Question 1

If the Fed decreases the money supply, gross domestic product:

Accepted Answer

A)  increases by the same amount as the increase in the interest rate. 
B)  decreases by a greater amount than the increase in the interest rate because of the multiplier. 
C)  decreases by the same amount as the decrease in investment. 
D)  decreases by a greater amount than the decrease in investment because of the multiplier. 
E)  decreases by a lesser amount than the decrease in investment because of the multiplier. 
A)  increases by the same amount as the increase in the interest rate. 
B)  decreases by a greater amount than the increase in the interest rate because of the multiplier. 
C)  decreases by the same amount as the decrease in investment. 
D)  decreases by a greater amount than the decrease in investment because of the multiplier. 
E)  decreases by a lesser amount than the decrease in investment because of the multiplier.

Question 2

For a given money demand curve, an increase in money supply:

Accepted Answer

A)  drives up the real interest rate. 
B)  lowers the opportunity cost of holding money. 
C)  decreases the quantity of money demanded. 
D)  drives down the price level in an economy. 
E)  contracts the total output produced in an economy. 
A)  drives up the real interest rate. 
B)  lowers the opportunity cost of holding money. 
C)  decreases the quantity of money demanded. 
D)  drives down the price level in an economy. 
E)  contracts the total output produced in an economy.

Question 3

Which of the following will result in the money market when the price level in an economy rises, while the supply of money remains unchanged?

Accepted Answer

A)  The demand for money will decrease. 
B)  The supply of money will increase. 
C)  The rate of interest will decrease. 
D)  The total investment spending in the economy will increase. 
E)  The rate of interest will increase. 
A)  The demand for money will decrease. 
B)  The supply of money will increase. 
C)  The rate of interest will decrease. 
D)  The total investment spending in the economy will increase. 
E)  The rate of interest will increase.

Question 4

For a given increase in aggregate demand, the steeper the short-run aggregate supply curve:

Accepted Answer

A)  the larger the increase in investment expenditure. 
B)  the smaller the increase in the price level. 
C)  the smaller the increase in real GDP. 
D)  the larger the increase in real GDP. 
E)  the smaller the increase in real interest rate. 
A)  the larger the increase in investment expenditure. 
B)  the smaller the increase in the price level. 
C)  the smaller the increase in real GDP. 
D)  the larger the increase in real GDP. 
E)  the smaller the increase in real interest rate.

Question 5

In the long run, a change in the money supply does not affect the natural rate of unemployment because:

Accepted Answer

A)  the aggregate demand curve is vertical. 
B)  the aggregate demand curve is downward sloping. 
C)  the long-run aggregate supply curve is vertical. 
D)  the long-run aggregate supply curve is upward sloping. 
E)  the long-run aggregate supply curve is horizontal. 
A)  the aggregate demand curve is vertical. 
B)  the aggregate demand curve is downward sloping. 
C)  the long-run aggregate supply curve is vertical. 
D)  the long-run aggregate supply curve is upward sloping. 
E)  the long-run aggregate supply curve is horizontal.

Question 6

In the long run, an increase in aggregate demand:

Accepted Answer

A)  increases the price level and real output, but the effect on the price level is larger. 
B)  increases the price level and real output, but the effect on output is larger. 
C)  affects only real output. 
D)  affects only the price level. 
E)  affects neither the price level nor real output. 
A)  increases the price level and real output, but the effect on the price level is larger. 
B)  increases the price level and real output, but the effect on output is larger. 
C)  affects only real output. 
D)  affects only the price level. 
E)  affects neither the price level nor real output.

Question 7

Which of the following changes is most likely to happen when there is a decrease in the supply of money in a market that was initially in equilibrium?

Accepted Answer

A)  The demand for money increases 
B)  Planned investment spending increases 
C)  Interest rate increases 
D)  Aggregate expenditure increases 
E)  The demand for money decreases 
A)  The demand for money increases 
B)  Planned investment spending increases 
C)  Interest rate increases 
D)  Aggregate expenditure increases 
E)  The demand for money decreases

Question 8

The figure given below depicts short-run equilibrium in an aggregate demand-aggregate supply model. Which of the following policies will allow the Fed to close the GDP gap in the long run?

Accepted Answer

A)  A decrease in government spending 
B)  A decrease in taxes 
C)  A sale of U.S. government bonds 
D)  An increase the discount rate 
E)  An increase in the required reserve ratio 
A)  A decrease in government spending 
B)  A decrease in taxes 
C)  A sale of U.S. government bonds 
D)  An increase the discount rate 
E)  An increase in the required reserve ratio

Question 9

Which of the following changes is observed when the Fed increases the federal funds rate?

Accepted Answer

A)  Inflation is brought to an immediate halt. 
B)  The inflation rate increases for several months, but then begins to decrease. 
C)  Major banks try to offset this change by lowering the interest rates they charge on loans. 
D)  Major banks try to offset this change by lowering the interest rates they pay on savings deposits. 
E)  Major banks raise the prime interest rate that they charge to their best customers. 
A)  Inflation is brought to an immediate halt. 
B)  The inflation rate increases for several months, but then begins to decrease. 
C)  Major banks try to offset this change by lowering the interest rates they charge on loans. 
D)  Major banks try to offset this change by lowering the interest rates they pay on savings deposits. 
E)  Major banks raise the prime interest rate that they charge to their best customers.

Question 10

Most policy makers agree that in the long run, changes in the money supply influence:

Accepted Answer

A)  the price level and inflation. 
B)  the real interest rate and aggregate demand. 
C)  the planned investment expenditure. 
D)  the exchange rate. 
E)  the potential GDP and unemployment. 
A)  the price level and inflation. 
B)  the real interest rate and aggregate demand. 
C)  the planned investment expenditure. 
D)  the exchange rate. 
E)  the potential GDP and unemployment.

Question 11

An expansionary monetary policy is always capable of boosting aggregate investment.

Accepted Answer

A) True 
 B)False

Question 12

The demand for money is a downward sloping line that depicts the relationship between the price level and the opportunity cost of holding money.

Accepted Answer

A) True 
 B)False

Question 13

The velocity of money increases with a _____, other things constant.

Accepted Answer

A)  fall in the inflation rate 
B)  rise in the inflation rate 
C)  rise in the employment rate 
D)  fall in the exchange rate 
E)  rise in the real interest rate 
A)  fall in the inflation rate 
B)  rise in the inflation rate 
C)  rise in the employment rate 
D)  fall in the exchange rate 
E)  rise in the real interest rate

Question 14

The opportunity cost of holding money is measured by the:

Accepted Answer

A)  interest rate. 
B)  liquidity lost by holding money. 
C)  money supply curve. 
D)  inflation rate. 
E)  cost of cashing in financial assets. 
A)  interest rate. 
B)  liquidity lost by holding money. 
C)  money supply curve. 
D)  inflation rate. 
E)  cost of cashing in financial assets.

Question 15

The quantity theory of money states that if the velocity of money is stable or at least predictable, then:

Accepted Answer

A)  the quantity of money in circulation determines real GDP in the short run. 
B)  the quantity of money in circulation determines aggregate spending. 
C)  the quantity of money in circulation determines both real GDP and the price level in the long run. 
D)  the quantity of money in circulation determines only the price level in the long run. 
E)  the quantity of money in circulation determines the potential output in the long run. 
A)  the quantity of money in circulation determines real GDP in the short run. 
B)  the quantity of money in circulation determines aggregate spending. 
C)  the quantity of money in circulation determines both real GDP and the price level in the long run. 
D)  the quantity of money in circulation determines only the price level in the long run. 
E)  the quantity of money in circulation determines the potential output in the long run.

Question 16

Which of the following is an example of an expansionary monetary policy?

Accepted Answer

A)  A reduction in government purchases of goods and services 
B)  An increase in the discount rate 
C)  An open market sale of U.S. government securities 
D)  A reduction in the required reserve ratio 
E)  A tax cut 
A)  A reduction in government purchases of goods and services 
B)  An increase in the discount rate 
C)  An open market sale of U.S. government securities 
D)  A reduction in the required reserve ratio 
E)  A tax cut

Question 17

Suppose an individual can earn 3 percent interest on an annual term deposit. His opportunity cost of holding $100,000 in cash instead of investing in the term deposit will be:

Accepted Answer

A)  $3,300. 
B)  $330. 
C)  $1,000. 
D)  $6,000. 
E)  $3,000. 
A)  $3,300. 
B)  $330. 
C)  $1,000. 
D)  $6,000. 
E)  $3,000.

Question 18

An increase in the nominal interest rate, other things constant, will:

Accepted Answer

A)  shift the money demand curve to the right. 
B)  shift the money demand curve to the left. 
C)  increase the quantity of money people choose to hold. 
D)  decrease the quantity of money people choose to hold. 
E)  have no impact on the money demand curve. 
A)  shift the money demand curve to the right. 
B)  shift the money demand curve to the left. 
C)  increase the quantity of money people choose to hold. 
D)  decrease the quantity of money people choose to hold. 
E)  have no impact on the money demand curve.

Question 19

Before 2008, money market mutual funds and hedge funds had been out of Fed's scope and control because they did not rely on customer deposits.

Accepted Answer

A) True 
 B)False

Question 20

For monetary policy to be effective in changing planned investment spending:

Accepted Answer

A)  interest rates must not be responsive to changes in the money supply. 
B)  interest rates must be sensitive to changes in Gross Domestic Product. 
C)  investment must be sensitive to changes in interest rates. 
D)  investment must be sensitive to changes in the price level. 
E)  interest rates must be sensitive to changes in the price level. 
A)  interest rates must not be responsive to changes in the money supply. 
B)  interest rates must be sensitive to changes in Gross Domestic Product. 
C)  investment must be sensitive to changes in interest rates. 
D)  investment must be sensitive to changes in the price level. 
E)  interest rates must be sensitive to changes in the price level.

If the Fed decreases the money supply, gross domestic product:

For a given money demand curve, an increase in money supply:

Which of the following will result in the money market when the price level in an economy rises, while the supply of money remains unchanged?

For a given increase in aggregate demand, the steeper the short-run aggregate supply curve:

In the long run, a change in the money supply does not affect the natural rate of unemployment because:

In the long run, an increase in aggregate demand:

Which of the following changes is most likely to happen when there is a decrease in the supply of money in a market that was initially in equilibrium?

The figure given below depicts short-run equilibrium in an aggregate demand-aggregate supply model. Which of the following policies will allow the Fed to close the GDP gap in the long run?

Which of the following changes is observed when the Fed increases the federal funds rate?

Most policy makers agree that in the long run, changes in the money supply influence:

An expansionary monetary policy is always capable of boosting aggregate investment.

The demand for money is a downward sloping line that depicts the relationship between the price level and the opportunity cost of holding money.

The velocity of money increases with a _____, other things constant.

The opportunity cost of holding money is measured by the:

The quantity theory of money states that if the velocity of money is stable or at least predictable, then:

Which of the following is an example of an expansionary monetary policy?

Suppose an individual can earn 3 percent interest on an annual term deposit. His opportunity cost of holding $100,000 in cash instead of investing in the term deposit will be:

An increase in the nominal interest rate, other things constant, will:

Before 2008, money market mutual funds and hedge funds had been out of Fed's scope and control because they did not rely on customer deposits.

For monetary policy to be effective in changing planned investment spending:

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

Exam 15: Monetary Theory and Policy

If the Fed decreases the money supply, gross domestic product:

For a given money demand curve, an increase in money supply:

Which of the following will result in the money market when the price level in an economy rises, while the supply of money remains unchanged?

For a given increase in aggregate demand, the steeper the short-run aggregate supply curve:

In the long run, a change in the money supply does not affect the natural rate of unemployment because:

In the long run, an increase in aggregate demand:

Which of the following changes is most likely to happen when there is a decrease in the supply of money in a market that was initially in equilibrium?

The figure given below depicts short-run equilibrium in an aggregate demand-aggregate supply model. Which of the following policies will allow the Fed to close the GDP gap in the long run?

Which of the following changes is observed when the Fed increases the federal funds rate?

Most policy makers agree that in the long run, changes in the money supply influence:

An expansionary monetary policy is always capable of boosting aggregate investment.

The demand for money is a downward sloping line that depicts the relationship between the price level and the opportunity cost of holding money.

The velocity of money increases with a _____, other things constant.

The opportunity cost of holding money is measured by the:

The quantity theory of money states that if the velocity of money is stable or at least predictable, then:

Which of the following is an example of an expansionary monetary policy?

Suppose an individual can earn 3 percent interest on an annual term deposit. His opportunity cost of holding $100,000 in cash instead of investing in the term deposit will be:

An increase in the nominal interest rate, other things constant, will:

Before 2008, money market mutual funds and hedge funds had been out of Fed's scope and control because they did not rely on customer deposits.

For monetary policy to be effective in changing planned investment spending:

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