Question 1

In an economy in which velocity is constant and the same level of real output is produced year after year, a slow increase in the money supply would result in a:

Accepted Answer

A)  constant price level. 
B)  slowly increasing price level. 
C)  rapidly increasing price level. 
D)  slowly increasing real GDP. 
E)  rapidly increasing real GDP. 
A)  constant price level. 
B)  slowly increasing price level. 
C)  rapidly increasing price level. 
D)  slowly increasing real GDP. 
E)  rapidly increasing real GDP.

Question 2

An increase in aggregate demand will have a smaller long-run effect on real GDP if the:

Accepted Answer

A)  aggregate demand curve is flat. 
B)  short-run aggregate supply curve is horizontal. 
C)  economy is well below potential output. 
D)  economy is already at potential output. 
E)  aggregate demand curve is fairly steep. 
A)  aggregate demand curve is flat. 
B)  short-run aggregate supply curve is horizontal. 
C)  economy is well below potential output. 
D)  economy is already at potential output. 
E)  aggregate demand curve is fairly steep.

Question 3

According to the equation of exchange, if nominal GDP equals $6 trillion and the money supply equals $1 trillion, the velocity of money:

Accepted Answer

A)  must be 6. 
B)  must be 1/6. 
C)  must be 6 trillion. 
D)  must be 1/6 trillion. 
E)  cannot be determined unless we know the price level. 
A)  must be 6. 
B)  must be 1/6. 
C)  must be 6 trillion. 
D)  must be 1/6 trillion. 
E)  cannot be determined unless we know the price level.

Question 4

All other things constant, when the interest rate increases:

Accepted Answer

A)  the demand for investment curve shifts to the right. 
B)  the demand for investment curve shifts to the left. 
C)  there is a movement downward along the demand for investment curve. 
D)  there is a movement upward along the demand for investment curve. 
E)  GDP increases. 
A)  the demand for investment curve shifts to the right. 
B)  the demand for investment curve shifts to the left. 
C)  there is a movement downward along the demand for investment curve. 
D)  there is a movement upward along the demand for investment curve. 
E)  GDP increases.

Question 5

The figure given below depicts short-run equilibrium in an aggregate demand-aggregate supply model. The Fed can return the economy to potential output in the long run by:

Accepted Answer

A)  purchasing U.S. government securities. 
B)  decreasing taxes. 
C)  selling U.S. government securities. 
D)  lowering the discount rate. 
E)  lowering the required reserve ratio. 
A)  purchasing U.S. government securities. 
B)  decreasing taxes. 
C)  selling U.S. government securities. 
D)  lowering the discount rate. 
E)  lowering the required reserve ratio.

Question 6

The opportunity cost of holding money increases when:

Accepted Answer

A)  the interest rate rises. 
B)  the interest rate falls. 
C)  the price level falls. 
D)  nominal GDP rises. 
E)  nominal GDP falls. 
A)  the interest rate rises. 
B)  the interest rate falls. 
C)  the price level falls. 
D)  nominal GDP rises. 
E)  nominal GDP falls.

Question 7

If interest rates are to remain constant, the money supply should change:

Accepted Answer

A)  in the opposite direction to a change in aggregate demand. 
B)  in the same direction as a change in money demand. 
C)  only when investment changes. 
D)  only when the demand for money decreases. 
E)  only when the inflation rate changes. 
A)  in the opposite direction to a change in aggregate demand. 
B)  in the same direction as a change in money demand. 
C)  only when investment changes. 
D)  only when the demand for money decreases. 
E)  only when the inflation rate changes.

Question 8

A wider use of charge accounts and credit cards have reduced the demand for "walking-around" money.

Accepted Answer

A) True 
 B)False

Question 9

Identify the correct statement about changes in money supply.

Accepted Answer

A)  A decrease in money supply causes interest rates to fall. 
B)  A decrease in money supply causes investment spending to increase. 
C)  A decrease in money supply causes gross domestic product to increase. 
D)  A decrease in money supply causes investment spending to decrease. 
E)  A decrease in money supply causes aggregate expenditure to increase. 
A)  A decrease in money supply causes interest rates to fall. 
B)  A decrease in money supply causes investment spending to increase. 
C)  A decrease in money supply causes gross domestic product to increase. 
D)  A decrease in money supply causes investment spending to decrease. 
E)  A decrease in money supply causes aggregate expenditure to increase.

Question 10

In an economy in which velocity of money in circulation is constant and real output grows at an average rate of 3 percent per year, a 5 percent average rate of growth in the money supply would result in a:

Accepted Answer

A)  constant price level. 
B)  slowly increasing price level. 
C)  slowly decreasing price level. 
D)  stable 4 percent growth in real GDP. 
E)  stable 4 percent growth in nominal GDP. 
A)  constant price level. 
B)  slowly increasing price level. 
C)  slowly decreasing price level. 
D)  stable 4 percent growth in real GDP. 
E)  stable 4 percent growth in nominal GDP.

Question 11

The higher the interest rate, the greater the preference for liquidity.

Accepted Answer

A) True 
 B)False

Question 12

The demand for money was high in the year 2015 when the interest rate on savings deposits and time deposits was close to zero.

Accepted Answer

A) True 
 B)False

Question 13

If the Fed purchases U.S. government securities, gross domestic product:

Accepted Answer

A)  increases because the resulting increase in the interest rate leads to a decrease in investment. 
B)  increases because the resulting decrease in the interest rate leads to an increase in investment. 
C)  decreases because the resulting increase in the interest rate leads to a decrease in investment. 
D)  decreases because the resulting increase in the interest rate leads to an increase in investment. 
E)  decreases because the resulting decrease in the interest rate leads to an increase in investment. 
A)  increases because the resulting increase in the interest rate leads to a decrease in investment. 
B)  increases because the resulting decrease in the interest rate leads to an increase in investment. 
C)  decreases because the resulting increase in the interest rate leads to a decrease in investment. 
D)  decreases because the resulting increase in the interest rate leads to an increase in investment. 
E)  decreases because the resulting decrease in the interest rate leads to an increase in investment.

Question 14

The figure given below shows the interest rate on the vertical axis and the quantity of money on the horizontal axis. In this figure, an increase in the price level will cause a movement from:

Accepted Answer

A)  point B to point A. 
B)  point A to point B. 
C)  DM to DM'. 
D)  DM to DM*. 
E)  point E to point F. 
A)  point B to point A. 
B)  point A to point B. 
C)  DM to DM'. 
D)  DM to DM*. 
E)  point E to point F.

Question 15

Which of the following is not assumed to be constant along a money demand curve?

Accepted Answer

A)  The price level 
B)  The interest rate 
C)  Real GDP 
D)  Nominal GDP 
E)  Individual's tastes and preferences 
A)  The price level 
B)  The interest rate 
C)  Real GDP 
D)  Nominal GDP 
E)  Individual's tastes and preferences

Question 16

When the Fed decreases the money supply:

Accepted Answer

A)  aggregate demand and aggregate supply both increase. 
B)  aggregate demand increases, which leads to movement along the short-run aggregate supply curve. 
C)  aggregate demand decreases, which leads to movement along the short-run aggregate supply curve. 
D)  aggregate supply increases, which leads to movement along the aggregate demand curve. 
E)  aggregate supply decreases, which leads to movement along the aggregate demand curve. 
A)  aggregate demand and aggregate supply both increase. 
B)  aggregate demand increases, which leads to movement along the short-run aggregate supply curve. 
C)  aggregate demand decreases, which leads to movement along the short-run aggregate supply curve. 
D)  aggregate supply increases, which leads to movement along the aggregate demand curve. 
E)  aggregate supply decreases, which leads to movement along the aggregate demand curve.

Question 17

Which of the following is an example of a contractionary monetary policy?

Accepted Answer

A)  Reduction in the amount of transfer payments made to poor families 
B)  Purchase of U.S. government securities in the open market 
C)  Increase in the discount rate 
D)  Decrease in the required reserve ratio 
E)  Increase in the tax rate 
A)  Reduction in the amount of transfer payments made to poor families 
B)  Purchase of U.S. government securities in the open market 
C)  Increase in the discount rate 
D)  Decrease in the required reserve ratio 
E)  Increase in the tax rate

Question 18

At a given point in time, if the demand for money increases:

Accepted Answer

A)  the interest rate will fall. 
B)  there will be a movement downward along the money demand curve. 
C)  there will be a movement upward along the money demand curve. 
D)  there will be a rightward shift of the money demand curve. 
E)  there will be a leftward shift of the money demand curve. 
A)  the interest rate will fall. 
B)  there will be a movement downward along the money demand curve. 
C)  there will be a movement upward along the money demand curve. 
D)  there will be a rightward shift of the money demand curve. 
E)  there will be a leftward shift of the money demand curve.

Question 19

In the long run, increases in the money supply increase the economy's potential output level.

Accepted Answer

A) True 
 B)False

Question 20

As a result of an expansionary monetary policy:

Accepted Answer

A)  both aggregate expenditure and aggregate demand increase. 
B)  both aggregate expenditure and aggregate demand decrease. 
C)  aggregate expenditure increases and aggregate demand decreases. 
D)  aggregate expenditure decreases and aggregate demand increases. 
E)  aggregate expenditure remains unchanged; aggregate demand increases. 
A)  both aggregate expenditure and aggregate demand increase. 
B)  both aggregate expenditure and aggregate demand decrease. 
C)  aggregate expenditure increases and aggregate demand decreases. 
D)  aggregate expenditure decreases and aggregate demand increases. 
E)  aggregate expenditure remains unchanged; aggregate demand increases.

In an economy in which velocity is constant and the same level of real output is produced year after year, a slow increase in the money supply would result in a:

An increase in aggregate demand will have a smaller long-run effect on real GDP if the:

According to the equation of exchange, if nominal GDP equals $6 trillion and the money supply equals $1 trillion, the velocity of money:

All other things constant, when the interest rate increases:

The figure given below depicts short-run equilibrium in an aggregate demand-aggregate supply model. The Fed can return the economy to potential output in the long run by:

The opportunity cost of holding money increases when:

If interest rates are to remain constant, the money supply should change:

A wider use of charge accounts and credit cards have reduced the demand for "walking-around" money.

Identify the correct statement about changes in money supply.

In an economy in which velocity of money in circulation is constant and real output grows at an average rate of 3 percent per year, a 5 percent average rate of growth in the money supply would result in a:

The higher the interest rate, the greater the preference for liquidity.

The demand for money was high in the year 2015 when the interest rate on savings deposits and time deposits was close to zero.

If the Fed purchases U.S. government securities, gross domestic product:

The figure given below shows the interest rate on the vertical axis and the quantity of money on the horizontal axis. In this figure, an increase in the price level will cause a movement from:

Which of the following is not assumed to be constant along a money demand curve?

When the Fed decreases the money supply:

Which of the following is an example of a contractionary monetary policy?

At a given point in time, if the demand for money increases:

In the long run, increases in the money supply increase the economy's potential output level.

As a result of an expansionary monetary policy:

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Introduction to Macroeconomics

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Exam 15: Monetary Theory and Policy

In an economy in which velocity is constant and the same level of real output is produced year after year, a slow increase in the money supply would result in a:

An increase in aggregate demand will have a smaller long-run effect on real GDP if the:

According to the equation of exchange, if nominal GDP equals $6 trillion and the money supply equals $1 trillion, the velocity of money:

All other things constant, when the interest rate increases:

The figure given below depicts short-run equilibrium in an aggregate demand-aggregate supply model. The Fed can return the economy to potential output in the long run by:

The opportunity cost of holding money increases when:

If interest rates are to remain constant, the money supply should change:

A wider use of charge accounts and credit cards have reduced the demand for "walking-around" money.

Identify the correct statement about changes in money supply.

In an economy in which velocity of money in circulation is constant and real output grows at an average rate of 3 percent per year, a 5 percent average rate of growth in the money supply would result in a:

The higher the interest rate, the greater the preference for liquidity.

The demand for money was high in the year 2015 when the interest rate on savings deposits and time deposits was close to zero.

If the Fed purchases U.S. government securities, gross domestic product:

The figure given below shows the interest rate on the vertical axis and the quantity of money on the horizontal axis. In this figure, an increase in the price level will cause a movement from:

Which of the following is not assumed to be constant along a money demand curve?

When the Fed decreases the money supply:

Which of the following is an example of a contractionary monetary policy?

At a given point in time, if the demand for money increases:

In the long run, increases in the money supply increase the economy's potential output level.

As a result of an expansionary monetary policy:

The Art and Science of Economic Analysis

Some Tools of Economic Analysis

Economic Decision Makers

Demand, Supply, and Markets

Introduction to Macroeconomics

Tracking the U S Economy

Unemployment and Inflation

Us Productivity and Growth

Aggregate Demand

Aggregate Supply

Fiscal Policy

Federal Budgets and Public Policy

Money and the Financial System

Banking and the Money Supply

The Policy Debate: Active or Passive

International Trade

International Finance

Economic Development

Filters