Question 1

If the Federal Reserve is targeting the money supply when the demand for money decreases, their proper response is to

Accepted Answer

A) decrease the money supply 
B) keep the money supply on a path of constant, predictable growth 
C) increase the money supply to match the increase in the demand for money 
D) stimulate inflation to increase the demand for money 
E) stimulate a decrease in the price level to increase the demand for money 
A) decrease the money supply 
B) keep the money supply on a path of constant, predictable growth 
C) increase the money supply to match the increase in the demand for money 
D) stimulate inflation to increase the demand for money 
E) stimulate a decrease in the price level to increase the demand for money

Question 2

According to the equation of exchange, increases in the money supply are translated into

Accepted Answer

A) increases in the velocity of money 
B) decreases in real GDP 
C) incrreases in real GDP 
D) increases in the price level 
E) increases in inflation 
A) increases in the velocity of money 
B) decreases in real GDP 
C) incrreases in real GDP 
D) increases in the price level 
E) increases in inflation

Question 3

Which one of the following statements is correct?

Accepted Answer

A) The lower the interest rate, the higher the opportunity cost of holding assets in the form of money. 
B) A vertical money supply curve means that the quantity of money supplied is independent of the interest rate. 
C) The larger the supply of money, the higher the interest rate, all things equal. 
D) Travelers checks and government bonds are equally liquid assets. 
E) The transactions demand for money increases whenever the price level decreases. 
A) The lower the interest rate, the higher the opportunity cost of holding assets in the form of money. 
B) A vertical money supply curve means that the quantity of money supplied is independent of the interest rate. 
C) The larger the supply of money, the higher the interest rate, all things equal. 
D) Travelers checks and government bonds are equally liquid assets. 
E) The transactions demand for money increases whenever the price level decreases.

Question 4

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 5

If interest rates are __________ to changes in the money supply and planned investment expenditures are __________ to interest rate changes, then monetary policy will be effective 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

Question 6

Since the Federal Reserve was established in 1913 the US has experienced 3 periods of high inflation and each was preceeded and accompanied by a period of sharp increases in the money supply.

Accepted Answer

A) True 
 B)False

Question 7

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 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

The quantity theory of money states that increases in the money supply result in proportional increases in real GDP.

Accepted Answer

A) True 
 B)False

Question 10

The money demand curve slopes

Accepted Answer

A) downward because the cost of holding money decreases as the interest rate decreases 
B) downward because the cost of holding money increases as the interest rate decreases 
C) upward because people demand more money as GDP increases 
D) upward because people demand more money as GDP decreases 
E) downward because people demand more money as the price level increases 
A) downward because the cost of holding money decreases as the interest rate decreases 
B) downward because the cost of holding money increases as the interest rate decreases 
C) upward because people demand more money as GDP increases 
D) upward because people demand more money as GDP decreases 
E) downward because people demand more money as the price level increases

Question 11

Exhibit 16-1
  
-Referring to Exhibit 16-1, an increase in the level of real GDP will cause a move from

Accepted Answer

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

Question 12

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 excess reserves in the banking system 
C) sell U.S. government bonds to banks 
D) increase the discount rate 
E) lower the required reserve ratio 
A) decrease government spending 
B) decrease excess reserves in the banking system 
C) sell U.S. government bonds to banks 
D) increase the discount rate 
E) lower the required reserve ratio

Question 13

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 14

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 15

The quantity theory of money states that

Accepted Answer

A) MV = PY 
B) since velocity is reasonably stable, we can predict the effects of an increase in the money supply on nominal income 
C) since velocity is not stable, changes in the money supply have unpredictable impacts on income 
D) since velocity is reasonably stable, we can predict the effects of an increase in the money supply on employment 
E) since velocity is reasonably stable, we can predict the effects of an increase in the money supply on interest rates 
A) MV = PY 
B) since velocity is reasonably stable, we can predict the effects of an increase in the money supply on nominal income 
C) since velocity is not stable, changes in the money supply have unpredictable impacts on income 
D) since velocity is reasonably stable, we can predict the effects of an increase in the money supply on employment 
E) since velocity is reasonably stable, we can predict the effects of an increase in the money supply on interest rates

Question 16

When people exchange money for financial assets, the interest rate rises.

Accepted Answer

A) True 
 B)False

Question 17

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 18

Planned investment expenditures will eventually increase after

Accepted Answer

A) the money supply decreases 
B) the demand for money increases 
C) the interest rate falls 
D) the Fed sells government securities 
E) business managers are pessimistic about future market conditions for their product 
A) the money supply decreases 
B) the demand for money increases 
C) the interest rate falls 
D) the Fed sells government securities 
E) business managers are pessimistic about future market conditions for their product

Question 19

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 20

Which of the following would cause an increase in the velocity of money?

Accepted Answer

A) increased use of credit cards 
B) an increase in the money supply 
C) an increase in demand for money 
D) a decrease in interest rates 
E) a decrease in nominal GDP and a constant money supply 
A) increased use of credit cards 
B) an increase in the money supply 
C) an increase in demand for money 
D) a decrease in interest rates 
E) a decrease in nominal GDP and a constant money supply

Exam 17: Monetary Theory and Policy

If the Federal Reserve is targeting the money supply when the demand for money decreases, their proper response is to

According to the equation of exchange, increases in the money supply are translated into

Which one of the following statements is correct?

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

If interest rates are __________ to changes in the money supply and planned investment expenditures are __________ to interest rate changes, then monetary policy will be effective in changing aggregate demand.

Since the Federal Reserve was established in 1913 the US has experienced 3 periods of high inflation and each was preceeded and accompanied by a period of sharp increases in the money supply.

Increases in the expected inflation rate cause

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

The quantity theory of money states that increases in the money supply result in proportional increases in real GDP.

The money demand curve slopes

Exhibit 16-1 -Referring to Exhibit 16-1, an increase in the level of real GDP will cause a move from

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

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

The quantity theory of money states that

When people exchange money for financial assets, the interest rate rises.

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

Planned investment expenditures will eventually increase after

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.

Which of the following would cause an increase in the velocity of money?

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 interest rates are to changes in the money supply and planned investment expenditures are to interest rate changes, then monetary policy will be effective in changing aggregate demand.