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

If the short-run aggregate supply curve is positively sloped and the Fed increases the money supply, aggregate demand _____

Accepted Answer

A)  falls, which increases real GDP and the price level. 
B)  increases, which decreases real GDP and the price level. 
C)  falls, which decreases real GDP and increases the price level. 
D)  increases, which decreases real GDP and increases the price level. 
E)  increases, which increases real GDP and the price level. 
A)  falls, which increases real GDP and the price level. 
B)  increases, which decreases real GDP and the price level. 
C)  falls, which decreases real GDP and increases the price level. 
D)  increases, which decreases real GDP and increases the price level. 
E)  increases, which increases real GDP and the price level.

Question 3

People prefer to hold less of their wealth in the form of financial assets like bonds and term deposits when _____

Accepted Answer

A)  real GDP is at an all-time low. 
B)  the real interest rate is above 10 percent. 
C)  the price level is very low. 
D)  the nominal interest rate is close to zero. 
E)  the nominal interest rate is very high. 
A)  real GDP is at an all-time low. 
B)  the real interest rate is above 10 percent. 
C)  the price level is very low. 
D)  the nominal interest rate is close to zero. 
E)  the nominal interest rate is very high.

Question 4

According to the equation of exchange, if real GDP is $2 trillion and the money supply is $0.5 trillion, the velocity of money _____

Accepted Answer

A)  must be 4. 
B)  must be 1/4. 
C)  must be 4 trillion. 
D)  must be 1/4 trillion. 
E)  cannot be determined unless we know the price level. 
A)  must be 4. 
B)  must be 1/4. 
C)  must be 4 trillion. 
D)  must be 1/4 trillion. 
E)  cannot be determined unless we know the price level.

Question 5

Exhibit 15.2
  
-Figure 15.2 shows equilibrium in a money market. If S is the initial supply curve, the movement from S to S* can be attributed to _____

Accepted Answer

A)  a decrease in the required reserve ratio. 
B)  the purchase of U.S. Treasury securities by the Fed. 
C)  the sale of U.S. Treasury securities by the Fed. 
D)  a decrease in the discount rate. 
E)  a decrease in excess reserves in the banking system. 
A)  a decrease in the required reserve ratio. 
B)  the purchase of U.S. Treasury securities by the Fed. 
C)  the sale of U.S. Treasury securities by the Fed. 
D)  a decrease in the discount rate. 
E)  a decrease in excess reserves in the banking system.

Question 6

Exhibit 15.1
  
-Exhibit 15.1 shows the interest rate on the vertical axis and the quantity of money on the horizontal axis. 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 7

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 8

Exhibit 15.5
  
-Exhibit 15.5 depicts the aggregate demand curve and the short-run aggregate supply curve of an economy. The Fed can return the economy to its potential output in the long run by _____

Accepted Answer

A)  selling U.S. Treasury securities in the open market. 
B)  lowering the discount rate. 
C)  lowering the reserve requirement. 
D)  buying U.S. Treasury securities in the open market. 
E)  printing money. 
A)  selling U.S. Treasury securities in the open market. 
B)  lowering the discount rate. 
C)  lowering the reserve requirement. 
D)  buying U.S. Treasury securities in the open market. 
E)  printing money.

Question 9

When the Fed purchases U.S. government securities through the open market, the money supply _____

Accepted Answer

A)  increases, the interest rate falls, and the quantity of money demanded increases. 
B)  falls, the interest rate falls, and the quantity of money demanded increases. 
C)  increases, the interest rate increases, and the quantity of money demanded increases. 
D)  falls, the interest rate increases, and the quantity of money demanded falls. 
E)  falls, the interest rate falls, and the quantity of money demanded falls. 
A)  increases, the interest rate falls, and the quantity of money demanded increases. 
B)  falls, the interest rate falls, and the quantity of money demanded increases. 
C)  increases, the interest rate increases, and the quantity of money demanded increases. 
D)  falls, the interest rate increases, and the quantity of money demanded falls. 
E)  falls, the interest rate falls, and the quantity of money demanded falls.

Question 10

Exhibit 15.4
  
-Exhibit 15.4 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 purchase of U.S. government bonds (a sale would expand the economy) 
D)  a decrease in the discount rate (an increase would expand the economy) 
E)  an increase in the required reserve ratio 
A)  a decrease in government spending 
B)  a decrease in taxes 
C)  a purchase of U.S. government bonds (a sale would expand the economy) 
D)  a decrease in the discount rate (an increase would expand the economy) 
E)  an increase in the required reserve ratio

Question 11

Other things constant, an increase in the price level 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 want to hold. 
D)  decrease the quantity of money people want 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 want to hold. 
D)  decrease the quantity of money people want to hold. 
E)  have no impact on the money demand curve.

Question 12

For a given shift of the aggregate demand curve, the steeper the short-run aggregate supply curve, the larger the change in real GDP.

Accepted Answer

A) True 
 B)False

Question 13

If the velocity of money is 5.7 and nominal GDP is $18.6 trillion, then money supply is _____

Accepted Answer

A)  $1.3 trillion. 
B)  $3.25 trillion. 
C)  $18.6 trillion. 
D)  $20.8 trillion. 
E)  $50 trillion. 
A)  $1.3 trillion. 
B)  $3.25 trillion. 
C)  $18.6 trillion. 
D)  $20.8 trillion. 
E)  $50 trillion.

Question 14

Other things constant, the quantity of money demanded varies _____

Accepted Answer

A)  directly with the market interest rate. 
B)  inversely with the market interest rate. 
C)  inversely with the price level. 
D)  directly with the price level. 
E)  inversely with the unemployment rate. 
A)  directly with the market interest rate. 
B)  inversely with the market interest rate. 
C)  inversely with the price level. 
D)  directly with the price level. 
E)  inversely with the unemployment rate.

Question 15

If the velocity of money is 4 and nominal GDP is $2,000, then money supply is _____

Accepted Answer

A)  $1. 
B)  $10. 
C)  $100. 
D)  $500. 
E)  $1,000. 
A)  $1. 
B)  $10. 
C)  $100. 
D)  $500. 
E)  $1,000.

Question 16

If the money supply is $1,000, the price level is 3, and real income (or output) is $5,000, then the velocity of money is _____

Accepted Answer

A)  0.2. 
B)  0.6. 
C)  1.67. 
D)  5. 
E)  15. 
A)  0.2. 
B)  0.6. 
C)  1.67. 
D)  5. 
E)  15.

Question 17

Which of the following changes is most likely to be observed in the money market of a country experiencing a recession?

Accepted Answer

A)  The demand curve for money will shift to the right. 
B)  The demand curve for money will shift to the left. 
C)  The quantity of money demanded will increase. 
D)  The quantity of money demanded will decrease. 
E)  The supply of money will fall. 
A)  The demand curve for money will shift to the right. 
B)  The demand curve for money will shift to the left. 
C)  The quantity of money demanded will increase. 
D)  The quantity of money demanded will decrease. 
E)  The supply of money will fall.

Question 18

Exhibit 15.2
  
-Exhibit 15.2 shows equilibrium in a money market. When the money supply curve shifts from S to S', the equilibrium interest rate and quantity of money changes to _____

Accepted Answer

A)  r and m, respectively. 
B)  r* and m*, respectively. 
C)  r' and m', respectively. 
D)  r and m', respectively. 
E)  r' and m*, respectively. 
A)  r and m, respectively. 
B)  r* and m*, respectively. 
C)  r' and m', respectively. 
D)  r and m', respectively. 
E)  r' and m*, respectively.

Question 19

In the aggregate demand-aggregate supply model in the short run, a decrease in the money supply is likely to cause a(n) _____

Accepted Answer

A)  increase in both the price level and real GDP. 
B)  decrease in both the price level and real GDP. 
C)  increase in real GDP and a decrease in the price level. 
D)  decrease in real GDP and an increase in the price level. 
E)  increase in the price level only. 
A)  increase in both the price level and real GDP. 
B)  decrease in both the price level and real GDP. 
C)  increase in real GDP and a decrease in the price level. 
D)  decrease in real GDP and an increase in the price level. 
E)  increase in the price level only.

Question 20

Movements along a money demand curve reflect the effects of changes in the _____

Accepted Answer

A)  price level on the quantity of money demanded. 
B)  interest rate on the demand for money. 
C)  real exchange rate on the demand for money. 
D)  interest rate on the quantity of money demanded. 
E)  potential GDP on the quantity of money demanded. 
A)  price level on the quantity of money demanded. 
B)  interest rate on the demand for money. 
C)  real exchange rate on the demand for money. 
D)  interest rate on the quantity of money demanded. 
E)  potential GDP on the quantity of money demanded.

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

If the short-run aggregate supply curve is positively sloped and the Fed increases the money supply, aggregate demand _____

People prefer to hold less of their wealth in the form of financial assets like bonds and term deposits when _____

According to the equation of exchange, if real GDP is $2 trillion and the money supply is $0.5 trillion, the velocity of money _____

Exhibit 15.2 -Figure 15.2 shows equilibrium in a money market. If S is the initial supply curve, the movement from S to S* can be attributed to _____

Exhibit 15.1 -Exhibit 15.1 shows the interest rate on the vertical axis and the quantity of money on the horizontal axis. An increase in the price level will cause a movement from _____

The opportunity cost of holding money is measured by the _____

Exhibit 15.5 -Exhibit 15.5 depicts the aggregate demand curve and the short-run aggregate supply curve of an economy. The Fed can return the economy to its potential output in the long run by _____

When the Fed purchases U.S. government securities through the open market, the money supply _____

Exhibit 15.4 -Exhibit 15.4 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?

Other things constant, an increase in the price level will _____

For a given shift of the aggregate demand curve, the steeper the short-run aggregate supply curve, the larger the change in real GDP.

If the velocity of money is 5.7 and nominal GDP is $18.6 trillion, then money supply is _____

Other things constant, the quantity of money demanded varies _____

If the velocity of money is 4 and nominal GDP is $2,000, then money supply is _____

If the money supply is $1,000, the price level is 3, and real income (or output) is $5,000, then the velocity of money is _____

Which of the following changes is most likely to be observed in the money market of a country experiencing a recession?

Exhibit 15.2 -Exhibit 15.2 shows equilibrium in a money market. When the money supply curve shifts from S to S', the equilibrium interest rate and quantity of money changes to _____

In the aggregate demand-aggregate supply model in the short run, a decrease in the money supply is likely to cause a(n) _____

Movements along a money demand curve reflect the effects of changes in the _____

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.

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Exam 15: Monetary Theory and Policy.

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

If the short-run aggregate supply curve is positively sloped and the Fed increases the money supply, aggregate demand _____

People prefer to hold less of their wealth in the form of financial assets like bonds and term deposits when _____

According to the equation of exchange, if real GDP is $2 trillion and the money supply is $0.5 trillion, the velocity of money _____

Exhibit 15.2 -Figure 15.2 shows equilibrium in a money market. If S is the initial supply curve, the movement from S to S* can be attributed to _____

Exhibit 15.1 -Exhibit 15.1 shows the interest rate on the vertical axis and the quantity of money on the horizontal axis. An increase in the price level will cause a movement from _____

The opportunity cost of holding money is measured by the _____

Exhibit 15.5 -Exhibit 15.5 depicts the aggregate demand curve and the short-run aggregate supply curve of an economy. The Fed can return the economy to its potential output in the long run by _____

When the Fed purchases U.S. government securities through the open market, the money supply _____

Exhibit 15.4 -Exhibit 15.4 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?

Other things constant, an increase in the price level will _____

For a given shift of the aggregate demand curve, the steeper the short-run aggregate supply curve, the larger the change in real GDP.

If the velocity of money is 5.7 and nominal GDP is $18.6 trillion, then money supply is _____

Other things constant, the quantity of money demanded varies _____

If the velocity of money is 4 and nominal GDP is $2,000, then money supply is _____

If the money supply is $1,000, the price level is 3, and real income (or output) is $5,000, then the velocity of money is _____

Which of the following changes is most likely to be observed in the money market of a country experiencing a recession?

Exhibit 15.2 -Exhibit 15.2 shows equilibrium in a money market. When the money supply curve shifts from S to S', the equilibrium interest rate and quantity of money changes to _____

In the aggregate demand-aggregate supply model in the short run, a decrease in the money supply is likely to cause a(n) _____

Movements along a money demand curve reflect the effects of changes in the _____

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