Question 1

Suppose money supply (M)
= $3,960 billion, price level (P)
= 1.1, and real GDP (Y)
= $7,200 billion.Calculate the value of velocity using the equation of exchange.

Accepted Answer

A) 1.6 
B) 1.8 
C) 2.0 
D) 2.2 
A) 1.6 
B) 1.8 
C) 2.0 
D) 2.2

Question 2

Which of the following result from a change in the money supply brought about by an open market sale?

Accepted Answer

A) lower interest rate, higher exchange rate, decreased demand for investment and net exports 
B) higher interest rate, higher exchange rate, decreased demand for investment and decreased demand for net exports 
C) lower interest rate, lower exchange rate, increased demand for investment and net exports 
D) higher interest rate, lower exchange rate, decreased demand for investment and increased demand for net exports 
A) lower interest rate, higher exchange rate, decreased demand for investment and net exports 
B) higher interest rate, higher exchange rate, decreased demand for investment and decreased demand for net exports 
C) lower interest rate, lower exchange rate, increased demand for investment and net exports 
D) higher interest rate, lower exchange rate, decreased demand for investment and increased demand for net exports

Question 3

Use the following to answer questions 
Exhibit: Monetary Policy 1  
-(Exhibit: Monetary Policy 1)
To shift the demand curve from D1 to D2, the Fed will be

Accepted Answer

A) buying bonds in the open market which decrease the money supply. 
B) selling bonds in the open market which decrease the money supply. 
C) buying bonds in the open market which increases the money supply. 
D) selling bonds in the open market which increases the money supply. 
A) buying bonds in the open market which decrease the money supply. 
B) selling bonds in the open market which decrease the money supply. 
C) buying bonds in the open market which increases the money supply. 
D) selling bonds in the open market which increases the money supply.

Question 4

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.

Question 5

Use the following to answer questions 
Exhibit: The Bond Market  
-(Exhibit: The Bond Market)
Suppose the Fed takes action that shifts the demand curve from S to S′, as illustrated in Panel (b)
.As a result, the interest rate

Accepted Answer

A) increases and investment increases. 
B) increases and investment decreases. 
C) decreases and investment increases. 
D) decreases and investment decreases. 
A) increases and investment increases. 
B) increases and investment decreases. 
C) decreases and investment increases. 
D) decreases and investment decreases.

Question 6

If the demand curve for money were horizontal at some interest rate, an increase in the money supply

Accepted Answer

A) would lower the interest rate. 
B) would increase the rate of inflation. 
C) would be highly effective in reducing inflation. 
D) would not change the interest rate. 
A) would lower the interest rate. 
B) would increase the rate of inflation. 
C) would be highly effective in reducing inflation. 
D) would not change the interest rate.

Question 7

The Fed increases the money supply by selling bonds.

Accepted Answer

A) True 
 B)False

Question 8

Use the following to answer questions 
Exhibit: The Bond Market  
-(Exhibit: The Bond Market)
If the Fed wants to achieve the results shown in Panel (b)
, it should

Accepted Answer

A) lower the discount rate. 
B) decrease margin requirements. 
C) decrease reserve requirements. 
D) sell government bonds in the open market. 
A) lower the discount rate. 
B) decrease margin requirements. 
C) decrease reserve requirements. 
D) sell government bonds in the open market.

Question 9

Suppose at present people hold a quantity of money equal to 80% of nominal GDP.What happens to velocity if people wish to increase their money holdings to 85% of nominal GDP?

Accepted Answer

A) Velocity can increase or decrease depending on people's tastes and preferences toward money. 
B) Velocity is unaffected. 
C) Velocity increases. 
D) Velocity decreases. 
A) Velocity can increase or decrease depending on people's tastes and preferences toward money. 
B) Velocity is unaffected. 
C) Velocity increases. 
D) Velocity decreases.

Question 10

An effort by the Fed to reduce aggregate demand may be thwarted because

Accepted Answer

A) investment could remain the same or increase because of optimistic expectations by businesses about the future of the economy. 
B) investment and interest rates are positively related. 
C) investment could fall because of pessimistic expectations. 
D) taxes may have been increased. 
A) investment could remain the same or increase because of optimistic expectations by businesses about the future of the economy. 
B) investment and interest rates are positively related. 
C) investment could fall because of pessimistic expectations. 
D) taxes may have been increased.

Question 11

Use the following to answer questions 
Exhibit: Monetary Policy and Rational Expectations  
-(Exhibit: Monetary Policy and Rational Expectations)
If the economy is initially operating at point a and there are no rational expectations, an expansionary monetary policy would move the short-run equilibrium from

Accepted Answer

A) a to b. 
B) a to c. 
C) b to a. 
D) c to a. 
A) a to b. 
B) a to c. 
C) b to a. 
D) c to a.

Question 12

The delay between the time at which an event occurs and the time at which policymakers become aware of it is called

Accepted Answer

A) the impact lag. 
B) the implementation lag. 
C) the government lag. 
D) the recognition lag. 
A) the impact lag. 
B) the implementation lag. 
C) the government lag. 
D) the recognition lag.

Question 13

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 14

If the velocity of money is constant, then

Accepted Answer

A) a change in nominal GDP can be caused only by a change in the money supply. 
B) a change in the money supply can be caused only by a change in the price level. 
C) a change in the money supply is negatively related to a change in nominal GDP. 
D) a change in the money supply would result in no change in nominal GDP. 
A) a change in nominal GDP can be caused only by a change in the money supply. 
B) a change in the money supply can be caused only by a change in the price level. 
C) a change in the money supply is negatively related to a change in nominal GDP. 
D) a change in the money supply would result in no change in nominal GDP.

Question 15

If velocity is constant, which of the following results flow from the quantity equation?

Accepted Answer

A) Nominal GDP could change only if there were a change in the money supply. 
B) In the short run, nominal GDP could change only if there were a change in the money supply and in the long run, nominal GDP could change only if there were a change in the money supply. 
C) In the short run, nominal GDP could change only if there were a change in the money supply but in the long run, nominal GDP is affected by changes in any component of GDP. 
D) In the short run, nominal GDP is affected by changes in any component of GDP but in the long run, nominal GDP could change only if there were a change in the money supply. 
A) Nominal GDP could change only if there were a change in the money supply. 
B) In the short run, nominal GDP could change only if there were a change in the money supply and in the long run, nominal GDP could change only if there were a change in the money supply. 
C) In the short run, nominal GDP could change only if there were a change in the money supply but in the long run, nominal GDP is affected by changes in any component of GDP. 
D) In the short run, nominal GDP is affected by changes in any component of GDP but in the long run, nominal GDP could change only if there were a change in the money supply.

Question 16

If the velocity of money is constant, then a 2% increase in the money supply

Accepted Answer

A) must be the result of a 2% increase in the price level. 
B) would change nominal GDP by a smaller percentage. 
C) would change nominal GDP by an equal percentage. 
D) would change nominal GDP by a larger percentage. 
A) must be the result of a 2% increase in the price level. 
B) would change nominal GDP by a smaller percentage. 
C) would change nominal GDP by an equal percentage. 
D) would change nominal GDP by a larger percentage.

Question 17

Use the following to answer questions 
Exhibit: Effects of Monetary Policy  
-(Exhibit: Effects of Monetary Policy)
If the Fed acts to close the output gap in Panel (a)
, it would

Accepted Answer

A) sell government bonds which will lead to the shift in demand for bonds in Panel (b).This action will raise the price of bonds and lower the interest rate. 
B) buy government bonds which will lead to the shift in demand for bonds in Panel (b).This action will raise the price of bonds and increase the interest rate. 
C) buy government bonds which will lead to the shift in demand for bonds in Panel (b).This action will raise the price of bonds and lower the interest rate. 
D) sell government bonds which will lead to the shift in demand for bonds in Panel (b).This action will raise the price of bonds and increase the interest rate. 
A) sell government bonds which will lead to the shift in demand for bonds in Panel (b).This action will raise the price of bonds and lower the interest rate. 
B) buy government bonds which will lead to the shift in demand for bonds in Panel (b).This action will raise the price of bonds and increase the interest rate. 
C) buy government bonds which will lead to the shift in demand for bonds in Panel (b).This action will raise the price of bonds and lower the interest rate. 
D) sell government bonds which will lead to the shift in demand for bonds in Panel (b).This action will raise the price of bonds and increase the interest rate.

Question 18

If the economy experiences an inflationary gap, a contractionary monetary policy will

Accepted Answer

A) increase investment and increase interest rates. 
B) increase investment and decrease interest rates. 
C) decrease investment and increase interest rates. 
D) decrease investment and decrease interest rates. 
A) increase investment and increase interest rates. 
B) increase investment and decrease interest rates. 
C) decrease investment and increase interest rates. 
D) decrease investment and decrease interest rates.

Question 19

If the economy experiences an inflationary gap, a contractionary monetary policy will

Accepted Answer

A) increase interest rates and increase exchange rates. 
B) increase interest rates and decrease exchange rates. 
C) decrease interest rates and increase exchange rates. 
D) decrease interest rates and decrease exchange rates. 
A) increase interest rates and increase exchange rates. 
B) increase interest rates and decrease exchange rates. 
C) decrease interest rates and increase exchange rates. 
D) decrease interest rates and decrease exchange rates.

Question 20

Suppose the Fed's primary goal is price stability and it aims to keep the inflation rate at 2%.If the inflation rate rose above 2%, what should it do?

Accepted Answer

A) pursue an expansionary monetary policy 
B) pursue a contractionary monetary policy 
C) reduce the required reserve ratio 
D) impose a temporary ceiling on the federal funds rate 
A) pursue an expansionary monetary policy 
B) pursue a contractionary monetary policy 
C) reduce the required reserve ratio 
D) impose a temporary ceiling on the federal funds rate

Suppose money supply (M) = $3,960 billion, price level (P) = 1.1, and real GDP (Y) = $7,200 billion.Calculate the value of velocity using the equation of exchange.

Which of the following result from a change in the money supply brought about by an open market sale?

Use the following to answer questions Exhibit: Monetary Policy 1 -(Exhibit: Monetary Policy 1) To shift the demand curve from D₁ to D₂, the Fed will be

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

Use the following to answer questions Exhibit: The Bond Market -(Exhibit: The Bond Market) Suppose the Fed takes action that shifts the demand curve from S to S′, as illustrated in Panel (b) .As a result, the interest rate

If the demand curve for money were horizontal at some interest rate, an increase in the money supply

The Fed increases the money supply by selling bonds.

Use the following to answer questions Exhibit: The Bond Market -(Exhibit: The Bond Market) If the Fed wants to achieve the results shown in Panel (b) , it should

Suppose at present people hold a quantity of money equal to 80% of nominal GDP.What happens to velocity if people wish to increase their money holdings to 85% of nominal GDP?

An effort by the Fed to reduce aggregate demand may be thwarted because

The delay between the time at which an event occurs and the time at which policymakers become aware of it is called

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

If the velocity of money is constant, then

If velocity is constant, which of the following results flow from the quantity equation?

If the velocity of money is constant, then a 2% increase in the money supply

Use the following to answer questions Exhibit: Effects of Monetary Policy -(Exhibit: Effects of Monetary Policy) If the Fed acts to close the output gap in Panel (a) , it would

If the economy experiences an inflationary gap, a contractionary monetary policy will

If the economy experiences an inflationary gap, a contractionary monetary policy will

Suppose the Fed's primary goal is price stability and it aims to keep the inflation rate at 2%.If the inflation rate rose above 2%, what should it do?

Economics: the Study of Choice

Confronting Scarcity: Choices in Production

Demand and Supply

Applications of Supply and Demand

Macroeconomics: the Big Picture

Measuring Total Output and Income

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

Inflation and Unemployment

A Brief History of Macroeconomic Thought and Policy

Inequality, Poverty, and Discrimination

Filters

Exam 11: Monetary Policy and the Fed

Suppose money supply (M) = $3,960 billion, price level (P) = 1.1, and real GDP (Y) = $7,200 billion.Calculate the value of velocity using the equation of exchange.

Which of the following result from a change in the money supply brought about by an open market sale?

Use the following to answer questions Exhibit: Monetary Policy 1 -(Exhibit: Monetary Policy 1) To shift the demand curve from D1 to D2, the Fed will be

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

Use the following to answer questions Exhibit: The Bond Market -(Exhibit: The Bond Market) Suppose the Fed takes action that shifts the demand curve from S to S′, as illustrated in Panel (b) .As a result, the interest rate

If the demand curve for money were horizontal at some interest rate, an increase in the money supply

The Fed increases the money supply by selling bonds.

Use the following to answer questions Exhibit: The Bond Market -(Exhibit: The Bond Market) If the Fed wants to achieve the results shown in Panel (b) , it should

Suppose at present people hold a quantity of money equal to 80% of nominal GDP.What happens to velocity if people wish to increase their money holdings to 85% of nominal GDP?

An effort by the Fed to reduce aggregate demand may be thwarted because

The delay between the time at which an event occurs and the time at which policymakers become aware of it is called

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

If the velocity of money is constant, then

If velocity is constant, which of the following results flow from the quantity equation?

If the velocity of money is constant, then a 2% increase in the money supply

Use the following to answer questions Exhibit: Effects of Monetary Policy -(Exhibit: Effects of Monetary Policy) If the Fed acts to close the output gap in Panel (a) , it would

If the economy experiences an inflationary gap, a contractionary monetary policy will

If the economy experiences an inflationary gap, a contractionary monetary policy will

Suppose the Fed's primary goal is price stability and it aims to keep the inflation rate at 2%.If the inflation rate rose above 2%, what should it do?

Economics: the Study of Choice

Confronting Scarcity: Choices in Production

Demand and Supply

Applications of Supply and Demand

Macroeconomics: the Big Picture

Measuring Total Output and Income

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

Inflation and Unemployment

A Brief History of Macroeconomic Thought and Policy

Inequality, Poverty, and Discrimination

Filters

Use the following to answer questions Exhibit: Monetary Policy 1 -(Exhibit: Monetary Policy 1) To shift the demand curve from D₁ to D₂, the Fed will be