Question 1

The demand for money is:

Accepted Answer

A) unlimited, since people want to hold as much money as possible. 
B) limited by the amount of currency printed by the government. 
C) the amount of wealth an individual chooses to hold in the form of money. 
D) the amount of income an individual chooses to hold in the form of money. 
A) unlimited, since people want to hold as much money as possible. 
B) limited by the amount of currency printed by the government. 
C) the amount of wealth an individual chooses to hold in the form of money. 
D) the amount of income an individual chooses to hold in the form of money. C

Question 2

To close an expansionary gap, the Fed ______ interest rates which ______ planned aggregate spending and ______ short-run equilibrium output.

Accepted Answer

A) raises; increases; increases 
B) raises; decreases; increases 
C) raises; decreases; decreases 
D) reduces; increases; decreases 
A) raises; increases; increases 
B) raises; decreases; increases 
C) raises; decreases; decreases 
D) reduces; increases; decreases C

Question 3

If potential output equals 8,000 and short-run equilibrium output equals 8,500, there is a(n) ______ gap and the Federal Reserve must ______ real interest rates in order to close the gap.

Accepted Answer

A) recessionary; raise 
B) recessionary reduce 
C) recessionary; not change 
D) expansionary; raise 
A) recessionary; raise 
B) recessionary reduce 
C) recessionary; not change 
D) expansionary; raise D

Question 4

Refer to the table below.The amount of currency held by the public ______, and the amount of reserves held by banks ______.It must be the case that, in 1932, the Federal Reserve ______.

Accepted Answer

A) increased; also increased; increased the discount rate 
B) decreased; also decreased; kept the rate of inflation low 
C) decreased; increased; performed open-market operations 
D) increased; also increased; injected reserves into the economy 
A) increased; also increased; increased the discount rate 
B) decreased; also decreased; kept the rate of inflation low 
C) decreased; increased; performed open-market operations 
D) increased; also increased; injected reserves into the economy

Question 5

The decision about the forms in which to hold one's wealth is called the ______ decision.

Accepted Answer

A) Taylor 
B) portfolio allocation 
C) Fisher effect 
D) life-cycle 
A) Taylor 
B) portfolio allocation 
C) Fisher effect 
D) life-cycle

Question 6

If the quantity supplied of money exceeds the quantity demanded of money, people will ______ bonds which will cause bond prices to ______ and the nominal interest rate to
______ until the quantity demanded and quantity supplied of money are equal.

Accepted Answer

A) buy; rise; fall 
B) sell; fall; fall 
C) sell; rise; fall 
D) buy; fall; rise 
A) buy; rise; fall 
B) sell; fall; fall 
C) sell; rise; fall 
D) buy; fall; rise

Question 7

The decision about how much money to hold is an application of the:

Accepted Answer

A) scarcity principle. 
B) principle of comparative advantage. 
C) equilibrium principle. 
D) cost-benefit principle. 
A) scarcity principle. 
B) principle of comparative advantage. 
C) equilibrium principle. 
D) cost-benefit principle.

Question 8

Higher real income ______ the demand for money and a higher price level ______ the demand for money.

Accepted Answer

A) increases; increases 
B) increases; decreases 
C) decreases; increases 
D) decreases; decreases 
A) increases; increases 
B) increases; decreases 
C) decreases; increases 
D) decreases; decreases

Question 9

If planned aggregate spending in an economy can be written as PAE = 15,000 + 0.6Y - 20,000r, and potential output equals 36,000, what real interest rate must the Federal Reserve set to bring the economy to full employment?

Accepted Answer

A) 2 percent 
B) 3 percent 
C) 4 percent 
D) 5 percent 
A) 2 percent 
B) 3 percent 
C) 4 percent 
D) 5 percent

Question 10

The money demand curve will shift to the right if:

Accepted Answer

A) the nominal interest rate increases. 
B) real income increases. 
C) ATM machines are introduced. 
D) the price level decreases. 
A) the nominal interest rate increases. 
B) real income increases. 
C) ATM machines are introduced. 
D) the price level decreases.

Question 11

If the Federal Reserve sets a target nominal interest rate, it can:

Accepted Answer

A) independently set a target money supply. 
B) only set a money supply target that is consistent with the nominal interest rate target. 
C) achieve this target with any arbitrary supply of money. 
D) shift the money demand curve to the right. 
A) independently set a target money supply. 
B) only set a money supply target that is consistent with the nominal interest rate target. 
C) achieve this target with any arbitrary supply of money. 
D) shift the money demand curve to the right.

Question 12

If potential output equals 4,000 and short-run equilibrium output equals 3,500, there is a ______ gap and the Federal Reserve must ______ real interest rates in order to close the gap.

Accepted Answer

A) recessionary; raise 
B) recessionary; reduce 
C) recessionary; not change 
D) expansionary; raise 
A) recessionary; raise 
B) recessionary; reduce 
C) recessionary; not change 
D) expansionary; raise

Question 13

Based on the information in the table, if the public had not decided to hold more currency in 1932, but the actions of the Federal Reserve and the banks remained the same, the money supply at the end of 1932 would have been:

Accepted Answer

A) $33.8 billion 
B) $34.2 billion 
C) $35.9 billion 
D) $36.1 billion 
A) $33.8 billion 
B) $34.2 billion 
C) $35.9 billion 
D) $36.1 billion

Question 14

If planned aggregate spending in an economy can be written as PAE = 15,000 + 0.6Y - 20,000r, and potential output equals 35,000, what real interest rate must the Federal Reserve set to bring the economy to full employment?

Accepted Answer

A) 2 percent 
B) 3 percent 
C) 4 percent 
D) 5 percent 
A) 2 percent 
B) 3 percent 
C) 4 percent 
D) 5 percent

Question 15

When the Federal Reserve lends reserves to commercial banks, this is an example of:

Accepted Answer

A) a change in reserve requirements. 
B) an open-market sale. 
C) an open-market purchase. 
D) discount window lending. 
A) a change in reserve requirements. 
B) an open-market sale. 
C) an open-market purchase. 
D) discount window lending.

Question 16

If potential output equals 3,000 and short-run equilibrium output equals 3,500, there is a(n) ______ gap and the Federal Reserve must ______ real interest rates in order to close the gap.

Accepted Answer

A) recessionary; raise 
B) recessionary reduce 
C) recessionary; not change 
D) expansionary; raise 
A) recessionary; raise 
B) recessionary reduce 
C) recessionary; not change 
D) expansionary; raise

Question 17

If the Federal Reserve is currently paying 1% interest on bank reserves, but then reduces that interest rate to 0.5%, banks may decide to hold ______ reserves, and the money supply may _____.

Accepted Answer

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

Question 18

Because the Fed determines the money supply, the:

Accepted Answer

A) money supply curve is downward sloping. 
B) money supply curve is upward sloping. 
C) money supply curve is vertical. 
D) money supply curve is horizontal. 
A) money supply curve is downward sloping. 
B) money supply curve is upward sloping. 
C) money supply curve is vertical. 
D) money supply curve is horizontal.

Question 19

Which of the following would be expected to increase the demand for U.S.currency?

Accepted Answer

A) Competition among brokers forces down the commission charge for selling bonds or stocks. 
B) The economy enters a recession. 
C) Political instability rises dramatically in developing nations. 
D) On-line banking allows customers to transfer funds between checking and stock mutual funds 24 hours a day. 
A) Competition among brokers forces down the commission charge for selling bonds or stocks. 
B) The economy enters a recession. 
C) Political instability rises dramatically in developing nations. 
D) On-line banking allows customers to transfer funds between checking and stock mutual funds 24 hours a day.

Question 20

The Federal Reserve System is:

Accepted Answer

A) a group of twelve commercial banks. 
B) the central bank of the United States. 
C) the agency of the U.S.government that insures commercial bank deposits. 
D) the branch of the U.S.Treasury that keeps the U.S.gold reserves. 
A) a group of twelve commercial banks. 
B) the central bank of the United States. 
C) the agency of the U.S.government that insures commercial bank deposits. 
D) the branch of the U.S.Treasury that keeps the U.S.gold reserves.

The demand for money is:

To close an expansionary gap, the Fed interest rates which planned aggregate spending and __ short-run equilibrium output.

If potential output equals 8,000 and short-run equilibrium output equals 8,500, there is a(n) gap and the Federal Reserve must real interest rates in order to close the gap.

Refer to the table below.The amount of currency held by the public , and the amount of reserves held by banks .It must be the case that, in 1932, the Federal Reserve __.

The decision about the forms in which to hold one's wealth is called the ______ decision.

If the quantity supplied of money exceeds the quantity demanded of money, people will bonds which will cause bond prices to and the nominal interest rate to __ until the quantity demanded and quantity supplied of money are equal.

The decision about how much money to hold is an application of the:

Higher real income the demand for money and a higher price level the demand for money.

If planned aggregate spending in an economy can be written as PAE = 15,000 + 0.6Y - 20,000r, and potential output equals 36,000, what real interest rate must the Federal Reserve set to bring the economy to full employment?

The money demand curve will shift to the right if:

If the Federal Reserve sets a target nominal interest rate, it can:

If potential output equals 4,000 and short-run equilibrium output equals 3,500, there is a gap and the Federal Reserve must real interest rates in order to close the gap.

Based on the information in the table, if the public had not decided to hold more currency in 1932, but the actions of the Federal Reserve and the banks remained the same, the money supply at the end of 1932 would have been:

If planned aggregate spending in an economy can be written as PAE = 15,000 + 0.6Y - 20,000r, and potential output equals 35,000, what real interest rate must the Federal Reserve set to bring the economy to full employment?

When the Federal Reserve lends reserves to commercial banks, this is an example of:

If potential output equals 3,000 and short-run equilibrium output equals 3,500, there is a(n) gap and the Federal Reserve must real interest rates in order to close the gap.

If the Federal Reserve is currently paying 1% interest on bank reserves, but then reduces that interest rate to 0.5%, banks may decide to hold __ reserves, and the money supply may _.

Because the Fed determines the money supply, the:

Which of the following would be expected to increase the demand for U.S.currency?

The Federal Reserve System is:

Thinking Like an Economist

Comparative Advantage

Spending, Income, and GDP

Inflation and the Price Level

Wages and Unemployment

Economic Growth

Saving, Capital Formation, and Financial Markets

Money, Prices, and the Financial System

Short-Term Economic Fluctuations

Spending, Output, and Fiscal Policy

Aggregate Demand, Aggregate Supply, and Business Cycles

Macroeconomic Policy

Exchange Rates, International Trade, and Capital Flows

Filters

Exam 12: Monetary Policy and the Federal Reserve

The demand for money is:

To close an expansionary gap, the Fed ______ interest rates which ______ planned aggregate spending and ______ short-run equilibrium output.

If potential output equals 8,000 and short-run equilibrium output equals 8,500, there is a(n) ______ gap and the Federal Reserve must ______ real interest rates in order to close the gap.

Refer to the table below.The amount of currency held by the public ______, and the amount of reserves held by banks ______.It must be the case that, in 1932, the Federal Reserve ______.

The decision about the forms in which to hold one's wealth is called the ______ decision.

If the quantity supplied of money exceeds the quantity demanded of money, people will ______ bonds which will cause bond prices to ______ and the nominal interest rate to ______ until the quantity demanded and quantity supplied of money are equal.

The decision about how much money to hold is an application of the:

Higher real income ______ the demand for money and a higher price level ______ the demand for money.

If planned aggregate spending in an economy can be written as PAE = 15,000 + 0.6Y - 20,000r, and potential output equals 36,000, what real interest rate must the Federal Reserve set to bring the economy to full employment?

The money demand curve will shift to the right if:

If the Federal Reserve sets a target nominal interest rate, it can:

If potential output equals 4,000 and short-run equilibrium output equals 3,500, there is a ______ gap and the Federal Reserve must ______ real interest rates in order to close the gap.

Based on the information in the table, if the public had not decided to hold more currency in 1932, but the actions of the Federal Reserve and the banks remained the same, the money supply at the end of 1932 would have been:

If planned aggregate spending in an economy can be written as PAE = 15,000 + 0.6Y - 20,000r, and potential output equals 35,000, what real interest rate must the Federal Reserve set to bring the economy to full employment?

When the Federal Reserve lends reserves to commercial banks, this is an example of:

If potential output equals 3,000 and short-run equilibrium output equals 3,500, there is a(n) ______ gap and the Federal Reserve must ______ real interest rates in order to close the gap.

If the Federal Reserve is currently paying 1% interest on bank reserves, but then reduces that interest rate to 0.5%, banks may decide to hold ______ reserves, and the money supply may _____.

Because the Fed determines the money supply, the:

Which of the following would be expected to increase the demand for U.S.currency?

The Federal Reserve System is:

Thinking Like an Economist

Comparative Advantage

Spending, Income, and GDP

Inflation and the Price Level

Wages and Unemployment

Economic Growth

Saving, Capital Formation, and Financial Markets

Money, Prices, and the Financial System

Short-Term Economic Fluctuations

Spending, Output, and Fiscal Policy

Aggregate Demand, Aggregate Supply, and Business Cycles

Macroeconomic Policy

Exchange Rates, International Trade, and Capital Flows

Filters

To close an expansionary gap, the Fed interest rates which planned aggregate spending and __ short-run equilibrium output.

If potential output equals 8,000 and short-run equilibrium output equals 8,500, there is a(n) gap and the Federal Reserve must real interest rates in order to close the gap.

Refer to the table below.The amount of currency held by the public , and the amount of reserves held by banks .It must be the case that, in 1932, the Federal Reserve __.

If the quantity supplied of money exceeds the quantity demanded of money, people will bonds which will cause bond prices to and the nominal interest rate to __ until the quantity demanded and quantity supplied of money are equal.

Higher real income the demand for money and a higher price level the demand for money.

If potential output equals 4,000 and short-run equilibrium output equals 3,500, there is a gap and the Federal Reserve must real interest rates in order to close the gap.

If potential output equals 3,000 and short-run equilibrium output equals 3,500, there is a(n) gap and the Federal Reserve must real interest rates in order to close the gap.

If the Federal Reserve is currently paying 1% interest on bank reserves, but then reduces that interest rate to 0.5%, banks may decide to hold __ reserves, and the money supply may _.