Question 1

If the Fed increases the money supply,then

Accepted Answer

A)  the interest rate declines and the quantity of money demanded increases 
B)  the interest rate declines and the quantity of money demanded declines 
C)  the interest rate increases and the quantity of money demanded increases 
D)  the interest rate increases and the quantity of money demanded declines 
E)  nothing happens to the quantity of money demanded 
A)  the interest rate declines and the quantity of money demanded increases 
B)  the interest rate declines and the quantity of money demanded declines 
C)  the interest rate increases and the quantity of money demanded increases 
D)  the interest rate increases and the quantity of money demanded declines 
E)  nothing happens to the quantity of money demanded

Question 2

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 3

Exhibit 15-4  
-If the Fed is targeting the money supply and the money demand shifts from Dm to Dm' in Exhibit 15-4,the Fed will

Accepted Answer

A)  do nothing and the interest rate will rise to i' 
B)  do nothing and the interest rate will settle at i 
C)  decrease the money supply to restore its target of i 
D)  increase the money supply to restore its target of i 
E)  decrease money demand back to Dm to restore its target of i 
A)  do nothing and the interest rate will rise to i' 
B)  do nothing and the interest rate will settle at i 
C)  decrease the money supply to restore its target of i 
D)  increase the money supply to restore its target of i 
E)  decrease money demand back to Dm to restore its target of i

Question 4

If the interest rate rises,people hold

Accepted Answer

A)  less money because its opportunity cost has increased 
B)  more money because its opportunity cost has increased 
C)  less money because its opportunity cost has declined 
D)  more money because its opportunity cost has declined 
E)  the same amount of money 
A)  less money because its opportunity cost has increased 
B)  more money because its opportunity cost has increased 
C)  less money because its opportunity cost has declined 
D)  more money because its opportunity cost has declined 
E)  the same amount of money

Question 5

Planned investment expenditures will eventually increase after

Accepted Answer

A)  the money supply decreases 
B)  the demand for money increases 
C)  the interest rate falls 
D)  the Fed sells government securities 
E)  business managers are pessimistic about future market conditions for their product 
A)  the money supply decreases 
B)  the demand for money increases 
C)  the interest rate falls 
D)  the Fed sells government securities 
E)  business managers are pessimistic about future market conditions for their product

Question 6

An increase in the money supply will cause a decrease in planned investment spending.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following,other things constant,will shift the money demand curve to the left?

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 8

The demand for money

Accepted Answer

A)  d and e are correct 
B)  all of the following are correct 
C)  decreases as the average selling price of a unit of output increases 
D)  increases as GDP increases 
E)  is increased by credit card usage 
A)  d and e are correct 
B)  all of the following are correct 
C)  decreases as the average selling price of a unit of output increases 
D)  increases as GDP increases 
E)  is increased by credit card usage

Question 9

In deciding how much money to hold,you should compare the

Accepted Answer

A)  disadvantage of liquidity with the advantage of earning more interest 
B)  advantage of liquidity with the disadvantage of losing interest 
C)  disadvantage of storing wealth with the advantage of having a medium of exchange 
D)  advantage of storing wealth with the advantage of having a medium of exchange 
E)  advantage of liquidity with the disadvantage of storing wealth 
A)  disadvantage of liquidity with the advantage of earning more interest 
B)  advantage of liquidity with the disadvantage of losing interest 
C)  disadvantage of storing wealth with the advantage of having a medium of exchange 
D)  advantage of storing wealth with the advantage of having a medium of exchange 
E)  advantage of liquidity with the disadvantage of storing wealth

Question 10

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

Accepted Answer

A)  the demand for money will increase 
B)  planned investment spending will increase 
C)  interest rates will rise 
D)  aggregate expenditure will increase 
E)  the demand for money will decrease 
A)  the demand for money will increase 
B)  planned investment spending will increase 
C)  interest rates will rise 
D)  aggregate expenditure will increase 
E)  the demand for money will decrease

Question 11

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 12

If the Fed decreases the money supply,

Accepted Answer

A)  aggregate demand and aggregate supply both increase 
B)  aggregate demand increases,which leads to movement along the short-run aggregate supply curve 
C)  aggregate demand decreases,which leads to movement along the short-run aggregate supply curve 
D)  aggregate supply increases,which leads to movement along the aggregate demand curve 
E)  aggregate supply decreases,which leads to movement along the aggregate demand curve 
A)  aggregate demand and aggregate supply both increase 
B)  aggregate demand increases,which leads to movement along the short-run aggregate supply curve 
C)  aggregate demand decreases,which leads to movement along the short-run aggregate supply curve 
D)  aggregate supply increases,which leads to movement along the aggregate demand curve 
E)  aggregate supply decreases,which leads to movement along the aggregate demand curve

Question 13

If the money supply increases when there is much idle capacity in the economy,

Accepted Answer

A)  most of the resulting rise in nominal GDP will be a result of price increases 
B)  most of the resulting rise in nominal GDP will be a result of increases in real output 
C)  most of the resulting rise in real GDP will be a result of increases in the price level 
D)  most of the resulting rise in real GDP will be a result of increases in the interest rate 
E)  only nominal GDP will change; real GDP will be unaffected 
A)  most of the resulting rise in nominal GDP will be a result of price increases 
B)  most of the resulting rise in nominal GDP will be a result of increases in real output 
C)  most of the resulting rise in real GDP will be a result of increases in the price level 
D)  most of the resulting rise in real GDP will be a result of increases in the interest rate 
E)  only nominal GDP will change; real GDP will be unaffected

Question 14

In October 1979 the Fed announced that it would focus on

Accepted Answer

A)  stabilizing interest rates 
B)  specified targets for slowly falling interest rates 
C)  specified targets for the long-run equilibrium price level 
D)  specified targets for growth of the money supply 
E)  stabilizing the long-run equilibrium price level 
A)  stabilizing interest rates 
B)  specified targets for slowly falling interest rates 
C)  specified targets for the long-run equilibrium price level 
D)  specified targets for growth of the money supply 
E)  stabilizing the long-run equilibrium price level

Question 15

If investment is not sensitive to changes in the interest rate,then changes in the money supply

Accepted Answer

A)  will have no effect on interest rates 
B)  will have a major impact on investment 
C)  will have no effect on aggregate demand 
D)  will have a major impact on aggregate demand 
E)  mean the money supply curve will not be vertical 
A)  will have no effect on interest rates 
B)  will have a major impact on investment 
C)  will have no effect on aggregate demand 
D)  will have a major impact on aggregate demand 
E)  mean the money supply curve will not be vertical

Question 16

The money demand curve describes how the quantity of money demanded varies with

Accepted Answer

A)  nominal GDP 
B)  real GDP 
C)  the price level 
D)  the interest rate 
E)  consumption 
A)  nominal GDP 
B)  real GDP 
C)  the price level 
D)  the interest rate 
E)  consumption

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

If the Fed decreases the money supply,causing the interest rate to rise,GDP

Accepted Answer

A)  increases by the same amount as the increase in the interest rate 
B)  decreases by more 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 more than the decrease in investment because of the multiplier 
E)  decreases by less 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 more 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 more than the decrease in investment because of the multiplier 
E)  decreases by less than the decrease in investment because of the multiplier

Question 19

Which of the following would most likely lower the velocity of money?

Accepted Answer

A)  commercial innovations that facilitate exchange 
B)  a lower inflation rate 
C)  a decline in the effectiveness of money as a store of wealth 
D)  a higher inflation rate 
E)  paying workers once a week instead of once a month 
A)  commercial innovations that facilitate exchange 
B)  a lower inflation rate 
C)  a decline in the effectiveness of money as a store of wealth 
D)  a higher inflation rate 
E)  paying workers once a week instead of once a month

Question 20

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

Accepted Answer

A)  controlling short-term interest rates 
B)  implementing a system of price controls 
C)  regulating bank managers 
D)  controlling the money supply 
E)  making changes in the international financial markets 
A)  controlling short-term interest rates 
B)  implementing a system of price controls 
C)  regulating bank managers 
D)  controlling the money supply 
E)  making changes in the international financial markets

Exam 16: Monetary Theory and Policy

If the Fed increases the money supply,then

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

Exhibit 15-4 -If the Fed is targeting the money supply and the money demand shifts from Dm to Dm' in Exhibit 15-4,the Fed will

If the interest rate rises,people hold

Planned investment expenditures will eventually increase after

An increase in the money supply will cause a decrease in planned investment spending.

Which of the following,other things constant,will shift the money demand curve to the left?

The demand for money

In deciding how much money to hold,you should compare the

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

If the price level rises,then the

If the Fed decreases the money supply,

If the money supply increases when there is much idle capacity in the economy,

In October 1979 the Fed announced that it would focus on

If investment is not sensitive to changes in the interest rate,then changes in the money supply

The money demand curve describes how the quantity of money demanded varies with

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.

If the Fed decreases the money supply,causing the interest rate to rise,GDP

Which of the following would most likely lower the velocity of money?

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

The Art and Science of Economic Analysis

Economic Tools and Economics Systems

Economic Decision Makers

Demand, Supply, and Markets

Introduction to Macroeconomics

Productivity and Growth

Tracking the US Economy

Unemployment and Inflation

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

Macro Policy Debate: Active or Passive

International Trade

International Finance

Developing and Transitional Economies

Understanding Graphs

National Income Accounts

Variable Net Exports

Variable Net Exports Revisited

The Algebra of Income and Expenditure

The Algebra of Demand-Side Equilibrium

Filters

Exhibit 15-4 -If the Fed is targeting the money supply and the money demand shifts from D_m to D_m' in Exhibit 15-4,the Fed will

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.