Question 1

Which of the following would cause a downward movement along the money demand curve?

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 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 price level

Question 2

The steeper the short-run aggregate supply curve, the __________ the change in price level and the __________ the change in real Gross Domestic Product for a given shift in the aggregate demand curve.

Accepted Answer

A) larger; larger 
B) larger; smaller 
C) smaller; larger 
D) smaller; smaller 
E) real GDP and the price level are not affected by the shape of the aggregate supply curve 
A) larger; larger 
B) larger; smaller 
C) smaller; larger 
D) smaller; smaller 
E) real GDP and the price level are not affected by the shape of the aggregate supply curve

Question 3

If the money supply is $300, the price level is $4, and real GDP is $1,500, what is the nominal value of output?

Accepted Answer

A) $1,200 
B) $4,500 
C) $6,000 
D) $180,000 
E) $500 
A) $1,200 
B) $4,500 
C) $6,000 
D) $180,000 
E) $500

Question 4

For interest rates to remain stable during economic contractions, monetary authorities should

Accepted Answer

A) reduce the demand for money 
B) increase the demand for money 
C) match the rate of growth in the money supply to the rate of growth in nominal GDP 
D) reduce the rate of growth in the money supply below the rate of growth in the demand for money 
E) slow the growth of the money supply, or even let the money supply shrink 
A) reduce the demand for money 
B) increase the demand for money 
C) match the rate of growth in the money supply to the rate of growth in nominal GDP 
D) reduce the rate of growth in the money supply below the rate of growth in the demand for money 
E) slow the growth of the money supply, or even let the money supply shrink

Question 5

Exhibit 16-3  
-In the situation shown in Exhibit 16-3, how could the Fed return the economy to potential output?

Accepted Answer

A) decrease government spending 
B) increase taxes 
C) decrease taxes 
D) decrease the money supply 
E) increase the money supply 
A) decrease government spending 
B) increase taxes 
C) decrease taxes 
D) decrease the money supply 
E) increase the money supply

Question 6

If the price level rises, then the

Accepted Answer

A) money supply will increase 
B) money supply will decrease 
C) quantity of money supplied will increase 
D) quantity of money supplied will decrease 
E) demand for money will increase 
A) money supply will increase 
B) money supply will decrease 
C) quantity of money supplied will increase 
D) quantity of money supplied will decrease 
E) demand for money will increase

Question 7

The velocity of money increases for all of the following reasons except

Accepted Answer

A) use of electronic transmission of funds 
B) increased use of charge accounts 
C) increased use of automatic teller machines 
D) a rising inflation rate 
E) decreased use of credit cards 
A) use of electronic transmission of funds 
B) increased use of charge accounts 
C) increased use of automatic teller machines 
D) a rising inflation rate 
E) decreased use of credit cards

Question 8

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 money M1 
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 money M1 
E) a large number of banks and savings and loan associations going bankrupt

Question 9

If real output and velocity are stable and predictable, then the equation of exchange can be used to derive a simple relationship between

Accepted Answer

A) the money supply and the price level 
B) the money supply and the interest rate 
C) the money supply and the foreign exchange rate 
D) velocity and real GDP 
E) velocity and nominal GDP 
A) the money supply and the price level 
B) the money supply and the interest rate 
C) the money supply and the foreign exchange rate 
D) velocity and real GDP 
E) velocity and nominal GDP

Question 10

Which of the following is the last step in the sequence?

Accepted Answer

A) A strong dollar relative to foreign currencies hurts U.S. exporters 
B) As the money supply increases, interest rates fall in the short run 
C) The value of the dollar declines 
D) Low U.S. interest rates makes the dollar less attractive to foreign investors 
E) The Fed chooses an expansionary monetary policy 
A) A strong dollar relative to foreign currencies hurts U.S. exporters 
B) As the money supply increases, interest rates fall in the short run 
C) The value of the dollar declines 
D) Low U.S. interest rates makes the dollar less attractive to foreign investors 
E) The Fed chooses an expansionary monetary policy

Question 11

If the Fed wants to close a contractionary gap, it might

Accepted Answer

A) increase government spending 
B) increase taxes 
C) decrease taxes 
D) sell U.S. government bonds to banks 
E) lower the discount rate 
A) increase government spending 
B) increase taxes 
C) decrease taxes 
D) sell U.S. government bonds to banks 
E) lower the discount rate

Question 12

Exhibit 16-4  
-In Exhibit 16-4, short-run equilibrium occurs

Accepted Answer

A) at point a 
B) at point b 
C) at point c, where the actual price level exceeds the expected price level 
D) at point c, where the actual price level is less than the expected price level 
E) at point c, where there is a contractionary gap 
A) at point a 
B) at point b 
C) at point c, where the actual price level exceeds the expected price level 
D) at point c, where the actual price level is less than the expected price level 
E) at point c, where there is a contractionary gap

Question 13

If the Fed buys bonds, then 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 14

One of the reasons that the FOMC lowered its target for the federal funds rate in September 2007 was

Accepted Answer

A) confidence that the fallout from rising mortgage default rates would not spread to the wider economy 
B) the belief that lenders would respond to the housing crisis by loosening lending standards 
C) more easily available credit boosting investment and economic growth 
D) to add liquidity to financial markets and strengthen the economy 
E) All of the answers are correct 
A) confidence that the fallout from rising mortgage default rates would not spread to the wider economy 
B) the belief that lenders would respond to the housing crisis by loosening lending standards 
C) more easily available credit boosting investment and economic growth 
D) to add liquidity to financial markets and strengthen the economy 
E) All of the answers are correct

Question 15

What is the opportunity cost of holding money rather than some other financial asset?

Accepted Answer

A) the forgone interest income 
B) the forgone utility 
C) time 
D) the forgone leisure 
E) the forgone profit 
A) the forgone interest income 
B) the forgone utility 
C) time 
D) the forgone leisure 
E) the forgone profit

Question 16

If the Fed sells government securities to banks, eventually we expect

Accepted Answer

A) aggregate demand to increase 
B) short-run aggregate supply to decrease 
C) interest rates to decrease 
D) planned investment expenditures to decrease 
E) real Gross Domestic Product to increase 
A) aggregate demand to increase 
B) short-run aggregate supply to decrease 
C) interest rates to decrease 
D) planned investment expenditures to decrease 
E) real Gross Domestic Product to increase

Question 17

If the Fed sells U.S. government securities to drain reserves from banks, which of the following will probably occur?

Accepted Answer

A) The demand for money will increase and the interest rate will rise. 
B) The money supply will increase and the interest rate will fall. 
C) The interest rate will rise and the quantity of money demanded will fall. 
D) The money supply will decrease and the interest rate will fall. 
E) The interest rate will fall and the quantity of money demanded will increase. 
A) The demand for money will increase and the interest rate will rise. 
B) The money supply will increase and the interest rate will fall. 
C) The interest rate will rise and the quantity of money demanded will fall. 
D) The money supply will decrease and the interest rate will fall. 
E) The interest rate will fall and the quantity of money demanded will increase.

Question 18

If the quantity of money supplied exceeds the quantity of money demanded,

Accepted Answer

A) this is evidence of a failed fiscal policy 
B) this indicates that the supply of money curve is horizontal 
C) the interest rate will fall 
D) the quantity of money demanded will increase 
E) the transactions money demand curve will shift to the right 
A) this is evidence of a failed fiscal policy 
B) this indicates that the supply of money curve is horizontal 
C) the interest rate will fall 
D) the quantity of money demanded will increase 
E) the transactions money demand curve will shift to the right

Question 19

Which of the following would cause an increase in the velocity of money?

Accepted Answer

A) increased use of credit cards 
B) an increase in the money supply 
C) an increase in demand for money 
D) a decrease in interest rates 
E) a decrease in nominal GDP and a constant money supply 
A) increased use of credit cards 
B) an increase in the money supply 
C) an increase in demand for money 
D) a decrease in interest rates 
E) a decrease in nominal GDP and a constant money supply

Question 20

If the Fed expands the money supply, a short-run aggregate supply curve __________ would yield the largest short-run increase in real GDP.

Accepted Answer

A) that is vertical 
B) with a steep slope 
C) that coincides with the 45-degree line 
D) that is relatively flat 
E) that shifts leftward 
A) that is vertical 
B) with a steep slope 
C) that coincides with the 45-degree line 
D) that is relatively flat 
E) that shifts leftward

Exam 16: Monetary Theory and Policy

Which of the following would cause a downward movement along the money demand curve?

The steeper the short-run aggregate supply curve, the __________ the change in price level and the __________ the change in real Gross Domestic Product for a given shift in the aggregate demand curve.

If the money supply is $300, the price level is $4, and real GDP is $1,500, what is the nominal value of output?

For interest rates to remain stable during economic contractions, monetary authorities should

Exhibit 16-3 -In the situation shown in Exhibit 16-3, how could the Fed return the economy to potential output?

If the price level rises, then the

The velocity of money increases for all of the following reasons except

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

If real output and velocity are stable and predictable, then the equation of exchange can be used to derive a simple relationship between

Which of the following is the last step in the sequence?

If the Fed wants to close a contractionary gap, it might

Exhibit 16-4 -In Exhibit 16-4, short-run equilibrium occurs

If the Fed buys bonds, then the money supply

One of the reasons that the FOMC lowered its target for the federal funds rate in September 2007 was

What is the opportunity cost of holding money rather than some other financial asset?

If the Fed sells government securities to banks, eventually we expect

If the Fed sells U.S. government securities to drain reserves from banks, which of the following will probably occur?

If the quantity of money supplied exceeds the quantity of money demanded,

Which of the following would cause an increase in the velocity of money?

If the Fed expands the money supply, a short-run aggregate supply curve __________ would yield the largest short-run increase in real GDP.

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

The steeper the short-run aggregate supply curve, the the change in price level and the the change in real Gross Domestic Product for a given shift in the aggregate demand curve.