Question 1

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 D

Question 2

The demand for money is depicted by a curve downward sloping curve because if the interest rate falls, the opportunity cost of holding assets in the form of money decreases.

Accepted Answer

A) True 
 B)False  True

Question 3

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

Accepted Answer

A) exceed the growth in the demand for money 
B) just match the growth in the demand for money 
C) be less than the growth in the demand for money 
D) be zero 
E) just match the growth in nominal GDP 
A) exceed the growth in the demand for money 
B) just match the growth in the demand for money 
C) be less than the growth in the demand for money 
D) be zero 
E) just match the growth in nominal GDP B

Question 4

Over the past 40 years, the most frequent target for the Fed's monetary policy has been

Accepted Answer

A) the prime interest rate 
B) the federal funds rate 
C) the M1 money supply 
D) the M2 money supply 
E) the M3 money supply 
A) the prime interest rate 
B) the federal funds rate 
C) the M1 money supply 
D) the M2 money supply 
E) the M3 money supply

Question 5

Which monetary policy would be appropriate to close a contractionary gap?

Accepted Answer

A) a tax cut 
B) a decrease in government purchases 
C) an increase in reserve requirements 
D) the Fed's purchase of U.S. government securities 
E) the Fed's raising the discount rate 
A) a tax cut 
B) a decrease in government purchases 
C) an increase in reserve requirements 
D) the Fed's purchase of U.S. government securities 
E) the Fed's raising the discount rate

Question 6

Exhibit 16-5
 
-To bring the economy shown in Exhibit 16-5 to its potential output level, the Fed could

Accepted Answer

A) do nothing and the price level would fall to P' 
B) do nothing and the price level would remain at its current level 
C) increase the money supply and increase the price level to P" 
D) increase the money supply and decrease the price level to P' 
E) decrease the money supply and decrease the price level to P' 
A) do nothing and the price level would fall to P' 
B) do nothing and the price level would remain at its current level 
C) increase the money supply and increase the price level to P" 
D) increase the money supply and decrease the price level to P' 
E) decrease the money supply and decrease the price level to P'

Question 7

What is the effect of an expansionary monetary policy on the demand for investment curve?

Accepted Answer

A) It causes the curve to shift left. 
B) It causes the curve to shift right. 
C) It causes downward movement along the curve. 
D) It causes an upward movement along the curve. 
E) It has no effect on the quantity of investment demanded. 
A) It causes the curve to shift left. 
B) It causes the curve to shift right. 
C) It causes downward movement along the curve. 
D) It causes an upward movement along the curve. 
E) It has no effect on the quantity of investment demanded.

Question 8

In the United States over the last decade, the velocity of

Accepted Answer

A) M1 has been more stable than the velocity of M2, possibly because of the deregulation of the interest paid on checkable deposits 
B) M1 has been more stable than the velocity of M2, leading the Fed to rely more on M1 targets 
C) M2 has been more stable than the velocity of M1, but the Fed still relies on M1 targets 
D) M2 has been more stable than the velocity of M1, possibly because of the deregulation of the interest paid on checkable deposits 
E) both c and d are true 
A) M1 has been more stable than the velocity of M2, possibly because of the deregulation of the interest paid on checkable deposits 
B) M1 has been more stable than the velocity of M2, leading the Fed to rely more on M1 targets 
C) M2 has been more stable than the velocity of M1, but the Fed still relies on M1 targets 
D) M2 has been more stable than the velocity of M1, possibly because of the deregulation of the interest paid on checkable deposits 
E) both c and d are true

Question 9

Which of the following statements best describes the historical relationship between increases in the money supply (M1) and inflation in the U.S.?

Accepted Answer

A) All three major episodes of inflation since 1914 were preceded and accompanied by an increase in the growth rate of M1. 
B) There is no strong evidence of any relationship between inflation and increases in the money supply in the 20th century. 
C) Since the formation of the Fed in 1914, there have been no significant periods of inflation 
D) In all three major episodes of inflation since 1914, increases in the growth rate of M1 occurred after the inflation subsided. 
E) There were significant periods of inflation during each decade of the 20th century and each was preceded and accompanied by an increase in the growth rate of M1. 
A) All three major episodes of inflation since 1914 were preceded and accompanied by an increase in the growth rate of M1. 
B) There is no strong evidence of any relationship between inflation and increases in the money supply in the 20th century. 
C) Since the formation of the Fed in 1914, there have been no significant periods of inflation 
D) In all three major episodes of inflation since 1914, increases in the growth rate of M1 occurred after the inflation subsided. 
E) There were significant periods of inflation during each decade of the 20th century and each was preceded and accompanied by an increase in the growth rate of M1.

Question 10

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 11

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 12

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 13

The quantity theory of money

Accepted Answer

A) states that fiscal policy plays an important role in determining economic activity 
B) states that the quantity of money in circulation determines aggregate spending 
C) argues that velocity is unpredictable 
D) states that the quantity of money in circulation determines only the price level in the long run 
E) states that the quantity of money in circulation determines only real spending in the short run 
A) states that fiscal policy plays an important role in determining economic activity 
B) states that the quantity of money in circulation determines aggregate spending 
C) argues that velocity is unpredictable 
D) states that the quantity of money in circulation determines only the price level in the long run 
E) states that the quantity of money in circulation determines only real spending in the short run

Question 14

When the money supply increases, people get rid of their excess money by buying real assets, such as durable goods.

Accepted Answer

A) True 
 B)False

Question 15

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 16

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 17

The opportunity cost of money is the interest foregone.

Accepted Answer

A) True 
 B)False

Question 18

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 19

Which of the following statements about the velocity of money in the U.S. is correct?

Accepted Answer

A) From 1915 to 1947, the velocity of M1 increased. 
B) From 1947 to 1973, the velocity of M1 decreased. 
C) In the 1970s, velocity growth was extremely stable at approximately 3% to 4%. 
D) During most of this century, the velocity of money has remained unchanged. 
E) The velocity of money has decreased because of ATM machines and credit cards. 
A) From 1915 to 1947, the velocity of M1 increased. 
B) From 1947 to 1973, the velocity of M1 decreased. 
C) In the 1970s, velocity growth was extremely stable at approximately 3% to 4%. 
D) During most of this century, the velocity of money has remained unchanged. 
E) The velocity of money has decreased because of ATM machines and credit cards.

Question 20

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

Accepted Answer

A) r and m 
B) r* and m* 
C) r' and m' 
D) r and m' 
E) cannot tell from the information given 
A) r and m 
B) r* and m* 
C) r' and m' 
D) r and m' 
E) cannot tell from the information given

Exam 17: Monetary Theory and Policy

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

The demand for money is depicted by a curve downward sloping curve because if the interest rate falls, the opportunity cost of holding assets in the form of money decreases.

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

Over the past 40 years, the most frequent target for the Fed's monetary policy has been

Which monetary policy would be appropriate to close a contractionary gap?

Exhibit 16-5 -To bring the economy shown in Exhibit 16-5 to its potential output level, the Fed could

What is the effect of an expansionary monetary policy on the demand for investment curve?

In the United States over the last decade, the velocity of

Which of the following statements best describes the historical relationship between increases in the money supply (M1) and inflation in the U.S.?

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

If the Fed decreases the money supply,

The equilibrium interest rate is determined by

The quantity theory of money

When the money supply increases, people get rid of their excess money by buying real assets, such as durable goods.

There is considerable disagreement about whether the Fed should

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

The opportunity cost of money is the interest foregone.

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

Which of the following statements about the velocity of money in the U.S. is correct?

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

The Art and Science of Economic Analysis

Understanding Graphs-Appendix

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

Aaggregate Expenditure and Agregate Demand

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

Economic Development

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