Question 1

When the feedback effects from income to the money market are included,

Accepted Answer

A)  a given change in the money supply will cause a smaller change in the quantity of money demanded. 
B)  a given change in the money supply will cause a larger change in the interest rate 
C)  given change in the money supply will cause no change in the interest rate 
D)  a given change in the money supply will cause a smaller change in the interest rate 
E)  a given change in the money supply will cause a larger change in the quantity of money demanded. 
A)  a given change in the money supply will cause a smaller change in the quantity of money demanded. 
B)  a given change in the money supply will cause a larger change in the interest rate 
C)  given change in the money supply will cause no change in the interest rate 
D)  a given change in the money supply will cause a smaller change in the interest rate 
E)  a given change in the money supply will cause a larger change in the quantity of money demanded. D

Question 2

Equilibrium in the money market means that the quantity of money people are holding equals

Accepted Answer

A)  their entire wealth 
B)  their entire income 
C)  the quantity of money that they want to hold 
D)  the money supply 
E)  the value of bonds in their financial portfolios 
A)  their entire wealth 
B)  their entire income 
C)  the quantity of money that they want to hold 
D)  the money supply 
E)  the value of bonds in their financial portfolios C

Question 3

If a firm finances a new project using its own funds,

Accepted Answer

A)  the cost is minimal 
B)  the opportunity cost of borrowing has been avoided 
C)  investment funds will be in excess supply 
D)  the financing charges are the measure of the real interest rate 
E)  the interest rate represents the firm's opportunity cost 
A)  the cost is minimal 
B)  the opportunity cost of borrowing has been avoided 
C)  investment funds will be in excess supply 
D)  the financing charges are the measure of the real interest rate 
E)  the interest rate represents the firm's opportunity cost E

Question 4

Open market sales of bonds by the Federal Reserve reduce the money supply and

Accepted Answer

A)  reduce aggregate expenditures 
B)  increase real aggregate expenditures 
C)  are helpful in monetizing the federal debt 
D)  stimulate purchases of consumer durables 
E)  stimulate spending at many levels 
A)  reduce aggregate expenditures 
B)  increase real aggregate expenditures 
C)  are helpful in monetizing the federal debt 
D)  stimulate purchases of consumer durables 
E)  stimulate spending at many levels

Question 5

An excess demand for money exists if the interest rate is below the equilibrium rate.

Accepted Answer

A) True 
 B)False

Question 6

Suppose that the equilibrium interest rate is 8 percent,but the actual interest rate is 5 percent.Very quickly,

Accepted Answer

A)  bond prices fall 
B)  bond prices will rise 
C)  the interest rate will begin to fluctuate until bondholders reduce their demand for money 
D)  the primary bond market will start its adjustment process 
E)  the supply and demand for money will both increase 
A)  bond prices fall 
B)  bond prices will rise 
C)  the interest rate will begin to fluctuate until bondholders reduce their demand for money 
D)  the primary bond market will start its adjustment process 
E)  the supply and demand for money will both increase

Question 7

An increase in government purchases,an increase in the interest rate,and an increase in consumption all shift the aggregate expenditure line upward.

Accepted Answer

A) True 
 B)False

Question 8

When considering the demand for money,which two assets do we assume individuals can hold?

Accepted Answer

A)  Stocks and bonds 
B)  Money and stocks 
C)  Money and bonds 
D)  Checking accounts and savings accounts 
E)  Money and real estate 
A)  Stocks and bonds 
B)  Money and stocks 
C)  Money and bonds 
D)  Checking accounts and savings accounts 
E)  Money and real estate

Question 9

If the Fed wishes to increase the interest rate,it can do so by

Accepted Answer

A)  selling bonds 
B)  buying bonds 
C)  increasing the money supply 
D)  setting a higher prime lending rate 
E)  encouraging the public to buy bonds 
A)  selling bonds 
B)  buying bonds 
C)  increasing the money supply 
D)  setting a higher prime lending rate 
E)  encouraging the public to buy bonds

Question 10

If the interest rate dropped,what would be the effect on spending?

Accepted Answer

A)  Spending on automobiles would decrease. 
B)  Business spending on new capital would decrease. 
C)  Spending on consumer durables would decrease. 
D)  Business spending on new factories would increase. 
E)  Spending on new homes would decrease. 
A)  Spending on automobiles would decrease. 
B)  Business spending on new capital would decrease. 
C)  Spending on consumer durables would decrease. 
D)  Business spending on new factories would increase. 
E)  Spending on new homes would decrease.

Question 11

What will be the effects of a decrease in government spending?

Accepted Answer

A)  an increase in equilibrium GDP,a decrease in money demand,a decrease in the interest rate,and an increase in investment spending 
B)  a decrease in equilibrium GDP,a decrease in money demand,an increase in the interest rate,and a decrease in investment spending 
C)  an increase in equilibrium GDP,an increase in money demand,an increase in the interest rate,and an increase in investment spending 
D)  a decrease in equilibrium GDP,a decrease in money demand,a decrease in the interest rate,and an increase in investment spending 
E)  an increase in equilibrium GDP,an increase in money demand,an increase in the interest rate,and a decrease in investment spending 
A)  an increase in equilibrium GDP,a decrease in money demand,a decrease in the interest rate,and an increase in investment spending 
B)  a decrease in equilibrium GDP,a decrease in money demand,an increase in the interest rate,and a decrease in investment spending 
C)  an increase in equilibrium GDP,an increase in money demand,an increase in the interest rate,and an increase in investment spending 
D)  a decrease in equilibrium GDP,a decrease in money demand,a decrease in the interest rate,and an increase in investment spending 
E)  an increase in equilibrium GDP,an increase in money demand,an increase in the interest rate,and a decrease in investment spending

Question 12

The money market reaches equilibrium when

Accepted Answer

A)  money demand equals money supply. 
B)  bond prices reach zero. 
C)  the quantity of money demanded equals the quantity of money supplied. 
D)  interest rates reach zero. 
E)  the growth of the money supply equals the rate of growth of the budget deficit. 
A)  money demand equals money supply. 
B)  bond prices reach zero. 
C)  the quantity of money demanded equals the quantity of money supplied. 
D)  interest rates reach zero. 
E)  the growth of the money supply equals the rate of growth of the budget deficit.

Question 13

An individual would be most likely to increase the amount of money he wants to hold if

Accepted Answer

A)  the price level declines 
B)  the price level declines and the interest rate increases 
C)  his real income increases 
D)  the interest rate increases 
E)  the interest rate and his real income decrease 
A)  the price level declines 
B)  the price level declines and the interest rate increases 
C)  his real income increases 
D)  the interest rate increases 
E)  the interest rate and his real income decrease

Question 14

-Refer to Figure 14-9.If the aggregate expenditure line shifts from AE₁(r = 8%)to AE₂(r = 10%),which of the following is the most likely cause of that shift?

Accepted Answer

A)  An increase in the money supply 
B)  A decrease in the money supply 
C)  An increase in government purchases 
D)  A decrease in government purchases 
E)  An increase in taxes. 
A)  An increase in the money supply 
B)  A decrease in the money supply 
C)  An increase in government purchases 
D)  A decrease in government purchases 
E)  An increase in taxes.

Question 15

An excess supply of money implies an excess

Accepted Answer

A)  supply of corporate stock 
B)  demand for bonds 
C)  supply of bonds 
D)  demand for corporate stock 
E)  demand for goods and services 
A)  supply of corporate stock 
B)  demand for bonds 
C)  supply of bonds 
D)  demand for corporate stock 
E)  demand for goods and services

Question 16

If the interest rate is above its equilibrium value,the price of

Accepted Answer

A)  bonds will fall 
B)  real estate will rise 
C)  bonds will rise 
D)  stocks will fall because of fluctuations in the bond market 
E)  money will rise 
A)  bonds will fall 
B)  real estate will rise 
C)  bonds will rise 
D)  stocks will fall because of fluctuations in the bond market 
E)  money will rise

Question 17

Open market purchases of bonds by the Federal Reserve eventually

Accepted Answer

A)  reduce the pressures on bond markets 
B)  increase real GDP 
C)  lead to open market sales of bonds 
D)  increase the interest rate 
E)  encourage tax increases 
A)  reduce the pressures on bond markets 
B)  increase real GDP 
C)  lead to open market sales of bonds 
D)  increase the interest rate 
E)  encourage tax increases

Question 18

In the short-run macro model,a decrease in the money supply will

Accepted Answer

A)  lower the interest rate,increase spending,and increase GDP 
B)  lower the interest rate,reduce spending,and lower GDP 
C)  raise the interest rate,increase spending,and increase GDP 
D)  raise the interest rate,reduce spending,and lower GDP 
E)  raise the interest rate,reduce spending,and increase GDP 
A)  lower the interest rate,increase spending,and increase GDP 
B)  lower the interest rate,reduce spending,and lower GDP 
C)  raise the interest rate,increase spending,and increase GDP 
D)  raise the interest rate,reduce spending,and lower GDP 
E)  raise the interest rate,reduce spending,and increase GDP

Question 19

The money market achieves equilibrium when

Accepted Answer

A)  individuals no longer want to spend their money 
B)  the price of bonds rises by an appropriate amount 
C)  buyers and sellers agree on a price for commodities 
D)  speculative balances are reduced to a minimum 
E)  individuals who hold bonds are satisfied with what they are holding 
A)  individuals no longer want to spend their money 
B)  the price of bonds rises by an appropriate amount 
C)  buyers and sellers agree on a price for commodities 
D)  speculative balances are reduced to a minimum 
E)  individuals who hold bonds are satisfied with what they are holding

Question 20

In the short run,following an increase in government purchases,

Accepted Answer

A)  the aggregate expenditure line shifts upward by more than the increase in government purchases 
B)  real GDP declines by the change in government purchases times the expenditure multiplier 
C)  the money supply curve shifts rightward because real income rises 
D)  the interest rate rises because the money demand curve shifts rightward 
E)  autonomous consumption and investment increase because of the increase in real income 
A)  the aggregate expenditure line shifts upward by more than the increase in government purchases 
B)  real GDP declines by the change in government purchases times the expenditure multiplier 
C)  the money supply curve shifts rightward because real income rises 
D)  the interest rate rises because the money demand curve shifts rightward 
E)  autonomous consumption and investment increase because of the increase in real income

When the feedback effects from income to the money market are included,

Equilibrium in the money market means that the quantity of money people are holding equals

If a firm finances a new project using its own funds,

Open market sales of bonds by the Federal Reserve reduce the money supply and

An excess demand for money exists if the interest rate is below the equilibrium rate.

Suppose that the equilibrium interest rate is 8 percent,but the actual interest rate is 5 percent.Very quickly,

An increase in government purchases,an increase in the interest rate,and an increase in consumption all shift the aggregate expenditure line upward.

When considering the demand for money,which two assets do we assume individuals can hold?

If the Fed wishes to increase the interest rate,it can do so by

If the interest rate dropped,what would be the effect on spending?

What will be the effects of a decrease in government spending?

The money market reaches equilibrium when

An individual would be most likely to increase the amount of money he wants to hold if

-Refer to Figure 14-9.If the aggregate expenditure line shifts from AE₁(r = 8%)to AE₂(r = 10%),which of the following is the most likely cause of that shift?

An excess supply of money implies an excess

If the interest rate is above its equilibrium value,the price of

Open market purchases of bonds by the Federal Reserve eventually

In the short-run macro model,a decrease in the money supply will

The money market achieves equilibrium when

In the short run,following an increase in government purchases,

What is Economics?

Scarcity, Choice, and Economic Systems

Supply and Demand

Working With Supply and Demand

What Macroeconomics Tries to Explain

Production, Income, and Employment

The Price Level and Inflation

The Classical Long run Model

Economic Growth and Rising Living Standards

Economic Fluctuations

The Short-run Macro Model

Fiscal Policy

Money, Banks, and the Federal Reserve

Aggregate Demand and Aggregate Supply

Inflation and Monetary Policy

Exchange Rates and Macroeconomic Policy

Filters

Exam 14: The Money Market and Monetary Policy

When the feedback effects from income to the money market are included,

Equilibrium in the money market means that the quantity of money people are holding equals

If a firm finances a new project using its own funds,

Open market sales of bonds by the Federal Reserve reduce the money supply and

An excess demand for money exists if the interest rate is below the equilibrium rate.

Suppose that the equilibrium interest rate is 8 percent,but the actual interest rate is 5 percent.Very quickly,

An increase in government purchases,an increase in the interest rate,and an increase in consumption all shift the aggregate expenditure line upward.

When considering the demand for money,which two assets do we assume individuals can hold?

If the Fed wishes to increase the interest rate,it can do so by

If the interest rate dropped,what would be the effect on spending?

What will be the effects of a decrease in government spending?

The money market reaches equilibrium when

An individual would be most likely to increase the amount of money he wants to hold if

-Refer to Figure 14-9.If the aggregate expenditure line shifts from AE₁(r = 8%)to AE₂(r = 10%),which of the following is the most likely cause of that shift?

An excess supply of money implies an excess

If the interest rate is above its equilibrium value,the price of

Open market purchases of bonds by the Federal Reserve eventually

In the short-run macro model,a decrease in the money supply will

The money market achieves equilibrium when

In the short run,following an increase in government purchases,

What is Economics?

Scarcity, Choice, and Economic Systems

Supply and Demand

Working With Supply and Demand

What Macroeconomics Tries to Explain

Production, Income, and Employment

The Price Level and Inflation

The Classical Long run Model

Economic Growth and Rising Living Standards

Economic Fluctuations

The Short-run Macro Model

Fiscal Policy

Money, Banks, and the Federal Reserve

Aggregate Demand and Aggregate Supply

Inflation and Monetary Policy

Exchange Rates and Macroeconomic Policy

Filters