Question 1

Which of the following identities describes the equation of exchange?

Accepted Answer

A)  M x P = V 
B)  M = V x P 
C)  M x V = Y 
D)  M x V = P x Y 
E)  Y = P x M x V 
A)  M x P = V 
B)  M = V x P 
C)  M x V = Y 
D)  M x V = P x Y 
E)  Y = P x M x V

Question 2

A movement upward and to the left along the money demand curve is caused by _____

Accepted Answer

A)  an increase in the interest rate. 
B)  a decrease in the interest rate. 
C)  a decrease in real GDP. 
D)  an increase in real GDP. 
E)  an increase in the average price level. 
A)  an increase in the interest rate. 
B)  a decrease in the interest rate. 
C)  a decrease in real GDP. 
D)  an increase in real GDP. 
E)  an increase in the average price level.

Question 3

Given an upward sloping aggregate supply curve, which of the following changes in the aggregate demand curve is observed when the Fed reduces the money supply?

Accepted Answer

A)  The aggregate demand curve shifts leftward, lowering real GDP and the price level. 
B)  The aggregate demand curve shifts leftward, raising real GDP and the price level. 
C)  The aggregate demand curve shifts leftward, lowering real GDP but raising the price level. 
D)  The aggregate demand curve shifts rightward, raising real GDP and the price level. 
E)  The aggregate demand curve shifts rightward, lowering real GDP but raising the price level. 
A)  The aggregate demand curve shifts leftward, lowering real GDP and the price level. 
B)  The aggregate demand curve shifts leftward, raising real GDP and the price level. 
C)  The aggregate demand curve shifts leftward, lowering real GDP but raising the price level. 
D)  The aggregate demand curve shifts rightward, raising real GDP and the price level. 
E)  The aggregate demand curve shifts rightward, lowering real GDP but raising the price level.

Question 4

In the long run, an expansionary monetary policy will lead to _____

Accepted Answer

A)  a decrease in aggregate expenditure. 
B)  an increase in unemployment. 
C)  an increase in the price level. 
D)  an increase in potential output. 
E)  a decrease in the price level. 
A)  a decrease in aggregate expenditure. 
B)  an increase in unemployment. 
C)  an increase in the price level. 
D)  an increase in potential output. 
E)  a decrease in the price level.

Question 5

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 level of real GDP 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 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

In the summer of 1999, the FOMC _____ the federal funds target from _____ to _____.

Accepted Answer

A)  raised; 1 percent; 6.5 percent 
B)  raised; 4.75 percent; 6.5 percent 
C)  lowered; 6.5 percent; 1 percent 
D)  lowered; 6.5 percent; 4.75 percent 
E)  raised; 1.0 percent; 5.25 percent 
A)  raised; 1 percent; 6.5 percent 
B)  raised; 4.75 percent; 6.5 percent 
C)  lowered; 6.5 percent; 1 percent 
D)  lowered; 6.5 percent; 4.75 percent 
E)  raised; 1.0 percent; 5.25 percent

Question 8

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 the change in the federal funds rate by lowering the interest rates they charge on loans. 
D)  Major banks try to offset the change in the federal funds rate 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 the change in the federal funds rate by lowering the interest rates they charge on loans. 
D)  Major banks try to offset the change in the federal funds rate 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 9

The demand curve for investment depicts _____

Accepted Answer

A)  an inverse relationship between interest rate and aggregate demand. 
B)  an inverse relationship between interest rate and investment. 
C)  an inverse relationship between price level and real GDP. 
D)  a direct relationship between interest rate and quantity of money. 
E)  a direct relationship between aggregate demand and real GDP. 
A)  an inverse relationship between interest rate and aggregate demand. 
B)  an inverse relationship between interest rate and investment. 
C)  an inverse relationship between price level and real GDP. 
D)  a direct relationship between interest rate and quantity of money. 
E)  a direct relationship between aggregate demand and real GDP.

Question 10

If the money supply in an economy equals $3.25 trillion and nominal GDP equals $18.6 trillion, then according to the equation of exchange, the velocity of money _____

Accepted Answer

A)  equals 18.6. 
B)  equals 5.7. 
C)  equals 25. 
D)  cannot be determined since we do not know anything about prices. 
E)  cannot be determined since we do not know anything about real GDP. 
A)  equals 18.6. 
B)  equals 5.7. 
C)  equals 25. 
D)  cannot be determined since we do not know anything about prices. 
E)  cannot be determined since we do not know anything about real GDP.

Question 11

Monetary policy will be effective in changing the gross domestic product of a nation only if _____

Accepted Answer

A)  planned investment expenditures are autonomous. 
B)  planned investment expenditures are sensitive to interest rates. 
C)  interest rates are unresponsive to changes in money supply. 
D)  interest rates are sensitive to changes in the price level. 
E)  planned investment expenditures are not sensitive to interest rates. 
A)  planned investment expenditures are autonomous. 
B)  planned investment expenditures are sensitive to interest rates. 
C)  interest rates are unresponsive to changes in money supply. 
D)  interest rates are sensitive to changes in the price level. 
E)  planned investment expenditures are not sensitive to interest rates.

Question 12

Monetary policy influences the market interest rate, which in turn affects _____

Accepted Answer

A)  investment, a component of aggregate demand. 
B)  government spending, a component of aggregate demand. 
C)  consumption, a component of aggregate demand. 
D)  net exports, a component of aggregate demand. 
E)  employment and price levels. 
A)  investment, a component of aggregate demand. 
B)  government spending, a component of aggregate demand. 
C)  consumption, a component of aggregate demand. 
D)  net exports, a component of aggregate demand. 
E)  employment and price levels.

Question 13

Recent history shows that velocity has been neither stable nor predictable, so the quantity theory is _____

Accepted Answer

A)  an accurate guide to inflation in the short run. 
B)  not an accurate guide to inflation in the short run. 
C)  an accurate guide to inflation in the long run. 
D)  not an accurate guide to inflation in the long run. 
E)  no longer accepted. 
A)  an accurate guide to inflation in the short run. 
B)  not an accurate guide to inflation in the short run. 
C)  an accurate guide to inflation in the long run. 
D)  not an accurate guide to inflation in the long run. 
E)  no longer accepted.

Question 14

The demand for money will be high in an economy experiencing _____

Accepted Answer

A)  a depression. 
B)  hyperinflation. 
C)  deflation. 
D)  a recession. 
E)  sluggish population growth. 
A)  a depression. 
B)  hyperinflation. 
C)  deflation. 
D)  a recession. 
E)  sluggish population growth.

Question 15

The money demand curve slopes _____

Accepted Answer

A)  downward because the cost of holding money decreases as the interest rate decreases. 
B)  downward because the cost of holding money increases as the interest rate decreases. 
C)  upward because people demand more money as real GDP increases. 
D)  upward because people demand more money as real GDP decreases. 
E)  downward because people demand more money as the price level decreases. 
A)  downward because the cost of holding money decreases as the interest rate decreases. 
B)  downward because the cost of holding money increases as the interest rate decreases. 
C)  upward because people demand more money as real GDP increases. 
D)  upward because people demand more money as real GDP decreases. 
E)  downward because people demand more money as the price level decreases.

Question 16

Exhibit 15.4
  
-Exhibit 15.4 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 17

If the money supply is $100 and the nominal GDP is $1,000, then the velocity of money _____

Accepted Answer

A)  equals 10. 
B)  equals 4. 
C)  equals 5. 
D)  cannot be determined since we do not know anything about prices. 
E)  cannot be determined since we do not know anything about real GDP. 
A)  equals 10. 
B)  equals 4. 
C)  equals 5. 
D)  cannot be determined since we do not know anything about prices. 
E)  cannot be determined since we do not know anything about real GDP.

Question 18

Decades of research around the world suggest a link in the _____

Accepted Answer

A)  long run between sharp increases in the money supply and higher inflation. 
B)  short run between sharp increases in the money supply and higher inflation. 
C)  long run between sharp increases in the money supply and lower inflation. 
D)  short run between sharp increases in the money supply and lower inflation. 
E)  short run between sharp decreases in the money supply and higher inflation. 
A)  long run between sharp increases in the money supply and higher inflation. 
B)  short run between sharp increases in the money supply and higher inflation. 
C)  long run between sharp increases in the money supply and lower inflation. 
D)  short run between sharp increases in the money supply and lower inflation. 
E)  short run between sharp decreases in the money supply and higher inflation.

Question 19

In the aggregate demand-aggregate supply model in the short run, an increase in the money supply will lead to a(n) _____

Accepted Answer

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

Question 20

If the velocity of money is 10 and money supply is $100, then nominal GDP is _____

Accepted Answer

A)  $1. 
B)  $10. 
C)  $100. 
D)  $1,000. 
E)  $2,000. 
A)  $1. 
B)  $10. 
C)  $100. 
D)  $1,000. 
E)  $2,000.

Which of the following identities describes the equation of exchange?

A movement upward and to the left along the money demand curve is caused by _____

Given an upward sloping aggregate supply curve, which of the following changes in the aggregate demand curve is observed when the Fed reduces the money supply?

In the long run, an expansionary monetary policy will lead 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 level of real GDP will cause a movement from _____

The opportunity cost of holding money increases when _____

In the summer of 1999, the FOMC ___ the federal funds target from _ to ___.

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

The demand curve for investment depicts _____

If the money supply in an economy equals $3.25 trillion and nominal GDP equals $18.6 trillion, then according to the equation of exchange, the velocity of money _____

Monetary policy will be effective in changing the gross domestic product of a nation only if _____

Monetary policy influences the market interest rate, which in turn affects _____

Recent history shows that velocity has been neither stable nor predictable, so the quantity theory is _____

The demand for money will be high in an economy experiencing _____

The money demand curve slopes _____

Exhibit 15.4 -Exhibit 15.4 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 _____

If the money supply is $100 and the nominal GDP is $1,000, then the velocity of money _____

Decades of research around the world suggest a link in the _____

In the aggregate demand-aggregate supply model in the short run, an increase in the money supply will lead to a(n) _____

If the velocity of money is 10 and money supply is $100, then nominal GDP is _____

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.

Which of the following identities describes the equation of exchange?

A movement upward and to the left along the money demand curve is caused by _____

Given an upward sloping aggregate supply curve, which of the following changes in the aggregate demand curve is observed when the Fed reduces the money supply?

In the long run, an expansionary monetary policy will lead 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 level of real GDP will cause a movement from _____

The opportunity cost of holding money increases when _____

In the summer of 1999, the FOMC _____ the federal funds target from _____ to _____.

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

The demand curve for investment depicts _____

If the money supply in an economy equals $3.25 trillion and nominal GDP equals $18.6 trillion, then according to the equation of exchange, the velocity of money _____

Monetary policy will be effective in changing the gross domestic product of a nation only if _____

Monetary policy influences the market interest rate, which in turn affects _____

Recent history shows that velocity has been neither stable nor predictable, so the quantity theory is _____

The demand for money will be high in an economy experiencing _____

The money demand curve slopes _____

Exhibit 15.4 -Exhibit 15.4 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 _____

If the money supply is $100 and the nominal GDP is $1,000, then the velocity of money _____

Decades of research around the world suggest a link in the _____

In the aggregate demand-aggregate supply model in the short run, an increase in the money supply will lead to a(n) _____

If the velocity of money is 10 and money supply is $100, then nominal GDP is _____

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

In the summer of 1999, the FOMC ___ the federal funds target from _ to ___.