Monetary Policy Quiz

Many economists today agree that major recessions of the twentieth century can be traced to:

• the Fed’s efforts to stem inflation by cutting the rate of growth of the money supply.
• consumers’ efforts to save more money than their incomes would allow.
• faulty investments by both firms and consumers.
• runaway inflation triggered by rapid growth in the money supply.

Monetarists tend to believe that the principal factor affecting business fluctuations is:

• variation in the quantity of money.
• consumer demand for money.
• degree of regulation by the Fed.
• current fiscal policy.

Assume that Economy X produces only one product: natural gas. Now suppose that the current money in circulation is $10,000 and that nominal NNP for the period is $40,000. Based on these figures, what is the current velocity of money?

• 25
• 2.5
• 4
• It cannot be calculated from the figures given.

According to the classical view of the equation of exchange, which of the following two factors are constant?

• price level and output.
• price level and velocity.
• money supply and velocity.
• velocity and output.

The extent to which an increase in the money supply affects the price level depends MOST heavily on:

• the current level of employment.
• interest rates.
• follow-up action by the Fed.
• current velocity rate.

The economic situation experienced by the country in the mid-1970s was different from that in preceding times mainly because:

• inflation was higher than it had ever been before.
• employment reached record levels.
• we faced high employment coupled with high inflation.
• this was the first time the Fed had held to a tight monetary policy.