Exam 16: Monetary Theory and Policy

Exhibit 16-2 -Given the demand for money in Exhibit 16-2, if the supply of money is given by the supply curve labelled S, the equilibrium interest rate and quantity of money would be

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

When people exchange money for financial assets, the interest rate rises.

In recent years, much of the emphasis of Fed policy has been on

In the short run, a decrease in the money supply will cause a decrease in Gross Domestic Product and a decrease in the price level.

As a result of expansionary monetary policy,

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

In the history of monetary policy, the period of October 1979 to October 1982 was notable for

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

An increase in the money supply can increase the price level, real GDP, or both, but it is impossible to tell exactly what will happen without knowing the slope of the aggregate supply curve.

To eliminate a contractionary gap, the Fed can __________ the money supply, which would __________.

If there is a decrease in the supply of money, which one of the following is most likely to happen?

If the Fed decreases the money supply, GDP

In the long run, changes in the money supply affect only the price level because

The opportunity cost of holding money

Speaking of the demand for money

Planned investment expenditures will eventually increase after

If the Fed increases the money supply, GDP

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

For interest rates to remain stable during economic expansions, the growth rate of the money supply should