SOLVED

28.2Â Â The Impact of Monetary Policy on GDP 1) The Federal Reserve econometric model predicts that a 2 percent increase in the money supply will increase real GDP after one year by A) 1 percent. B) 2.5 percent. C) 2 percent. D) 10 percent. 2) The consensus of major econometric models is that monetary policy has A) no effect on real GDP. B) an effect on real GDP only in the long run. C) a negative effect on real GDP. D) a substantial short-run effect on real GDP. 3) The Federal Reserve econometric model estimates that a 1 percent increase in government spending, with the money supply held constant, will A) increase real GDP by 1 percent per year for two years. B) increase real GDP by 2 percent per year for two years. C) decrease real GDP by 1 percent per year for two years. D) have no effect on real GDP. 4) The Federal Reserve econometric model estimates that it takes __________ for crowding out to reduce the impact of a 1 percent increase in government spending, with the money supply held constant, to zero. A) 2 years B) 3 years C) 4 years D) Crowding out never reduces the impact to zero. 5) The Federal Reserve econometric model estimates that a 1 percent increase in government spending, with the money supply increased to hold the interest rate constant, will A) increase real GDP by 3 percent in 3 years. B) increase real GDP by 3 percent in 4 years. C) increase real GDP by 1 percent 2 years. D) have no effect on real GDP after 3 years. 6) The Federal Reserve econometric model estimates that a 1 percent increase in the money supply will A) increase real GDP by 1 percent after 3 years. B) increase real GDP by 2 percent in 3 years. C) increase real GDP by 3 percent 3 years. D) have no effect on real GDP after 2 years. 7) Crowding out is least likely to occur when deficit government spending is financed through A) taxation. B) reductions in consumption. C) monetary expansion. D) reductions in investment. 8) The crowding out effect of expansionary fiscal policy when the money supply is not increased is confirmed by A) the Keynesian econometric models only. B) the Monetarist models only. C) both the monetarist and Keynesian econometric models. D) neither the Monetarist nor the Keynesian econometric models. 9) One of the major weaknesses of the Federal Reserve Bank of St. Louis econometric model was that it A) was large and cumbersome. B) was limited to analyzing an economy with substantial unemployment. C) did not specify the categories of private spending that were affected by monetary policy. D) included a government spending multiplier that was clearly too high. 10) The St. Louis Federal Reserve Bank econometric model indicates that crowding out A) is only partial. B) never occurs. C) occurs only in highly unusual circumstances. D) is complete.