Question 1

What effect does expansionary monetary policy have on short-term real interest rates?

Accepted Answer

A) Expansionary monetary policy tends to push short-term interest rates upward. 
B) Expansionary monetary policy tends to push short-term interest rates downward. 
C) The effect of expansionary monetary policy on short-term interest rates is unpredictable. 
D) Expansionary monetary policy has no effect on short-term interest rates. 
A) Expansionary monetary policy tends to push short-term interest rates upward. 
B) Expansionary monetary policy tends to push short-term interest rates downward. 
C) The effect of expansionary monetary policy on short-term interest rates is unpredictable. 
D) Expansionary monetary policy has no effect on short-term interest rates. B

Question 2

In an economy in which real output grows at an average rate of 3 percent per year, a 7 percent average rate of growth in the money supply would result in

Accepted Answer

A) an inflation rate of 4 percent, if velocity were constant. 
B) an inflation rate of -4 percent, if velocity were constant. 
C) a $4 increase in the price level per year. 
D) a $4 decrease in the price level per year. 
A) an inflation rate of 4 percent, if velocity were constant. 
B) an inflation rate of -4 percent, if velocity were constant. 
C) a $4 increase in the price level per year. 
D) a $4 decrease in the price level per year. A

Question 3

Which of the following contributed to the dramatic rise in housing prices between 2002 and mid-year 2006?

Accepted Answer

A) government policy made credit for housing abundant and easily available 
B) the Fed's restrictive monetary policy, which led to high interest rates 
C) the tightening of loan standards by commercial lenders 
D) the large amounts of reserves and equity capital being held by financial institutions in order to back new mortgages 
A) government policy made credit for housing abundant and easily available 
B) the Fed's restrictive monetary policy, which led to high interest rates 
C) the tightening of loan standards by commercial lenders 
D) the large amounts of reserves and equity capital being held by financial institutions in order to back new mortgages A

Question 4

Write out the equation of exchange. What assumptions did the classical economists make about the variables that compose the equation, and what did this lead them to conclude about money and prices?

Accepted Answer

The equation of exchange is MV

Question 5

An unanticipated shift to a more restrictive monetary policy by the Fed will

Accepted Answer

A) increase real interest rates and, thereby, reduce investment, current consumption, and aggregate demand. 
B) reduce real interest rates, leading to a depreciation of the dollar and an expansion in net exports and aggregate demand. 
C) increase real interest rates, leading to higher asset prices that will stimulate aggregate demand. 
D) reduce real interest rates and, thereby, stimulate investment, current consumption, and aggregate demand. 
A) increase real interest rates and, thereby, reduce investment, current consumption, and aggregate demand. 
B) reduce real interest rates, leading to a depreciation of the dollar and an expansion in net exports and aggregate demand. 
C) increase real interest rates, leading to higher asset prices that will stimulate aggregate demand. 
D) reduce real interest rates and, thereby, stimulate investment, current consumption, and aggregate demand.

Question 6

Which of the following developments will most likely lead to an increase in the velocity of money?

Accepted Answer

A) a decrease in the expected inflation rate 
B) an increase in money interest rates 
C) a sharp decline in using credit cards 
D) a decrease in real income 
A) a decrease in the expected inflation rate 
B) an increase in money interest rates 
C) a sharp decline in using credit cards 
D) a decrease in real income

Question 7

Which of the following policies would be most likely to reduce the rate of inflation?

Accepted Answer

A) sale of government bonds by the Federal Reserve 
B) a reduction in the discount rate 
C) an increase in the size of the federal budget deficit 
D) a reduction in the required reserves imposed on the banking system 
A) sale of government bonds by the Federal Reserve 
B) a reduction in the discount rate 
C) an increase in the size of the federal budget deficit 
D) a reduction in the required reserves imposed on the banking system

Question 8

Figure 14-6  
-In the situation shown in Figure 14-6, how could the Fed return the economy to potential output?

Accepted Answer

A) decrease government spending 
B) decrease taxes 
C) sell U.S.government bonds to banks 
D) lower the discount rate 
E) lower the required reserve ratio 
A) decrease government spending 
B) decrease taxes 
C) sell U.S.government bonds to banks 
D) lower the discount rate 
E) lower the required reserve ratio

Question 9

If expansionary monetary policy reduces real interest rates in the United States, which of the following is most likely to occur?

Accepted Answer

A) Net foreign investment will decline, causing the dollar to depreciate and net exports to increase. 
B) Net foreign investment will decline, causing the dollar to appreciate and net exports to decrease. 
C) Net foreign investment will increase, causing the dollar to appreciate and net exports to decline. 
D) Net foreign investment will increase, causing the dollar to depreciate and net exports to increase. 
A) Net foreign investment will decline, causing the dollar to depreciate and net exports to increase. 
B) Net foreign investment will decline, causing the dollar to appreciate and net exports to decrease. 
C) Net foreign investment will increase, causing the dollar to appreciate and net exports to decline. 
D) Net foreign investment will increase, causing the dollar to depreciate and net exports to increase.

Question 10

Why will it difficult for the Fed to use monetary policy to direct the economy back to full employment and price stability from the recession of 2008-2009?

Accepted Answer

A) The Fed does not have the tools needed to alter the supply of money. 
B) Monetary policy is unable to alter short-term interest rates. 
C) The time lags between changes in monetary policy and when the changes exert an impact on output and prices are long and variable. 
D) It takes the Fed a long time to change the direction of monetary policy. 
A) The Fed does not have the tools needed to alter the supply of money. 
B) Monetary policy is unable to alter short-term interest rates. 
C) The time lags between changes in monetary policy and when the changes exert an impact on output and prices are long and variable. 
D) It takes the Fed a long time to change the direction of monetary policy.

Question 11

An increase in the required reserve ratio would be

Accepted Answer

A) a restrictive policy because it lowers the amount of total reserves in the banking system. 
B) a restrictive policy because it lowers the amount of excess reserves in the banking system. 
C) an expansionary policy because it raises the amount of total reserves in the banking system. 
D) an expansionary policy because it raises the amount of excess reserves in the banking system. 
E) an expansionary policy because it raises the amount of required reserves in the banking system. 
A) a restrictive policy because it lowers the amount of total reserves in the banking system. 
B) a restrictive policy because it lowers the amount of excess reserves in the banking system. 
C) an expansionary policy because it raises the amount of total reserves in the banking system. 
D) an expansionary policy because it raises the amount of excess reserves in the banking system. 
E) an expansionary policy because it raises the amount of required reserves in the banking system.

Question 12

Given the strict quantity theory of money, if the quantity of money doubled, prices would

Accepted Answer

A) fall by half. 
B) double. 
C) remain constant. 
D) increase somewhat but less than double. 
A) fall by half. 
B) double. 
C) remain constant. 
D) increase somewhat but less than double.

Question 13

The velocity of money is

Accepted Answer

A) the rate at which the price index for consumer goods rises. 
B) the multiple by which an increase in government expenditures will cause output to rise. 
C) set by the Board of Governors of the Federal Reserve System. 
D) the average number of times one dollar is used to buy final goods and services during a year. 
A) the rate at which the price index for consumer goods rises. 
B) the multiple by which an increase in government expenditures will cause output to rise. 
C) set by the Board of Governors of the Federal Reserve System. 
D) the average number of times one dollar is used to buy final goods and services during a year.

Question 14

The low interest rate policies of the Federal Reserve during 2002-2004,

Accepted Answer

A) indicated that monetary policy was highly restrictive. 
B) increased the demand for housing, placing upward pressure on housing prices. 
C) made home mortgages less attractive, weakening the demand for housing. 
D) was on target with the federal funds rate proscribed by the Taylor rule. 
A) indicated that monetary policy was highly restrictive. 
B) increased the demand for housing, placing upward pressure on housing prices. 
C) made home mortgages less attractive, weakening the demand for housing. 
D) was on target with the federal funds rate proscribed by the Taylor rule.

Question 15

If the actual federal funds rate is substantially above the appropriate rate implied by the Taylor rule, this indicates that

Accepted Answer

A) monetary policy is overly expansionary and a shift toward a more restrictive policy would be appropriate. 
B) monetary policy is too restrictive and a shift to a more expansionary policy would be appropriate. 
C) monetary policy is unable to influence interest rates, and therefore it is unable to influence either output or prices. 
D) current monetary policy is on target and no policy shifts should be made. 
A) monetary policy is overly expansionary and a shift toward a more restrictive policy would be appropriate. 
B) monetary policy is too restrictive and a shift to a more expansionary policy would be appropriate. 
C) monetary policy is unable to influence interest rates, and therefore it is unable to influence either output or prices. 
D) current monetary policy is on target and no policy shifts should be made.

Question 16

A decrease in the nominal interest rate would

Accepted Answer

A) encourage people to hold larger money balances. 
B) encourage people to hold smaller money balances. 
C) force the Fed to increase the money supply. 
D) cause households to decrease consumption. 
A) encourage people to hold larger money balances. 
B) encourage people to hold smaller money balances. 
C) force the Fed to increase the money supply. 
D) cause households to decrease consumption.

Question 17

In 2008, nominal GDP was equal to $14,265 billion while the M1 money supply was $1,423 billion. What was the velocity of the M1 money stock?

Accepted Answer

A) 1.0 
B) 10.0 
C) 1.8 
D) 0.1 
A) 1.0 
B) 10.0 
C) 1.8 
D) 0.1

Question 18

When expansionary monetary policy pushes real interest rates to an artificial low, the Austrian view of the business cycle predicts this will lead to

Accepted Answer

A) an increase in aggregate demand and a lengthy expansion in real output. 
B) a recession, followed by a strong and lengthy expansion in real output. 
C) malinvestment during an economic boom, followed by a recession. 
D) malinvestment during a temporary recession, followed by a strong and lengthy economic boom. 
A) an increase in aggregate demand and a lengthy expansion in real output. 
B) a recession, followed by a strong and lengthy expansion in real output. 
C) malinvestment during an economic boom, followed by a recession. 
D) malinvestment during a temporary recession, followed by a strong and lengthy economic boom.

Question 19

If the monetary authorities persistently expand the money supply at a rapid rate, the probable result will be

Accepted Answer

A) inflation. 
B) high nominal interest rates. 
C) rapid growth of real GDP. 
D) both a and b 
A) inflation. 
B) high nominal interest rates. 
C) rapid growth of real GDP. 
D) both a and b

Question 20

Low rates of inflation are generally associated with

Accepted Answer

A) low rates of government spending. 
B) small or nonexistent government budget deficits. 
C) low rates of productivity growth. 
D) low rates of growth of the quantity of money. 
A) low rates of government spending. 
B) small or nonexistent government budget deficits. 
C) low rates of productivity growth. 
D) low rates of growth of the quantity of money.

What effect does expansionary monetary policy have on short-term real interest rates?

In an economy in which real output grows at an average rate of 3 percent per year, a 7 percent average rate of growth in the money supply would result in

Which of the following contributed to the dramatic rise in housing prices between 2002 and mid-year 2006?

Write out the equation of exchange. What assumptions did the classical economists make about the variables that compose the equation, and what did this lead them to conclude about money and prices?

An unanticipated shift to a more restrictive monetary policy by the Fed will

Which of the following developments will most likely lead to an increase in the velocity of money?

Which of the following policies would be most likely to reduce the rate of inflation?

Figure 14-6 -In the situation shown in Figure 14-6, how could the Fed return the economy to potential output?

If expansionary monetary policy reduces real interest rates in the United States, which of the following is most likely to occur?

Why will it difficult for the Fed to use monetary policy to direct the economy back to full employment and price stability from the recession of 2008-2009?

An increase in the required reserve ratio would be

Given the strict quantity theory of money, if the quantity of money doubled, prices would

The velocity of money is

The low interest rate policies of the Federal Reserve during 2002-2004,

If the actual federal funds rate is substantially above the appropriate rate implied by the Taylor rule, this indicates that

A decrease in the nominal interest rate would

In 2008, nominal GDP was equal to $14,265 billion while the M1 money supply was $1,423 billion. What was the velocity of the M1 money stock?

When expansionary monetary policy pushes real interest rates to an artificial low, the Austrian view of the business cycle predicts this will lead to

If the monetary authorities persistently expand the money supply at a rapid rate, the probable result will be

Low rates of inflation are generally associated with

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy, Incentives, and Secondary Effects

Money and the Banking System

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Filters

Exam 14: Modern Macroeconomics and Monetary Policy

What effect does expansionary monetary policy have on short-term real interest rates?

In an economy in which real output grows at an average rate of 3 percent per year, a 7 percent average rate of growth in the money supply would result in

Which of the following contributed to the dramatic rise in housing prices between 2002 and mid-year 2006?

Write out the equation of exchange. What assumptions did the classical economists make about the variables that compose the equation, and what did this lead them to conclude about money and prices?

An unanticipated shift to a more restrictive monetary policy by the Fed will

Which of the following developments will most likely lead to an increase in the velocity of money?

Which of the following policies would be most likely to reduce the rate of inflation?

Figure 14-6 -In the situation shown in Figure 14-6, how could the Fed return the economy to potential output?

If expansionary monetary policy reduces real interest rates in the United States, which of the following is most likely to occur?

Why will it difficult for the Fed to use monetary policy to direct the economy back to full employment and price stability from the recession of 2008-2009?

An increase in the required reserve ratio would be

Given the strict quantity theory of money, if the quantity of money doubled, prices would

The velocity of money is

The low interest rate policies of the Federal Reserve during 2002-2004,

If the actual federal funds rate is substantially above the appropriate rate implied by the Taylor rule, this indicates that

A decrease in the nominal interest rate would

In 2008, nominal GDP was equal to $14,265 billion while the M1 money supply was $1,423 billion. What was the velocity of the M1 money stock?

When expansionary monetary policy pushes real interest rates to an artificial low, the Austrian view of the business cycle predicts this will lead to

If the monetary authorities persistently expand the money supply at a rapid rate, the probable result will be

Low rates of inflation are generally associated with

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy, Incentives, and Secondary Effects

Money and the Banking System

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Filters