Question 1

Exhibit 16-5
  
-If the economy pictured in Exhibit 16-5 is in equilibrium where AD = SRAS, then it

Accepted Answer

A) is experiencing a contractionary gap 
B) will experience an increase in the price level if no government action is taken 
C) is operating at the potential level of output 
D) will experience a stable price level if no government action is taken 
E) is operating at less than the economy's potential level of output 
A) is experiencing a contractionary gap 
B) will experience an increase in the price level if no government action is taken 
C) is operating at the potential level of output 
D) will experience a stable price level if no government action is taken 
E) is operating at less than the economy's potential level of output

Question 2

A decrease in the money supply causes interest rates to __________, investment spending to __________ and Gross Domestic Product to __________.

Accepted Answer

A) fall; rise; fall 
B) fall; fall; rise 
C) rise; rise; rise 
D) rise; fall; fall 
E) rise; fall; rise 
A) fall; rise; fall 
B) fall; fall; rise 
C) rise; rise; rise 
D) rise; fall; fall 
E) rise; fall; rise

Question 3

An increase in the money supply will

Accepted Answer

A) increase the demand for money at each interest rate 
B) decrease the demand for money at each interest rate 
C) lead people to try to exchange money for interest-bearing assets 
D) lead people to try to exchange interest-bearing assets for money 
E) increase the interest rate 
A) increase the demand for money at each interest rate 
B) decrease the demand for money at each interest rate 
C) lead people to try to exchange money for interest-bearing assets 
D) lead people to try to exchange interest-bearing assets for money 
E) increase the interest rate

Question 4

Exhibit 16-6
  
-If the Fed is targeting interest rates and 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 5

The higher the interest rate, the more of their wealth people will hold as money.

Accepted Answer

A) True 
 B)False

Question 6

When calculating by how much changes in the money supply will change nominal GDP, we use the money multiplier instead of the spending multiplier.

Accepted Answer

A) True 
 B)False

Question 7

Of the following, the major influence on the supply of money is

Accepted Answer

A) interest rates 
B) prices 
C) the transactions demand for money 
D) GDP 
E) the Fed 
A) interest rates 
B) prices 
C) the transactions demand for money 
D) GDP 
E) the Fed

Question 8

In the aggregate demand-aggregate supply model, a decrease in the money supply will cause a short-run

Accepted Answer

A) increase in both the price level and real GDP 
B) decrease in both the price level and real GDP 
C) increase in real GDP and a decrease in the price level 
D) decrease in real GDP and an increase in the price level 
E) increase in the price level only 
A) increase in both the price level and real GDP 
B) decrease in both the price level and real GDP 
C) increase in real GDP and a decrease in the price level 
D) decrease in real GDP and an increase in the price level 
E) increase in the price level only

Question 9

Exhibit 16-1
  
-Referring to Exhibit 16-1, an increase in the price level 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 10

If the price level rises, the money demand curve will shift to the right.

Accepted Answer

A) True 
 B)False

Question 11

An increase in the interest rate will

Accepted Answer

A) have no effect on investment, since investment is autonomous 
B) increase investment, since it will be more profitable to hold stocks and bonds 
C) increase investment, since people will be less willing to hold money 
D) decrease investment only if firms have to borrow money to make investments 
E) decrease investment regardless of whether firms have to borrow money to make an investment 
A) have no effect on investment, since investment is autonomous 
B) increase investment, since it will be more profitable to hold stocks and bonds 
C) increase investment, since people will be less willing to hold money 
D) decrease investment only if firms have to borrow money to make investments 
E) decrease investment regardless of whether firms have to borrow money to make an investment

Question 12

If the money supply increases when there is much idle capacity in the economy,

Accepted Answer

A) most of the resulting rise in nominal GDP will be a result of price increases 
B) most of the resulting rise in nominal GDP will be a result of increases in real output 
C) most of the resulting rise in real GDP will be a result of increases in the price level 
D) most of the resulting rise in real GDP will be a result of increases in the interest rate 
E) only nominal GDP will change; real GDP will be unaffected 
A) most of the resulting rise in nominal GDP will be a result of price increases 
B) most of the resulting rise in nominal GDP will be a result of increases in real output 
C) most of the resulting rise in real GDP will be a result of increases in the price level 
D) most of the resulting rise in real GDP will be a result of increases in the interest rate 
E) only nominal GDP will change; real GDP will be unaffected

Question 13

The extent to which a given increase in nominal income is the result of a price level change or a change in real income is primarily determined by

Accepted Answer

A) the quantity theory of money 
B) the equation of exchange 
C) the slope of the aggregate demand curve 
D) the slope of the short-run aggregate supply curve 
E) none of the above 
A) the quantity theory of money 
B) the equation of exchange 
C) the slope of the aggregate demand curve 
D) the slope of the short-run aggregate supply curve 
E) none of the above

Question 14

Because __________ the federal funds rate __________ the cost of covering any reserve shortfall, banks are __________ willing to lend to the public.

Accepted Answer

A) lowering, reduces, less 
B) raising, increases, more 
C) lowering, reduces, more 
D) raising, decreases, more 
E) lowering, increases, more 
A) lowering, reduces, less 
B) raising, increases, more 
C) lowering, reduces, more 
D) raising, decreases, more 
E) lowering, increases, more

Question 15

If money demand increases and the Fed does not alter its monetary policy, then

Accepted Answer

A) the money supply will increase 
B) the money supply will decrease 
C) interest rates will decrease 
D) interest rates will increase 
E) velocity will decrease 
A) the money supply will increase 
B) the money supply will decrease 
C) interest rates will decrease 
D) interest rates will increase 
E) velocity will decrease

Question 16

Because monetary policy is the main focus of the Fed, it ignores international considerations.

Accepted Answer

A) True 
 B)False

Question 17

When the demand for money is shown on a graph, the __________ is on the vertical axis, and the __________ is on the horizontal axis.

Accepted Answer

A) quantity of money; interest rate 
B) interest rate; quantity of money 
C) real GDP; quantity of money 
D) nominal GDP; quantity of money 
E) price level; quantity of money 
A) quantity of money; interest rate 
B) interest rate; quantity of money 
C) real GDP; quantity of money 
D) nominal GDP; quantity of money 
E) price level; quantity of money

Question 18

People will hold __________ money as the interest rate __________ because they will __________ other financial assets.

Accepted Answer

A) more; decreases; buy 
B) more; increases; sell 
C) more; decreases; sell 
D) less; increases; sell 
E) less; decreases; buy 
A) more; decreases; buy 
B) more; increases; sell 
C) more; decreases; sell 
D) less; increases; sell 
E) less; decreases; buy

Question 19

An increase in the money supply causes interest rates to __________, investment spending to __________ and aggregate demand to __________.

Accepted Answer

A) rise; rise; rise 
B) rise; fall; rise 
C) rise; fall; fall 
D) fall; rise; fall 
E) fall; rise; rise 
A) rise; rise; rise 
B) rise; fall; rise 
C) rise; fall; fall 
D) fall; rise; fall 
E) fall; rise; rise

Question 20

The velocity of money is the number of times per year that each dollar is used to purchase goods and services.

Accepted Answer

A) True 
 B)False

Exam 17: Monetary Theory and Policy

Exhibit 16-5 -If the economy pictured in Exhibit 16-5 is in equilibrium where AD = SRAS, then it

A decrease in the money supply causes interest rates to __________, investment spending to __________ and Gross Domestic Product to __________.

An increase in the money supply will

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

The higher the interest rate, the more of their wealth people will hold as money.

When calculating by how much changes in the money supply will change nominal GDP, we use the money multiplier instead of the spending multiplier.

Of the following, the major influence on the supply of money is

In the aggregate demand-aggregate supply model, a decrease in the money supply will cause a short-run

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

If the price level rises, the money demand curve will shift to the right.

An increase in the interest rate will

If the money supply increases when there is much idle capacity in the economy,

The extent to which a given increase in nominal income is the result of a price level change or a change in real income is primarily determined by

Because __________ the federal funds rate __________ the cost of covering any reserve shortfall, banks are __________ willing to lend to the public.

If money demand increases and the Fed does not alter its monetary policy, then

Because monetary policy is the main focus of the Fed, it ignores international considerations.

When the demand for money is shown on a graph, the __________ is on the vertical axis, and the __________ is on the horizontal axis.

People will hold __________ money as the interest rate __________ because they will __________ other financial assets.

An increase in the money supply causes interest rates to __________, investment spending to __________ and aggregate demand to __________.

The velocity of money is the number of times per year that each dollar is used to purchase goods and services.

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

A decrease in the money supply causes interest rates to , investment spending to and Gross Domestic Product to __.

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

Because the federal funds rate the cost of covering any reserve shortfall, banks are __ willing to lend to the public.

When the demand for money is shown on a graph, the is on the vertical axis, and the is on the horizontal axis.

People will hold money as the interest rate because they will __ other financial assets.

An increase in the money supply causes interest rates to , investment spending to and aggregate demand to __.