Question 1

An increase in the money supply will

Accepted Answer

A) increase the demand for money at each interest rate 
B) decrease the demand for money at each interest rate 
C) lead people to try to exchange money for interest-bearing assets 
D) lead people to try to exchange interest-bearing assets for money 
E) increase the interest rate 
A) increase the demand for money at each interest rate 
B) decrease the demand for money at each interest rate 
C) lead people to try to exchange money for interest-bearing assets 
D) lead people to try to exchange interest-bearing assets for money 
E) increase the interest rate C

Question 2

As the interest rate decreases,

Accepted Answer

A) the demand for investment curve shifts to the right 
B) the demand for investment curve shifts to the left 
C) there is a downward movement along the demand for investment curve 
D) there is an upward movement along the demand for investment curve 
E) GDP decreases 
A) the demand for investment curve shifts to the right 
B) the demand for investment curve shifts to the left 
C) there is a downward movement along the demand for investment curve 
D) there is an upward movement along the demand for investment curve 
E) GDP decreases C

Question 3

When an increase in the money supply reduces the interest rate, investment and nominal GDP increase.

Accepted Answer

A) True 
 B)False  True

Question 4

The extent to which a given increase in nominal income is the result of a price level change or a change in real income is primarily determined by

Accepted Answer

A) the quantity theory of money 
B) the equation of exchange 
C) the slope of the aggregate demand curve 
D) the slope of the short-run aggregate supply curve 
E) none of the above 
A) the quantity theory of money 
B) the equation of exchange 
C) the slope of the aggregate demand curve 
D) the slope of the short-run aggregate supply curve 
E) none of the above

Question 5

The quantity theory of money

Accepted Answer

A) states that fiscal policy plays an important role in determining economic activity 
B) states that the quantity of money in circulation determines aggregate spending 
C) argues that velocity is unpredictable 
D) states that the quantity of money in circulation determines only the price level in the long run 
E) states that the quantity of money in circulation determines only real spending in the short run 
A) states that fiscal policy plays an important role in determining economic activity 
B) states that the quantity of money in circulation determines aggregate spending 
C) argues that velocity is unpredictable 
D) states that the quantity of money in circulation determines only the price level in the long run 
E) states that the quantity of money in circulation determines only real spending in the short run

Question 6

Suppose the money demand curve shifts rightward. Which of the following is true about the Fed's options?

Accepted Answer

A) The Fed can keep the interest rate from rising only if it increases the money supply. 
B) The Fed cannot prevent the interest rate from rising. 
C) The Fed can prevent the interest rate from rising without changing the money supply. 
D) If the Fed expands the money supply, the interest rate will rise even further. 
E) The Fed should reduce the money supply if it wishes to prevent the interest rate from rising. 
A) The Fed can keep the interest rate from rising only if it increases the money supply. 
B) The Fed cannot prevent the interest rate from rising. 
C) The Fed can prevent the interest rate from rising without changing the money supply. 
D) If the Fed expands the money supply, the interest rate will rise even further. 
E) The Fed should reduce the money supply if it wishes to prevent the interest rate from rising.

Question 7

Increases in the expected inflation rate cause

Accepted Answer

A) the velocity of money to increase 
B) the velocity of money to decrease 
C) money to become a better store of wealth 
D) decreases in the actual price level 
E) the money supply to increase 
A) the velocity of money to increase 
B) the velocity of money to decrease 
C) money to become a better store of wealth 
D) decreases in the actual price level 
E) the money supply to increase

Question 8

An increase in the money supply leads to a(n)

Accepted Answer

A) decline in interest rates, an increase in investment, and an increase in aggregate demand 
B) decline in interest rates, a decrease in investment, and an increase in aggregate demand 
C) decline in interest rates, an increase in investment, and a decline in aggregate demand 
D) increase in interest rates, an increase in investment, and an increase in aggregate demand 
E) decline in interest rates, a decline in investment, and a decline in aggregate demand 
A) decline in interest rates, an increase in investment, and an increase in aggregate demand 
B) decline in interest rates, a decrease in investment, and an increase in aggregate demand 
C) decline in interest rates, an increase in investment, and a decline in aggregate demand 
D) increase in interest rates, an increase in investment, and an increase in aggregate demand 
E) decline in interest rates, a decline in investment, and a decline in aggregate demand

Question 9

What is the effect of an expansionary monetary policy on the demand for investment curve?

Accepted Answer

A) It causes the curve to shift left. 
B) It causes the curve to shift right. 
C) It causes downward movement along the curve. 
D) It causes an upward movement along the curve. 
E) It has no effect on the quantity of investment demanded. 
A) It causes the curve to shift left. 
B) It causes the curve to shift right. 
C) It causes downward movement along the curve. 
D) It causes an upward movement along the curve. 
E) It has no effect on the quantity of investment demanded.

Question 10

Planned investment expenditures will eventually decrease after

Accepted Answer

A) the money supply decreases 
B) the demand for money decreases 
C) the interest rate falls 
D) the Fed buys government securities 
E) business managers become more optimistic about future market conditions for their products 
A) the money supply decreases 
B) the demand for money decreases 
C) the interest rate falls 
D) the Fed buys government securities 
E) business managers become more optimistic about future market conditions for their products

Question 11

People will hold __________ money as the interest rate __________ because they will __________ other financial assets.

Accepted Answer

A) more; decreases; buy 
B) more; increases; sell 
C) more; decreases; sell 
D) less; increases; sell 
E) less; decreases; buy 
A) more; decreases; buy 
B) more; increases; sell 
C) more; decreases; sell 
D) less; increases; sell 
E) less; decreases; buy

Question 12

Velocity measures

Accepted Answer

A) the average length of time that people hold wealth 
B) how fast aggregate spending will increase for a given decline in money demand 
C) how fast inflation will rise for a given increase in the money supply 
D) how quickly money changes hands 
E) how quickly banks can create money 
A) the average length of time that people hold wealth 
B) how fast aggregate spending will increase for a given decline in money demand 
C) how fast inflation will rise for a given increase in the money supply 
D) how quickly money changes hands 
E) how quickly banks can create money

Question 13

When calculating by how much changes in the money supply will change nominal GDP, we use the money multiplier instead of the spending multiplier.

Accepted Answer

A) True 
 B)False

Question 14

An increase in the money supply causes interest rates to __________, investment spending to __________ and aggregate demand to __________.

Accepted Answer

A) rise; rise; rise 
B) rise; fall; rise 
C) rise; fall; fall 
D) fall; rise; fall 
E) fall; rise; rise 
A) rise; rise; rise 
B) rise; fall; rise 
C) rise; fall; fall 
D) fall; rise; fall 
E) fall; rise; rise

Question 15

A decrease in the money supply causes interest rates to __________, investment spending to __________ and Gross Domestic Product to __________.

Accepted Answer

A) fall; rise; fall 
B) fall; fall; rise 
C) rise; rise; rise 
D) rise; fall; fall 
E) rise; fall; rise 
A) fall; rise; fall 
B) fall; fall; rise 
C) rise; rise; rise 
D) rise; fall; fall 
E) rise; fall; rise

Question 16

The money demand curve will shift when there is a change in

Accepted Answer

A) interest rates 
B) velocity 
C) the money supply 
D) the opportunity cost of holding money 
E) nominal GDP 
A) interest rates 
B) velocity 
C) the money supply 
D) the opportunity cost of holding money 
E) nominal GDP

Question 17

If interest rates are __________ to changes in the money supply and planned investment expenditures are __________ to interest rate changes, then monetary policy will be ineffective in changing aggregate demand.

Accepted Answer

A) responsive; sensitive 
B) responsive; insensitive 
C) not responsive; sensitive 
D) not responsive; insensitive 
E) none of the above 
A) responsive; sensitive 
B) responsive; insensitive 
C) not responsive; sensitive 
D) not responsive; insensitive 
E) none of the above

Question 18

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 increases in real GDP and the price level will be large 
D) the increases in 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 increases in real GDP and the price level will be large 
D) the increases in 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 19

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 20

If interest rates are to remain constant, the money supply should change

Accepted Answer

A) in the opposite direction to a change in aggregate demand 
B) in the same direction as a change in money demand 
C) only when investment changes 
D) only when the demand for money decreases 
E) only when the inflation rate changes 
A) in the opposite direction to a change in aggregate demand 
B) in the same direction as a change in money demand 
C) only when investment changes 
D) only when the demand for money decreases 
E) only when the inflation rate changes

Exam 16: Monetary Theory and Policy

An increase in the money supply will

As the interest rate decreases,

When an increase in the money supply reduces the interest rate, investment and nominal GDP increase.

The extent to which a given increase in nominal income is the result of a price level change or a change in real income is primarily determined by

The quantity theory of money

Suppose the money demand curve shifts rightward. Which of the following is true about the Fed's options?

Increases in the expected inflation rate cause

An increase in the money supply leads to a(n)

What is the effect of an expansionary monetary policy on the demand for investment curve?

Planned investment expenditures will eventually decrease after

People will hold __________ money as the interest rate __________ because they will __________ other financial assets.

Velocity measures

When calculating by how much changes in the money supply will change nominal GDP, we use the money multiplier instead of the spending multiplier.

An increase in the money supply causes interest rates to __________, investment spending to __________ and aggregate demand to __________.

A decrease in the money supply causes interest rates to __________, investment spending to __________ and Gross Domestic Product to __________.

The money demand curve will shift when there is a change in

If interest rates are __________ to changes in the money supply and planned investment expenditures are __________ to interest rate changes, then monetary policy will be ineffective in changing aggregate demand.

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

The opportunity cost of holding money increases when

If interest rates are to remain constant, the money supply should change

The Art and Science of Economic Analysis

Economic Tools and Economics Systems

Economic Decision Makers

Demand Supply and Markets

Introduction to Macroeconomics

Tracking the Us Economy

Unemployment and Inflation

Productivity and Growth

Aggregate Expenditure

Aggregate Expenditure and Aggregate Demand

Aggregate Supply

Fiscal Policy

Federal Budgets and Public Policy

Money and the Financial System

Banking and the Money Supply

The Algebra of Income and Expenditure

Macro Policy Debate: Active or Passive

The Algebra of Demand-Side Equilibrium

International Trade

International Finance

Economic Development

National Income Accounts

Understanding Graphs

Variable Net Exports

Variable Net Exports Revisited

Filters

People will hold money as the interest rate because they will __ other financial assets.

An increase in the money supply causes interest rates to , investment spending to and aggregate demand to __.

A decrease in the money supply causes interest rates to , investment spending to and Gross Domestic Product to __.

If interest rates are to changes in the money supply and planned investment expenditures are to interest rate changes, then monetary policy will be ineffective in changing aggregate demand.