Question 1

If the money supply increases, the interest rate will __________ and people will want to hold a __________ quantity of money.

Accepted Answer

A) rise; greater 
B) rise; smaller 
C) not change; greater 
D) fall; greater 
E) fall; smaller 
A) rise; greater 
B) rise; smaller 
C) not change; greater 
D) fall; greater 
E) fall; smaller

Question 2

The demand for money is based primarily on money's role as a(n)

Accepted Answer

A) store of wealth 
B) medium of exchange 
C) standard of value 
D) interest-bearing asset 
E) non-interest-bearing asset 
A) store of wealth 
B) medium of exchange 
C) standard of value 
D) interest-bearing asset 
E) non-interest-bearing asset

Question 3

An increase in the price level 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 4

If the short-run aggregate supply curve is positively sloped and the Fed increases the money supply, aggregate demand

Accepted Answer

A) increases, which increases real GDP and the price level 
B) increases, which decreases real GDP and the price level 
C) falls, which decreases real GDP and increases the price level 
D) increases, which decreases real GDP and increases the price level 
E) falls, which increases real GDP and the price level 
A) increases, which increases real GDP and the price level 
B) increases, which decreases real GDP and the price level 
C) falls, which decreases real GDP and increases the price level 
D) increases, which decreases real GDP and increases the price level 
E) falls, which increases real GDP and the price level

Question 5

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 6

Exhibit 16-6
  
-If the Fed is targeting the money supply and the money demand shifts from Dm to Dm' in Exhibit 16-6, 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 7

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

Accepted Answer

A) True 
 B)False

Question 8

The Fed seeks a target rate of inflation of around:

Accepted Answer

A) 1 percent 
B) 2 percent 
C) 3 percent 
D) 4 percent 
E) 5 percent 
A) 1 percent 
B) 2 percent 
C) 3 percent 
D) 4 percent 
E) 5 percent

Question 9

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

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

Question 10

Exhibit 16-4
  
-In Exhibit 16-4, the Fed can return the economy to its potential output by

Accepted Answer

A) selling US Treasury securities inthe open market 
B) lowering the discount rate 
C) by lowering the reserve requirenment 
D) buying US Treasury securities in the open market 
E) printing money 
A) selling US Treasury securities inthe open market 
B) lowering the discount rate 
C) by lowering the reserve requirenment 
D) buying US Treasury securities in the open market 
E) printing money

Question 11

Exhibit 16-3
  
-In the situation shown in Exhibit 16-3, how could the Fed return the economy to potential output?

Accepted Answer

A) decrease government spending 
B) decrease taxes 
C) sell U.S. government bonds to banks 
D) lower the discount rate 
E) lower the required reserve ratio 
A) decrease government spending 
B) decrease taxes 
C) sell U.S. government bonds to banks 
D) lower the discount rate 
E) lower the required reserve ratio

Question 12

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 13

Exhibit 16-3
  
-In the situation shown in Exhibit 16-3, how could the Fed return the economy to potential output?

Accepted Answer

A) decrease government spending 
B) increase taxes 
C) decrease taxes 
D) decrease the money supply 
E) increase the money supply 
A) decrease government spending 
B) increase taxes 
C) decrease taxes 
D) decrease the money supply 
E) increase the money supply

Question 14

In the quantity theory of money, it is assumed that M and P are the only elements in the equation that are free to fluctuate.

Accepted Answer

A) True 
 B)False

Question 15

The Fed's grip is tightest on the

Accepted Answer

A) prime rate 
B) federal funds rate 
C) mortgage rate 
D) credit card rate 
E) student loan rate 
A) prime rate 
B) federal funds rate 
C) mortgage rate 
D) credit card rate 
E) student loan rate

Question 16

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 17

To eliminate a contractionary gap, the Fed can __________ the money supply, which would __________.

Accepted Answer

A) increase; increase the interest rate and investment 
B) increase; decrease the interest rate and increase investment 
C) decrease; increase the interest rate and investment 
D) decrease; decrease the interest rate and investment 
E) decrease; increase the interest rate and decrease investment 
A) increase; increase the interest rate and investment 
B) increase; decrease the interest rate and increase investment 
C) decrease; increase the interest rate and investment 
D) decrease; decrease the interest rate and investment 
E) decrease; increase the interest rate and decrease investment

Question 18

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 19

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 20

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

Exam 17: Monetary Theory and Policy

If the money supply increases, the interest rate will __________ and people will want to hold a __________ quantity of money.

The demand for money is based primarily on money's role as a(n)

An increase in the price level will

If the short-run aggregate supply curve is positively sloped and the Fed increases the money supply, aggregate demand

As the interest rate decreases,

Exhibit 16-6 -If the Fed is targeting the money supply and the money demand shifts from Dm to Dm' in Exhibit 16-6, the Fed will

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

The Fed seeks a target rate of inflation of around:

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

Exhibit 16-4 -In Exhibit 16-4, the Fed can return the economy to its potential output by

Exhibit 16-3 -In the situation shown in Exhibit 16-3, how could the Fed return the economy to potential output?

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.

Exhibit 16-3 -In the situation shown in Exhibit 16-3, how could the Fed return the economy to potential output?

In the quantity theory of money, it is assumed that M and P are the only elements in the equation that are free to fluctuate.

The Fed's grip is tightest on the

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

To eliminate a contractionary gap, the Fed can __________ the money supply, which would __________.

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

A decrease in the interest rate 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.

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

Filters

If the money supply increases, the interest rate will and people will want to hold a quantity of money.

Exhibit 16-6 -If the Fed is targeting the money supply and the money demand shifts from D_m to D_m' in Exhibit 16-6, the Fed will

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.

To eliminate a contractionary gap, the Fed can the money supply, which would .

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.