Question 1

The interest rate that banks charge one another for overnight lending of reserves is the

Accepted Answer

A) federal funds rate 
B) interbank credit card rate 
C) subprime mortgage rate 
D) prime rate 
E) local funds rate 
A) federal funds rate 
B) interbank credit card rate 
C) subprime mortgage rate 
D) prime rate 
E) local funds rate

Question 2

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 3

As a result of expansionary monetary policy,

Accepted Answer

A) both aggregate expenditure and aggregate demand increase 
B) both aggregate expenditure and aggregate demand decrease 
C) aggregate expenditure increases and aggregate demand decreases 
D) aggregate expenditure decreases and aggregate demand increases 
E) aggregate expenditure remains unchanged; aggregate demand increases 
A) both aggregate expenditure and aggregate demand increase 
B) both aggregate expenditure and aggregate demand decrease 
C) aggregate expenditure increases and aggregate demand decreases 
D) aggregate expenditure decreases and aggregate demand increases 
E) aggregate expenditure remains unchanged; aggregate demand increases

Question 4

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

Accepted Answer

A) the price level 
B) the interest rate 
C) real GDP 
D) nominal GDP 
E) individual's tastes and preferences 
A) the price level 
B) the interest rate 
C) real GDP 
D) nominal GDP 
E) individual's tastes and preferences

Question 5

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 6

If the Fed expands the money supply, a short-run aggregate supply curve __________ would yield the largest short-run increase in the price level.

Accepted Answer

A) that is vertical 
B) with a steep slope 
C) that coincides with the 45-degree line 
D) that is relatively flat 
E) that is horizontal 
A) that is vertical 
B) with a steep slope 
C) that coincides with the 45-degree line 
D) that is relatively flat 
E) that is horizontal

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

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 9

The opportunity cost of holding money is measured by the

Accepted Answer

A) interest rate 
B) liquidity lost by holding money 
C) money supply curve 
D) inflation rate 
E) cost of cashing in financial assets 
A) interest rate 
B) liquidity lost by holding money 
C) money supply curve 
D) inflation rate 
E) cost of cashing in financial assets

Question 10

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 11

Velocity will be higher

Accepted Answer

A) the less frequently workers are paid 
B) the fewer transactions there are to make 
C) the less effective money is as a store of value 
D) the less people use credit cards to make purchases 
E) the slower the physical transportation of money between one person and another 
A) the less frequently workers are paid 
B) the fewer transactions there are to make 
C) the less effective money is as a store of value 
D) the less people use credit cards to make purchases 
E) the slower the physical transportation of money between one person and another

Question 12

During the 2007-2009 financial crisis the Federal Reserve took some unusual steps in its conduct of monetary policy. Which of the following was not one of them?

Accepted Answer

A) invested in AIG 
B) invested more than $1 trillion in mortgage-backed securities 
C) worked with the U.S. Treasury and with other regulators to stabilize banks and thaw frozen credit lines 
D) worked with the U.S. Treasury and other regulators to help conduct a stress test of the 19 largest banks 
E) bailed out General Motors 
A) invested in AIG 
B) invested more than $1 trillion in mortgage-backed securities 
C) worked with the U.S. Treasury and with other regulators to stabilize banks and thaw frozen credit lines 
D) worked with the U.S. Treasury and other regulators to help conduct a stress test of the 19 largest banks 
E) bailed out General Motors

Question 13

According to the equation of exchange, if nominal GDP equals $6 trillion and the money supply equals $1 trillion, the velocity of money

Accepted Answer

A) must be 6 
B) must be 1/6 
C) must be 6 trillion 
D) must be 1/6 trillion 
E) cannot be determined unless we know the price level 
A) must be 6 
B) must be 1/6 
C) must be 6 trillion 
D) must be 1/6 trillion 
E) cannot be determined unless we know the price level

Question 14

If real output and velocity are stable and predictable, then the equation of exchange can be used to derive a simple relationship between

Accepted Answer

A) the money supply and the price level 
B) the money supply and the interest rate 
C) the money supply and the foreign exchange rate 
D) velocity and real GDP 
E) velocity and nominal GDP 
A) the money supply and the price level 
B) the money supply and the interest rate 
C) the money supply and the foreign exchange rate 
D) velocity and real GDP 
E) velocity and nominal GDP

Question 15

Exhibit 16-1
  
-Referring to Exhibit 16-1, an increase in the interest rate will cause a move from

Accepted Answer

A) B to A 
B) A to B 
C) DM to DM' 
D) DM to DM* 
E) C to D 
A) B to A 
B) A to B 
C) DM to DM' 
D) DM to DM* 
E) C to D

Question 16

If the Fed wanted to stimulate the economy, it might

Accepted Answer

A) buy bonds to lower the money supply 
B) sell bonds to lower the money supply 
C) raise the discount rate to increase the money supply 
D) lower the discount rate to increase the money supply 
E) increase the required reserve ratio to lower the money supply 
A) buy bonds to lower the money supply 
B) sell bonds to lower the money supply 
C) raise the discount rate to increase the money supply 
D) lower the discount rate to increase the money supply 
E) increase the required reserve ratio to lower the money supply

Question 17

If the Fed had to choose between fixing the interest rate and fixing the supply of money, it would

Accepted Answer

A) always fix the money supply, so that the price level would be stable 
B) always fix the money supply, so that spending would be stable 
C) always fix the interest rate, so that investment would be stable 
D) always fix the interest rate, so that demand for money would be stable 
E) find neither alternative would be clearly better than the other 
A) always fix the money supply, so that the price level would be stable 
B) always fix the money supply, so that spending would be stable 
C) always fix the interest rate, so that investment would be stable 
D) always fix the interest rate, so that demand for money would be stable 
E) find neither alternative would be clearly better than the other

Question 18

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

Accepted Answer

A) 0.2 
B) 0.6 
C) 1.67 
D) 5 
E) 15 
A) 0.2 
B) 0.6 
C) 1.67 
D) 5 
E) 15

Question 19

When the short-run aggregate supply curve is steep, then for a given increase in aggregate demand,

Accepted Answer

A) the increase in real GDP will be relatively small and the increase in the price level will be relatively large 
B) the increase in real GDP will be relatively large and the increase in the price level will be relatively small 
C) the increases in real GDP and the price level will be large 
D) the increases in real GDP and the price level will be small 
E) the decrease in real GDP will be larger than the decrease in the price level 
A) the increase in real GDP will be relatively small and the increase in the price level will be relatively large 
B) the increase in real GDP will be relatively large and the increase in the price level will be relatively small 
C) the increases in real GDP and the price level will be large 
D) the increases in real GDP and the price level will be small 
E) the decrease in real GDP will be larger than the decrease in the price level

Question 20

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

Exam 17: Monetary Theory and Policy

The interest rate that banks charge one another for overnight lending of reserves is the

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

As a result of expansionary monetary policy,

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

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

If the Fed expands the money supply, a short-run aggregate supply curve __________ would yield the largest short-run increase in the price level.

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

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

The opportunity cost of holding money is measured by the

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

Velocity will be higher

During the 2007-2009 financial crisis the Federal Reserve took some unusual steps in its conduct of monetary policy. Which of the following was not one of them?

According to the equation of exchange, if nominal GDP equals $6 trillion and the money supply equals $1 trillion, the velocity of money

If real output and velocity are stable and predictable, then the equation of exchange can be used to derive a simple relationship between

Exhibit 16-1 -Referring to Exhibit 16-1, an increase in the interest rate will cause a move from

If the Fed wanted to stimulate the economy, it might

If the Fed had to choose between fixing the interest rate and fixing the supply of money, it would

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

When the short-run aggregate supply curve is steep, then for a given increase in aggregate demand,

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

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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