that an increase in the money supply will lower interest rates and thereby shift the long-run aggregate supply curve to the right.

26. monetary theory.

27. classical economists

28. Output and price level decrease.

29. collateralized mortgage obligation.

30. demand rightward.

31. Banks began to originate subprime loans they did not intend to keep.

32. increase; decrease productivity

33. wait and see whether the new policy works before demanding any wage increases.

34.efficiency wages.

35. a deficit in either the current or capital account must be offset by an equal surplus in the other account.

36. sold; exports

37. $1.28; 0.78 euro

38.120 yen for US$1.

39. cost of a Big Mac cannot be predicted across countries because it is only one product.

40. increase.

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