Question 1

As the price level rises,money __________ causing interest rates to __________ and investment spending to __________.

Accepted Answer

A)  demand rises; fall; fall 
B)  demand rises; rise; fall 
C)  demand falls; rise; rise 
D)  supply rises; rise; fall 
E)  supply falls; fall; rise 
A)  demand rises; fall; fall 
B)  demand rises; rise; fall 
C)  demand falls; rise; rise 
D)  supply rises; rise; fall 
E)  supply falls; fall; rise

Question 2

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 3

According to the equation of exchange,if real GDP is $2 trillion and the money supply is $0.5 trillion,the velocity of money

Accepted Answer

A)  must be 4 
B)  must be 1/4 
C)  must be 4 trillion 
D)  must be 1/4 trillion 
E)  cannot be determined unless we know the price level 
A)  must be 4 
B)  must be 1/4 
C)  must be 4 trillion 
D)  must be 1/4 trillion 
E)  cannot be determined unless we know the price level

Question 4

In an economy in which velocity is constant and the same level of real output is produced year after year,a slow increase in the money supply would result in a

Accepted Answer

A)  constant price level 
B)  slowly increasing price level 
C)  rapidly increasing price level 
D)  slowly increasing real GDP 
E)  rapidly increasing real GDP 
A)  constant price level 
B)  slowly increasing price level 
C)  rapidly increasing price level 
D)  slowly increasing real GDP 
E)  rapidly increasing real GDP

Question 5

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 6

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 7

In order for changes in the money supply to affect real GDP,the aggregate supply curve cannot be vertical.

Accepted Answer

A) True 
 B)False

Question 8

What would be the ultimate effect of a reduction in the money supply?

Accepted Answer

A)  a leftward shift of the aggregate demand curve 
B)  a rightward shift of the short-run aggregate supply curve 
C)  a movement upward along the aggregate demand curve 
D)  a movement downward along the aggregate demand curve 
E)  such a monetary policy would have no impact at all 
A)  a leftward shift of the aggregate demand curve 
B)  a rightward shift of the short-run aggregate supply curve 
C)  a movement upward along the aggregate demand curve 
D)  a movement downward along the aggregate demand curve 
E)  such a monetary policy would have no impact at all

Question 9

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 10

The higher the interest rate,the more of their wealth people will hold as money.

Accepted Answer

A) True 
 B)False

Question 11

Speaking of the demand for money

Accepted Answer

A)  makes no sense in a modern society in which most people use credit cards 
B)  makes no sense in a modern society in which most people use checks 
C)  makes sense in a modern society in which most people use checks,since demand deposits are included in M1,but it does not make sense in a society in which the primary payment is by credit card 
D)  makes sense in a modern society in which most people use credit cards,since credit cards are included in M1,but it does not make sense in a society in which the primary payment is by check 
E)  is relevant even in a society in which primary payment is by credit card,since eventually all accounts must be settled with money 
A)  makes no sense in a modern society in which most people use credit cards 
B)  makes no sense in a modern society in which most people use checks 
C)  makes sense in a modern society in which most people use checks,since demand deposits are included in M1,but it does not make sense in a society in which the primary payment is by credit card 
D)  makes sense in a modern society in which most people use credit cards,since credit cards are included in M1,but it does not make sense in a society in which the primary payment is by check 
E)  is relevant even in a society in which primary payment is by credit card,since eventually all accounts must be settled with money

Question 12

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

Accepted Answer

A)  the aggregate demand curve is vertical 
B)  the aggregate demand curve is downward sloping 
C)  the long-run aggregate supply curve is vertical 
D)  the long-run aggregate supply curve is upward sloping 
E)  current real GDP is less than the economy's potential GDP 
A)  the aggregate demand curve is vertical 
B)  the aggregate demand curve is downward sloping 
C)  the long-run aggregate supply curve is vertical 
D)  the long-run aggregate supply curve is upward sloping 
E)  current real GDP is less than the economy's potential GDP

Question 13

There is considerable disagreement about whether the Fed should

Accepted Answer

A)  engage in open market operations 
B)  have the power to set reserve requirements 
C)  reduce the money supply when the economy is growing 
D)  allow banks to invest in the stock market 
E)  attempt to control interest rates or should instead attempt to control the money supply 
A)  engage in open market operations 
B)  have the power to set reserve requirements 
C)  reduce the money supply when the economy is growing 
D)  allow banks to invest in the stock market 
E)  attempt to control interest rates or should instead attempt to control the money supply

Question 14

Which of the following best explains why the demand for money depends upon the interest rate?

Accepted Answer

A)  Money is an interest-earning asset. 
B)  Money is not an interest-earning asset. 
C)  The alternatives to holding money are not interest-earning assets. 
D)  The alternatives to holding money earn more interest than money does. 
E)  People must pay interest on loans. 
A)  Money is an interest-earning asset. 
B)  Money is not an interest-earning asset. 
C)  The alternatives to holding money are not interest-earning assets. 
D)  The alternatives to holding money earn more interest than money does. 
E)  People must pay interest on loans.

Question 15

Suppose that the demand and supply of money are initially in equilibrium,and that the demand for money increases.A monetary authority interested in keeping the money supply constant and the interest rate low must

Accepted Answer

A)  increase the money supply 
B)  decrease the money supply 
C)  increase the demand for money 
D)  decrease the demand for money 
E)  give up pursuing both goals at the same time and choose one or the other 
A)  increase the money supply 
B)  decrease the money supply 
C)  increase the demand for money 
D)  decrease the demand for money 
E)  give up pursuing both goals at the same time and choose one or the other

Question 16

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.

Accepted Answer

A) True 
 B)False

Question 17

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 18

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 19

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 20

A rising rate of inflation

Accepted Answer

A)  makes people more willing to hold money as an asset 
B)  reduces the usefulness of money as a store of value and thus increases the velocity of money 
C)  increases the usefulness of money as a medium of exchange and thus reduces the velocity of money 
D)  is usually preceded by a reduction in the money supply 
E)  does not,apparently,have any effect on the velocity of money 
A)  makes people more willing to hold money as an asset 
B)  reduces the usefulness of money as a store of value and thus increases the velocity of money 
C)  increases the usefulness of money as a medium of exchange and thus reduces the velocity of money 
D)  is usually preceded by a reduction in the money supply 
E)  does not,apparently,have any effect on the velocity of money

Exam 16: Monetary Theory and Policy

As the price level rises,money __________ causing interest rates to __________ and investment spending to __________.

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

According to the equation of exchange,if real GDP is $2 trillion and the money supply is $0.5 trillion,the velocity of money

In an economy in which velocity is constant and the same level of real output is produced year after year,a slow increase in the money supply would result in a

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

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

In order for changes in the money supply to affect real GDP,the aggregate supply curve cannot be vertical.

What would be the ultimate effect of a reduction in the money supply?

Increases in the expected inflation rate cause

The higher the interest rate,the more of their wealth people will hold as money.

Speaking of the demand for money

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

There is considerable disagreement about whether the Fed should

Which of the following best explains why the demand for money depends upon the interest rate?

Suppose that the demand and supply of money are initially in equilibrium,and that the demand for money increases.A monetary authority interested in keeping the money supply constant and the interest rate low must

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.

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

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

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

A rising rate of inflation

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

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As the price level rises,money causing interest rates to and investment spending to __.