Question 1

When an increase in the money supply reduces the interest rate, investment and nominal GDP increase.

Accepted Answer

A) True 
 B)False

Question 2

A movement upward and to the left along the money demand curve is caused by

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 average 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 average price level

Question 3

The demand for money varies

Accepted Answer

A) directly with both the price level and the level of real GDP 
B) inversely with both the price level and the level of real GDP 
C) inversely with the price level and directly with the level of real GDP 
D) directly with the price level and inversely with the level of real GDP 
E) inversely with the level of nominal GDP 
A) directly with both the price level and the level of real GDP 
B) inversely with both the price level and the level of real GDP 
C) inversely with the price level and directly with the level of real GDP 
D) directly with the price level and inversely with the level of real GDP 
E) inversely with the level of nominal GDP

Question 4

If the interest rate rises, people hold

Accepted Answer

A) less money because its opportunity cost has increased 
B) more money because its opportunity cost has increased 
C) less money because its opportunity cost has declined 
D) more money because its opportunity cost has declined 
E) the same amount of money 
A) less money because its opportunity cost has increased 
B) more money because its opportunity cost has increased 
C) less money because its opportunity cost has declined 
D) more money because its opportunity cost has declined 
E) the same amount of money

Question 5

What happens to the aggregate demand curve when the Fed reduces the money supply?

Accepted Answer

A) It shifts leftward, lowering real GDP and the price level. 
B) It shifts leftward, raising real GDP and the price level. 
C) It shifts leftward, lowering real GDP but raising the price level. 
D) It shifts rightward, raising real GDP and the price level. 
E) It shifts rightward, lowering real GDP but raising the price level. 
A) It shifts leftward, lowering real GDP and the price level. 
B) It shifts leftward, raising real GDP and the price level. 
C) It shifts leftward, lowering real GDP but raising the price level. 
D) It shifts rightward, raising real GDP and the price level. 
E) It shifts rightward, lowering real GDP but raising the price level.

Question 6

If the Fed sells government securities to banks, eventually we expect

Accepted Answer

A) aggregate demand to increase 
B) short-run aggregate supply to decrease 
C) interest rates to decrease 
D) planned investment expenditures to decrease 
E) real Gross Domestic Product to increase 
A) aggregate demand to increase 
B) short-run aggregate supply to decrease 
C) interest rates to decrease 
D) planned investment expenditures to decrease 
E) real Gross Domestic Product to increase

Question 7

In order for changes in the money supply to affect real GDP, the aggregate supply curve cannot be vertical.

Accepted Answer

A) True 
 B)False

Question 8

The equation of exchange states that

Accepted Answer

A) money in circulation × prices = velocity × income 
B) money in circulation × income = velocity × prices 
C) real GDP = money in circulation × velocity 
D) nominal GDP = money in circulation × velocity 
E) real GDP = prices × money in circulation × velocity 
A) money in circulation × prices = velocity × income 
B) money in circulation × income = velocity × prices 
C) real GDP = money in circulation × velocity 
D) nominal GDP = money in circulation × velocity 
E) real GDP = prices × money in circulation × velocity

Question 9

An increase in the money supply can increase the price level, real GDP, or both, but it is impossible to tell exactly what will happen without knowing the slope of the aggregate supply curve.

Accepted Answer

A) True 
 B)False

Question 10

Speaking of the demand for money

Accepted Answer

A) makes no sense in a modern society in which most people use credit cards 
B) makes no sense in a modern society in which most people use checks 
C) makes sense in a modern society in which most people use checks, since demand deposits are included in M1, but it does not make sense in a society in which the primary payment is by credit card 
D) makes sense in a modern society in which most people use credit cards, since credit cards are included in M1, but it does not make sense in a society in which the primary payment is by check 
E) is relevant even in a society in which primary payment is by credit card, since eventually all accounts must be settled with money 
A) makes no sense in a modern society in which most people use credit cards 
B) makes no sense in a modern society in which most people use checks 
C) makes sense in a modern society in which most people use checks, since demand deposits are included in M1, but it does not make sense in a society in which the primary payment is by credit card 
D) makes sense in a modern society in which most people use credit cards, since credit cards are included in M1, but it does not make sense in a society in which the primary payment is by check 
E) is relevant even in a society in which primary payment is by credit card, since eventually all accounts must be settled with money

Question 11

What is the opportunity cost of holding money rather than some other financial asset?

Accepted Answer

A) the forgone interest income 
B) the forgone utility 
C) time 
D) the forgone leisure 
E) the forgone profit 
A) the forgone interest income 
B) the forgone utility 
C) time 
D) the forgone leisure 
E) the forgone profit

Question 12

The money demand curve shifts to the right whenever there is a decrease in the interest rate.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following would most likely lower the velocity of money?

Accepted Answer

A) commercial innovations that facilitate exchange 
B) a lower inflation rate 
C) a decline in the effectiveness of money as a store of wealth 
D) a higher inflation rate 
E) paying workers once a week instead of once a month 
A) commercial innovations that facilitate exchange 
B) a lower inflation rate 
C) a decline in the effectiveness of money as a store of wealth 
D) a higher inflation rate 
E) paying workers once a week instead of once a month

Question 14

In the long run, increases in the money supply increase the economy's potential output level.

Accepted Answer

A) True 
 B)False

Question 15

A rising rate of inflation

Accepted Answer

A) makes people more willing to hold money as an asset 
B) reduces the usefulness of money as a store of value and thus increases the velocity of money 
C) increases the usefulness of money as a medium of exchange and thus reduces the velocity of money 
D) is usually preceded by a reduction in the money supply 
E) does not, apparently, have any effect on the velocity of money 
A) makes people more willing to hold money as an asset 
B) reduces the usefulness of money as a store of value and thus increases the velocity of money 
C) increases the usefulness of money as a medium of exchange and thus reduces the velocity of money 
D) is usually preceded by a reduction in the money supply 
E) does not, apparently, have any effect on the velocity of money

Question 16

If the money supply is $600, the price level is $2, and real GDP is $300, what is velocity?

Accepted Answer

A) 1 
B) 150 
C) 300 
D) 600 
E) 1,200 
A) 1 
B) 150 
C) 300 
D) 600 
E) 1,200

Question 17

The demand for money

Accepted Answer

A) d and e are correct 
B) all of the following are correct 
C) decreases as the average selling price of a unit of output increases 
D) increases as GDP increases 
E) is increased by credit card usage 
A) d and e are correct 
B) all of the following are correct 
C) decreases as the average selling price of a unit of output increases 
D) increases as GDP increases 
E) is increased by credit card usage

Question 18

An increase in the money supply will cause a decrease in planned investment spending.

Accepted Answer

A) True 
 B)False

Question 19

The Fed seeks a target rate of unemployment between:

Accepted Answer

A) 1 and 3 percent 
B) 2 and 4.3 percent 
C) 5.2 and 6 percent 
D) 4 and 7.2 percent 
E) 6 and 7 percent 
A) 1 and 3 percent 
B) 2 and 4.3 percent 
C) 5.2 and 6 percent 
D) 4 and 7.2 percent 
E) 6 and 7 percent

Question 20

Exhibit 16-5
  
-The economy pictured in Exhibit 16-5 is

Accepted Answer

A) in a long-run equilibrium at the price level P and income level Y 
B) in a short-run equilibrium at the price level P and income level Y 
C) experiencing a contractionary gap at price level P and income level Y 
D) not able to reach a long-run equilibrium without government intervention 
E) in a short-run equilibrium at the price level P' and income level Y 
A) in a long-run equilibrium at the price level P and income level Y 
B) in a short-run equilibrium at the price level P and income level Y 
C) experiencing a contractionary gap at price level P and income level Y 
D) not able to reach a long-run equilibrium without government intervention 
E) in a short-run equilibrium at the price level P' and income level Y

Exam 17: Monetary Theory and Policy

When an increase in the money supply reduces the interest rate, investment and nominal GDP increase.

A movement upward and to the left along the money demand curve is caused by

The demand for money varies

If the interest rate rises, people hold

What happens to the aggregate demand curve when the Fed reduces the money supply?

If the Fed sells government securities to banks, eventually we expect

In order for changes in the money supply to affect real GDP, the aggregate supply curve cannot be vertical.

The equation of exchange states that

An increase in the money supply can increase the price level, real GDP, or both, but it is impossible to tell exactly what will happen without knowing the slope of the aggregate supply curve.

Speaking of the demand for money

What is the opportunity cost of holding money rather than some other financial asset?

The money demand curve shifts to the right whenever there is a decrease in the interest rate.

Which of the following would most likely lower the velocity of money?

In the long run, increases in the money supply increase the economy's potential output level.

A rising rate of inflation

If the money supply is $600, the price level is $2, and real GDP is $300, what is velocity?

The demand for money

An increase in the money supply will cause a decrease in planned investment spending.

The Fed seeks a target rate of unemployment between:

Exhibit 16-5 -The economy pictured in Exhibit 16-5 is

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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