Question 1

The money demand curve shifts to the right whenever there is a decrease in the interest rate.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

The behavior of the M1 velocity of money in recent years can be explained by _____

Accepted Answer

A)  stability of interest rates. 
B)  a low and stable rate of inflation. 
C)  monetary policy that has been successful in stabilizing the economy. 
D)  financial innovation creating new substitutes for M1 money. 
E)  a large number of banks and savings and loan associations going bankrupt. 
A)  stability of interest rates. 
B)  a low and stable rate of inflation. 
C)  monetary policy that has been successful in stabilizing the economy. 
D)  financial innovation creating new substitutes for M1 money. 
E)  a large number of banks and savings and loan associations going bankrupt.

Question 4

Other things constant, if the interest rate rises, people prefer to hold _____

Accepted Answer

A)  less money because the opportunity cost of holding money has increased. 
B)  more money because the opportunity cost of holding money has increased. 
C)  less money because the opportunity cost of holding money has declined. 
D)  more money because the opportunity cost of holding money has declined. 
E)  the same amount of money because the opportunity cost of holding money is zero. 
A)  less money because the opportunity cost of holding money has increased. 
B)  more money because the opportunity cost of holding money has increased. 
C)  less money because the opportunity cost of holding money has declined. 
D)  more money because the opportunity cost of holding money has declined. 
E)  the same amount of money because the opportunity cost of holding money is zero.

Question 5

Which statement describes an advantage of money as a store of value?

Accepted Answer

A)  It can generate high interest income. 
B)  It can facilitate hassle-free international exchange. 
C)  It can be easily liquidated. 
D)  It can signal a nation's economic health. 
E)  It can increase potential output. 
A)  It can generate high interest income. 
B)  It can facilitate hassle-free international exchange. 
C)  It can be easily liquidated. 
D)  It can signal a nation's economic health. 
E)  It can increase potential output.

Question 6

The Fed seeks a target rate of inflation of around _____

Accepted Answer

A)  1 percent. 
B)  2 percent. 
C)  3 percent. 
D)  4 percent. 
E)  5 percent. 
A)  1 percent. 
B)  2 percent. 
C)  3 percent. 
D)  4 percent. 
E)  5 percent.

Question 7

Which of the following policies can be adopted by the Fed in order to stimulate an economy in the short run?

Accepted Answer

A)  increasing the market interest rate 
B)  purchasing U.S. government securities 
C)  increasing the discount rate 
D)  increasing the price of consumer goods 
E)  increasing the required reserve ratio 
A)  increasing the market interest rate 
B)  purchasing U.S. government securities 
C)  increasing the discount rate 
D)  increasing the price of consumer goods 
E)  increasing the required reserve ratio

Question 8

The shadow banking system is made up of financial institutions that rely on customer deposits to make loans.

Accepted Answer

A) True 
 B)False

Question 9

In terms of price stability, why would the Fed not seek a target rate of 0 percent?

Accepted Answer

A)  because that would mean inflation 
B)  because that would mean hyperinflation 
C)  because that would mean deflation 
D)  because unemployment would fall below the natural rate 
E)  because their models cannot operate with zero variables 
A)  because that would mean inflation 
B)  because that would mean hyperinflation 
C)  because that would mean deflation 
D)  because unemployment would fall below the natural rate 
E)  because their models cannot operate with zero variables

Question 10

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 11

After September 2007, 10 cuts over 15 months brought the target rate between _____, the _____ in history.

Accepted Answer

A)  0 and 0.25 percent; lowest 
B)  3 and 5 percent; lowest 
C)  15 and 18 percent; highest 
D)  10 and 15 percent; highest 
E)  5 and 8 percent; highest 
A)  0 and 0.25 percent; lowest 
B)  3 and 5 percent; lowest 
C)  15 and 18 percent; highest 
D)  10 and 15 percent; highest 
E)  5 and 8 percent; highest

Question 12

In the long run, if the money supply increases, _____

Accepted Answer

A)  most of the resulting rise in nominal GDP will be a result of increases in the exchange rate. 
B)  most of the resulting rise in nominal GDP will be a result of increases in the price level. 
C)  most of the resulting rise in real GDP will be a result of increases in the price level. 
D)  most of the resulting rise in real GDP will be a result of increases in the interest rate. 
E)  most of the resulting rise in real GDP will be a result of increases in aggregate expenditure. 
A)  most of the resulting rise in nominal GDP will be a result of increases in the exchange rate. 
B)  most of the resulting rise in nominal GDP will be a result of increases in the price level. 
C)  most of the resulting rise in real GDP will be a result of increases in the price level. 
D)  most of the resulting rise in real GDP will be a result of increases in the interest rate. 
E)  most of the resulting rise in real GDP will be a result of increases in aggregate expenditure.

Question 13

The velocity of money is defined as _____

Accepted Answer

A)  the time it takes the average worker to get to the bank with his/her paycheck. 
B)  the time it takes banks to clear checks. 
C)  the average number of times per year each dollar is used to purchase final goods and services. 
D)  the ratio of money supply to the average price level in an economy. 
E)  the average number of times per year each dollar is spent for goods, payrolls, Social Security payments, etc. 
A)  the time it takes the average worker to get to the bank with his/her paycheck. 
B)  the time it takes banks to clear checks. 
C)  the average number of times per year each dollar is used to purchase final goods and services. 
D)  the ratio of money supply to the average price level in an economy. 
E)  the average number of times per year each dollar is spent for goods, payrolls, Social Security payments, etc.

Question 14

Which of these is most likely to lower the velocity of money?

Accepted Answer

A)  a commercial innovation that facilitates exchange 
B)  a low inflation rate 
C)  a decline in the effectiveness of money as a store of wealth 
D)  a high inflation rate 
E)  a weekly pay for workers instead of a monthly pay 
A)  a commercial innovation that facilitates exchange 
B)  a low inflation rate 
C)  a decline in the effectiveness of money as a store of wealth 
D)  a high inflation rate 
E)  a weekly pay for workers instead of a monthly pay

Question 15

When the short-run aggregate supply curve is steep, then for a given increase in aggregate demand, _____

Accepted Answer

A)  the increase in real GDP will be relatively small and the increase in the price level will be relatively large. 
B)  the increase in real GDP will be relatively large and the increase in the price level will be relatively small. 
C)  the increase in both real GDP and the price level will be large. 
D)  the increase in both real GDP and the price level will be small. 
E)  the decrease in real GDP will be larger than the decrease in the price level. 
A)  the increase in real GDP will be relatively small and the increase in the price level will be relatively large. 
B)  the increase in real GDP will be relatively large and the increase in the price level will be relatively small. 
C)  the increase in both real GDP and the price level will be large. 
D)  the increase in both real GDP and the price level will be small. 
E)  the decrease in real GDP will be larger than the decrease in the price level.

Question 16

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 tastes and preferences 
A)  the price level 
B)  the interest rate 
C)  real GDP 
D)  nominal GDP 
E)  individual tastes and preferences

Question 17

The equation of exchange states that the nominal gross domestic product equals _____

Accepted Answer

A)  the real gross domestic product. 
B)  the price level. 
C)  the quantity of money multiplied by the velocity of money. 
D)  the turnover rate. 
E)  the demand for money. 
A)  the real gross domestic product. 
B)  the price level. 
C)  the quantity of money multiplied by the velocity of money. 
D)  the turnover rate. 
E)  the demand for money.

Question 18

If the Fed targets the interest rate, then _____

Accepted Answer

A)  the money supply will grow at a more controlled rate. 
B)  monetary policy will reinforce fluctuations in economic activity. 
C)  the price level will be more stable in the long run. 
D)  money demand will be more stable. 
E)  velocity will be less stable. 
A)  the money supply will grow at a more controlled rate. 
B)  monetary policy will reinforce fluctuations in economic activity. 
C)  the price level will be more stable in the long run. 
D)  money demand will be more stable. 
E)  velocity will be less stable.

Question 19

The equilibrium interest rate in a money market is determined by _____

Accepted Answer

A)  the rate of inflation. 
B)  aggregate demand and aggregate supply. 
C)  money demand and money supply. 
D)  the Congress. 
E)  the Fed. 
A)  the rate of inflation. 
B)  aggregate demand and aggregate supply. 
C)  money demand and money supply. 
D)  the Congress. 
E)  the Fed.

Question 20

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.

The money demand curve shifts to the right whenever there is a decrease in the interest rate.

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

The behavior of the M1 velocity of money in recent years can be explained by _____

Other things constant, if the interest rate rises, people prefer to hold _____

Which statement describes an advantage of money as a store of value?

The Fed seeks a target rate of inflation of around _____

Which of the following policies can be adopted by the Fed in order to stimulate an economy in the short run?

The shadow banking system is made up of financial institutions that rely on customer deposits to make loans.

In terms of price stability, why would the Fed not seek a target rate of 0 percent?

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 _____

After September 2007, 10 cuts over 15 months brought the target rate between _, the _ in history.

In the long run, if the money supply increases, _____

The velocity of money is defined as _____

Which of these is most likely to lower the velocity of money?

When the short-run aggregate supply curve is steep, then for a given increase in aggregate demand, _____

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

The equation of exchange states that the nominal gross domestic product equals _____

If the Fed targets the interest rate, then _____

The equilibrium interest rate in a money market is determined by _____

Identify the correct statement about changes in money supply.

The Art and Science of Economic Analysis.

Economic Tools and Economic Systems.

Economic Decision Makers.

Demand, Supply, and Markets.

Introduction to Macroeconomics.

Tracking the U. S. Economy.

Unemployment and Inflation.

Productivity and Growth.

Aggregate Demand.

Aggregate Supply.

Fiscal Policy.

Federal Budgets and Public Policy.

Money and the Financial System.

Banking and the Money Supply.

Macro Policy Debate: Active or Passive?

International Trade.

International Finance.

Economic Development.

Filters

Exam 15: Monetary Theory and Policy.

The money demand curve shifts to the right whenever there is a decrease in the interest rate.

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

The behavior of the M1 velocity of money in recent years can be explained by _____

Other things constant, if the interest rate rises, people prefer to hold _____

Which statement describes an advantage of money as a store of value?

The Fed seeks a target rate of inflation of around _____

Which of the following policies can be adopted by the Fed in order to stimulate an economy in the short run?

The shadow banking system is made up of financial institutions that rely on customer deposits to make loans.

In terms of price stability, why would the Fed not seek a target rate of 0 percent?

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 _____

After September 2007, 10 cuts over 15 months brought the target rate between _____, the _____ in history.

In the long run, if the money supply increases, _____

The velocity of money is defined as _____

Which of these is most likely to lower the velocity of money?

When the short-run aggregate supply curve is steep, then for a given increase in aggregate demand, _____

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

The equation of exchange states that the nominal gross domestic product equals _____

If the Fed targets the interest rate, then _____

The equilibrium interest rate in a money market is determined by _____

Identify the correct statement about changes in money supply.

The Art and Science of Economic Analysis.

Economic Tools and Economic Systems.

Economic Decision Makers.

Demand, Supply, and Markets.

Introduction to Macroeconomics.

Tracking the U. S. Economy.

Unemployment and Inflation.

Productivity and Growth.

Aggregate Demand.

Aggregate Supply.

Fiscal Policy.

Federal Budgets and Public Policy.

Money and the Financial System.

Banking and the Money Supply.

Macro Policy Debate: Active or Passive?

International Trade.

International Finance.

Economic Development.

Filters

After September 2007, 10 cuts over 15 months brought the target rate between _, the _ in history.