Question 1

The equation of exchange states that

Accepted Answer

A)  money in circulation * prices = velocity * income 
B)  money in circulation * income = velocity * prices 
C)  real GDP = money in circulation *  velocity 
D)  nominal GDP = money in circulation *  velocity 
E)  real GDP = prices *money in circulation * velocity 
A)  money in circulation * prices = velocity * income 
B)  money in circulation * income = velocity * prices 
C)  real GDP = money in circulation *  velocity 
D)  nominal GDP = money in circulation *  velocity 
E)  real GDP = prices *money in circulation * velocity

Question 2

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 3

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

Question 4

The equilibrium interest rate is determined by

Accepted Answer

A)  the Fed 
B)  Congress 
C)  the demand for money alone 
D)  the supply of money alone 
E)  both the supply of and demand for money 
A)  the Fed 
B)  Congress 
C)  the demand for money alone 
D)  the supply of money alone 
E)  both the supply of and demand for money

Question 5

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

Question 6

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

Accepted Answer

A)  an increase in the interest rate 
B)  a decrease in the interest rate 
C)  an increase in real GDP 
D)  a decrease in real GDP 
E)  a decrease in the price level 
A)  an increase in the interest rate 
B)  a decrease in the interest rate 
C)  an increase in real GDP 
D)  a decrease in real GDP 
E)  a decrease in the price level

Question 7

Historical evidence has shown that the M1 velocity of money in the United States

Accepted Answer

A)  has remained constant 
B)  has remained predictable but not constant 
C)  has varied over the century but is currently near constant 
D)  has varied over the century and has recently fluctuated a quite a bit 
E)  is not correctly placed within the equation of exchange 
A)  has remained constant 
B)  has remained predictable but not constant 
C)  has varied over the century but is currently near constant 
D)  has varied over the century and has recently fluctuated a quite a bit 
E)  is not correctly placed within the equation of exchange

Question 8

According to the equation of exchange,M *V = P * C.

Accepted Answer

A) True 
 B)False

Question 9

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 10

Which of the following is an example of a contractionary monetary policy?

Accepted Answer

A)  Transfer payments to poor families are reduced. 
B)  The Fed buys government securities in the open market. 
C)  The discount rate is raised. 
D)  The required reserve ratio is lowered. 
E)  Anything the Fed does to shift the money supply to the right is a contractionary policy. 
A)  Transfer payments to poor families are reduced. 
B)  The Fed buys government securities in the open market. 
C)  The discount rate is raised. 
D)  The required reserve ratio is lowered. 
E)  Anything the Fed does to shift the money supply to the right is a contractionary policy.

Question 11

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 12

In an economy in which velocity is constant and real output grows at an average rate of 4 percent per year,a 4 percent average rate of growth in the money supply would result in

Accepted Answer

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

Question 13

The velocity of money is defined as

Accepted Answer

A)  the time it takes the average worker to get to the bank with his/her paycheck 
B)  the time it takes banks to clear checks 
C)  the average number of times per year each dollar is used to purchase final goods and services 
D)  M * P ÷ Y 
E)  the average number of times per year each dollar is spent for goods,payrolls,Social Security payments,etc. 
A)  the time it takes the average worker to get to the bank with his/her paycheck 
B)  the time it takes banks to clear checks 
C)  the average number of times per year each dollar is used to purchase final goods and services 
D)  M * P ÷ Y 
E)  the average number of times per year each dollar is spent for goods,payrolls,Social Security payments,etc.

Question 14

If interest rates are __________ to changes in the money supply and planned investment expenditures are __________ to interest rates,then monetary policy will be __________ in changing Gross Domestic Product.

Accepted Answer

A)  sensitive; sensitive; effective 
B)  responsive; insensitive; ineffective 
C)  responsive; insensitive; effective 
D)  not responsive; sensitive; effective 
E)  not responsive; insensitive; effective 
A)  sensitive; sensitive; effective 
B)  responsive; insensitive; ineffective 
C)  responsive; insensitive; effective 
D)  not responsive; sensitive; effective 
E)  not responsive; insensitive; effective

Question 15

If the money supply is increasing at a constant 8 percent,velocity is constant,real GDP is increasing at 5 percent,and the inflation rate is 3 percent,which of the following is true?

Accepted Answer

A)  The growth rate of GDP is too low to be maintained. 
B)  The inflation rate is too low to be maintained. 
C)  Velocity is too low to be maintained. 
D)  The money supply growth rate is too low to be maintained. 
E)  This situation can continue indefinitely. 
A)  The growth rate of GDP is too low to be maintained. 
B)  The inflation rate is too low to be maintained. 
C)  Velocity is too low to be maintained. 
D)  The money supply growth rate is too low to be maintained. 
E)  This situation can continue indefinitely.

Question 16

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 17

The equation of exchange is

Accepted Answer

A)  quantity supplied equals quantity demanded 
B)  quantity bought equals quantity sold 
C)  M * V = P * Y 
D)  C * I + G = Y 
E)  input equals output 
A)  quantity supplied equals quantity demanded 
B)  quantity bought equals quantity sold 
C)  M * V = P * Y 
D)  C * I + G = Y 
E)  input equals output

Question 18

A decrease in the interest rate will

Accepted Answer

A)  shift the money demand curve to the right 
B)  shift the money demand curve to the left 
C)  increase the quantity of money people want to hold 
D)  decrease the quantity of money people want to hold 
E)  have no impact on the money demand curve 
A)  shift the money demand curve to the right 
B)  shift the money demand curve to the left 
C)  increase the quantity of money people want to hold 
D)  decrease the quantity of money people want to hold 
E)  have no impact on the money demand curve

Question 19

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 20

The supply of money is depicted diagrammatically as a vertical line because the quantity of money supplied is totally dependent on the rate of interest.

Accepted Answer

A) True 
 B)False

Exam 16: Monetary Theory and Policy

The equation of exchange states that

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

As the interest rate decreases,

The equilibrium interest rate is determined by

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

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

Historical evidence has shown that the M1 velocity of money in the United States

According to the equation of exchange,M *V = P * C.

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

Which of the following is an example of a contractionary monetary policy?

Velocity measures

In an economy in which velocity is constant and real output grows at an average rate of 4 percent per year,a 4 percent average rate of growth in the money supply would result in

The velocity of money is defined as

If interest rates are __________ to changes in the money supply and planned investment expenditures are __________ to interest rates,then monetary policy will be __________ in changing Gross Domestic Product.

If the money supply is increasing at a constant 8 percent,velocity is constant,real GDP is increasing at 5 percent,and the inflation rate is 3 percent,which of the following is true?

If the Fed buys bonds,then the money supply

The equation of exchange is

A decrease in the interest rate will

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

The supply of money is depicted diagrammatically as a vertical line because the quantity of money supplied is totally dependent on the rate of interest.

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

According to the equation of exchange,M V = P C.

If interest rates are to changes in the money supply and planned investment expenditures are to interest rates,then monetary policy will be __ in changing Gross Domestic Product.