Question 1

If velocity is constant in the long run, which of the following results flow from the quantity theory of money?

Accepted Answer

A) A change in the money supply changes real GDP by an equal percentage. 
B) A change in the money supply changes nominal GDP by an equal percentage. 
C) A change in the money supply changes real interest rates by an equal percentage. 
D) A change in the money supply changes consumer lending by an equal percentage. 
A) A change in the money supply changes real GDP by an equal percentage. 
B) A change in the money supply changes nominal GDP by an equal percentage. 
C) A change in the money supply changes real interest rates by an equal percentage. 
D) A change in the money supply changes consumer lending by an equal percentage. B

Question 2

Let M = money supply; P = price level; V = velocity; Y = real GDP.The equation of exchange is given by

Accepted Answer

A) M * V = nominal GDP. 
B) M * Y = P * V. 
C) M * P = V *Y. 
D) M * V = (1/V)P *Y. 
A) M * V = nominal GDP. 
B) M * Y = P * V. 
C) M * P = V *Y. 
D) M * V = (1/V)P *Y. A

Question 3

When the Fed sells bonds in the open market, we can expect

Accepted Answer

A) investment and net exports to rise. 
B) investment to rise and net exports to fall. 
C) investment to fall and net exports to rise. 
D) investment and net exports to fall. 
A) investment and net exports to rise. 
B) investment to rise and net exports to fall. 
C) investment to fall and net exports to rise. 
D) investment and net exports to fall. D

Question 4

What are the two policy making bodies of the Federal Reserve?

Accepted Answer

A) the Board of Governors and the U.S.Congress 
B) the Board of Governors and the Federal Open Market Committee 
C) the Board of Governors and the Presidents' office 
D) the Federal Open Market Committee and the U.S.Congress 
A) the Board of Governors and the U.S.Congress 
B) the Board of Governors and the Federal Open Market Committee 
C) the Board of Governors and the Presidents' office 
D) the Federal Open Market Committee and the U.S.Congress

Question 5

A liquidity trap exists when a change in the money supply immediately and drastically affects interest rates.

Accepted Answer

A) True 
 B)False

Question 6

All other things unchanged, we expect that an increase in interest rates will tend to

Accepted Answer

A) increase the quantity of money demanded and increase velocity. 
B) increase the quantity of money demanded and reduce velocity. 
C) reduce the quantity of money demanded and increase velocity. 
D) reduce the quantity of money demanded and reduce velocity. 
A) increase the quantity of money demanded and increase velocity. 
B) increase the quantity of money demanded and reduce velocity. 
C) reduce the quantity of money demanded and increase velocity. 
D) reduce the quantity of money demanded and reduce velocity.

Question 7

When the Fed buys bonds in the open market, in the product market (the aggregate demand- aggregate supply model),

Accepted Answer

A) real GDP will fall and the price level will rise. 
B) real GDP and the price level will rise. 
C) real GDP and the price level will fall. 
D) real GDP will rise and the price level will fall. 
A) real GDP will fall and the price level will rise. 
B) real GDP and the price level will rise. 
C) real GDP and the price level will fall. 
D) real GDP will rise and the price level will fall.

Question 8

The velocity of money is

Accepted Answer

A) independent of M, P, and Y. 
B) independent of M and Y. 
C) calculated from M, P, and Y. 
D) calculated from M and Y. 
A) independent of M, P, and Y. 
B) independent of M and Y. 
C) calculated from M, P, and Y. 
D) calculated from M and Y.

Question 9

Suppose velocity = 5, money supply = $200, and price = $2.What is the value of real GDP?

Accepted Answer

A) 10 
B) 40 
C) 400 
D) 500 
A) 10 
B) 40 
C) 400 
D) 500

Question 10

The equation of exchange states that

Accepted Answer

A) saving equals investment. 
B) gross domestic product equals the money supply multiplied by its velocity. 
C) increases in money supply cause decreases in velocity. 
D) increases in money supply cause increases in velocity. 
A) saving equals investment. 
B) gross domestic product equals the money supply multiplied by its velocity. 
C) increases in money supply cause decreases in velocity. 
D) increases in money supply cause increases in velocity.

Question 11

The Fed can raise the target for the federal funds rate by selling government bonds in the open market.

Accepted Answer

A) True 
 B)False

Question 12

If the economy experiences an inflationary gap, a contractionary monetary policy will _______ interest rates and _______ exchange rates.

Accepted Answer

A) increase; increase 
B) increase; decrease 
C) decrease; increase 
D) decrease; decrease 
A) increase; increase 
B) increase; decrease 
C) decrease; increase 
D) decrease; decrease

Question 13

Contractionary monetary policy, achieved by selling bonds in the open market, tends to discourage investment.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following factors cause velocity to fluctuate?
I.changes in interest rates
II.changes in expectations about inflation
III.changes in expectations about bond prices
IV.an increase in the number of financial products that affect the demand for money

Accepted Answer

A) I, II, III, and IV 
B) I, II, and III 
C) I, III, and IV 
D) I and II 
A) I, II, III, and IV 
B) I, II, and III 
C) I, III, and IV 
D) I and II

Question 15

Adjusting monetary growth based on previous changes in nominal GDP

Accepted Answer

A) is relatively easy for the Fed to undertake because the implementation lag is quite short. 
B) could be destabilizing because of the uncertainty of the length of impact lags. 
C) is an effective policy because it allows the Fed to influence future macroeconomic performance. 
D) raises the price level proportionately. 
A) is relatively easy for the Fed to undertake because the implementation lag is quite short. 
B) could be destabilizing because of the uncertainty of the length of impact lags. 
C) is an effective policy because it allows the Fed to influence future macroeconomic performance. 
D) raises the price level proportionately.

Question 16

The congressional act passed in 1978 that established specific numerical goals for the unemployment rate and the inflation rate to be achieved by 1983 was the

Accepted Answer

A) Federal Reserve Act. 
B) Gramm-Rudman Act. 
C) Employment Act. 
D) Humphrey-Hawkins Act. 
A) Federal Reserve Act. 
B) Gramm-Rudman Act. 
C) Employment Act. 
D) Humphrey-Hawkins Act.

Question 17

If the Fed purchases federal government bonds on the open market, bank reserves will ____, leading to a(n)_______ in the money supply.

Accepted Answer

A) decrease; decrease 
B) increase; decrease 
C) increase; increase 
D) decrease; increase 
A) decrease; decrease 
B) increase; decrease 
C) increase; increase 
D) decrease; increase

Question 18

Historical actions indicate that the Fed's primary goal of monetary policy over the past 20 years has been to

Accepted Answer

A) maintain high interest rates. 
B) keep employment rates low. 
C) limit the availability of consumer credit. 
D) prevent high rates of inflation. 
A) maintain high interest rates. 
B) keep employment rates low. 
C) limit the availability of consumer credit. 
D) prevent high rates of inflation.

Question 19

Possible targets for monetary policy include all of the following except

Accepted Answer

A) the government's budget deficit or surplus. 
B) money growth rate. 
C) expected changes in the price level. 
D) the interest rate. 
A) the government's budget deficit or surplus. 
B) money growth rate. 
C) expected changes in the price level. 
D) the interest rate.

Question 20

If the economy experiences an inflationary gap, a contractionary monetary policy will _______ investment and _______ interest rates.

Accepted Answer

A) increase; increase 
B) increase; decrease 
C) decrease; increase 
D) decrease; decrease 
A) increase; increase 
B) increase; decrease 
C) decrease; increase 
D) decrease; decrease

Exam 26: Monetary Policy and the Fed

If velocity is constant in the long run, which of the following results flow from the quantity theory of money?

Let M = money supply; P = price level; V = velocity; Y = real GDP.The equation of exchange is given by

When the Fed sells bonds in the open market, we can expect

What are the two policy making bodies of the Federal Reserve?

A liquidity trap exists when a change in the money supply immediately and drastically affects interest rates.

All other things unchanged, we expect that an increase in interest rates will tend to

When the Fed buys bonds in the open market, in the product market (the aggregate demand- aggregate supply model),

The velocity of money is

Suppose velocity = 5, money supply = $200, and price = $2.What is the value of real GDP?

The equation of exchange states that

The Fed can raise the target for the federal funds rate by selling government bonds in the open market.

If the economy experiences an inflationary gap, a contractionary monetary policy will _______ interest rates and _______ exchange rates.

Contractionary monetary policy, achieved by selling bonds in the open market, tends to discourage investment.

Which of the following factors cause velocity to fluctuate? I.changes in interest rates II.changes in expectations about inflation III.changes in expectations about bond prices IV.an increase in the number of financial products that affect the demand for money

Adjusting monetary growth based on previous changes in nominal GDP

The congressional act passed in 1978 that established specific numerical goals for the unemployment rate and the inflation rate to be achieved by 1983 was the

If the Fed purchases federal government bonds on the open market, bank reserves will ____, leading to a(n)_______ in the money supply.

Historical actions indicate that the Fed's primary goal of monetary policy over the past 20 years has been to

Possible targets for monetary policy include all of the following except

If the economy experiences an inflationary gap, a contractionary monetary policy will _______ investment and _______ interest rates.

Economics: the Study of Choice

Confronting Scarcity: Choices in Production

Demand and Supply

Applications of Demand and Supply

Macroeconomics: the Big Picture

Measuring Total Output and Income

Aggregate Demand and Aggregate Supply

Economic Growth

The Nature and Creation of Money

Monopoly

The World of Imperfect Competition

Wages and Employment in Perfect Competition

Interest Rates and the Markets for Capital and Natural Resources

Imperfectly Competitive Markets for Factors of Production

Public Finance and Public Choice

Inflation and Unemployment

International Trade

The Economics of the Environment

Inequality, Poverty, and Discrimination

Macroeconomics: the Big Picture

Measuring Total Income and Output

Aggregate Demand and Aggregate Supply

Economic Growth

The Nature and Creation of Money

Financial Markets and the Economy

Government and Fiscal Policy

Consumption and the Aggregate Expenditures Model

Investment and Economic Activity

Net Exports and International Finance

Macro Inflation and Unemployment

Macro a Brief History of Macroeconomic Thought and Policy

Economic Development

Socialist Economies in Transition

Filters

If the economy experiences an inflationary gap, a contractionary monetary policy will _ interest rates and _ exchange rates.

If the Fed purchases federal government bonds on the open market, bank reserves will , leading to a(n)___ in the money supply.

If the economy experiences an inflationary gap, a contractionary monetary policy will _ investment and _ interest rates.