Question 1

If the price level rises,then

Accepted Answer

A) the interest rate falls and spending on goods and services falls. 
B) the interest rate falls and spending on goods and services rises. 
C) the interest rate rises and spending on goods and services falls. 
D) the interest rate rises and spending on goods and services rises. 
A) the interest rate falls and spending on goods and services falls. 
B) the interest rate falls and spending on goods and services rises. 
C) the interest rate rises and spending on goods and services falls. 
D) the interest rate rises and spending on goods and services rises. C

Question 2

If the Federal Reserve decided to raise interest rates,it could

Accepted Answer

A) buy bonds to lower the money supply. 
B) buy bonds to raise the money supply. 
C) sell bonds to lower the money supply. 
D) sell bonds to raise the money supply. 
A) buy bonds to lower the money supply. 
B) buy bonds to raise the money supply. 
C) sell bonds to lower the money supply. 
D) sell bonds to raise the money supply. C

Question 3

People choose to hold a larger quantity of money if

Accepted Answer

A) the interest rate rises,which causes the opportunity cost of holding money to rise. 
B) the interest rate falls,which causes the opportunity cost of holding money to rise. 
C) the interest rate rises,which causes the opportunity cost of holding money to fall. 
D) the interest rate falls,which causes the opportunity cost of holding money to fall. 
A) the interest rate rises,which causes the opportunity cost of holding money to rise. 
B) the interest rate falls,which causes the opportunity cost of holding money to rise. 
C) the interest rate rises,which causes the opportunity cost of holding money to fall. 
D) the interest rate falls,which causes the opportunity cost of holding money to fall. D

Question 4

If people decide to hold less money,then

Accepted Answer

A) money demand decreases,there is an excess supply of money,and interest rates rise. 
B) money demand decreases,there is an excess supply of money,and interest rates fall. 
C) money demand increases,there is an excess demand for money,and interest rates fall. 
D) money demand increases,there is an excess demand for money,and interest rates rise. 
A) money demand decreases,there is an excess supply of money,and interest rates rise. 
B) money demand decreases,there is an excess supply of money,and interest rates fall. 
C) money demand increases,there is an excess demand for money,and interest rates fall. 
D) money demand increases,there is an excess demand for money,and interest rates rise.

Question 5

When the interest rate is above the equilibrium level,

Accepted Answer

A) the quantity of money that people want to hold is less than the quantity of money that the Federal Reserve has supplied. 
B) people respond by buying interest-bearing bonds or by depositing money in interest-bearing bank accounts. 
C) bond issuers and banks respond by lowering the interest rates they offer. 
D) All of the above are correct. 
A) the quantity of money that people want to hold is less than the quantity of money that the Federal Reserve has supplied. 
B) people respond by buying interest-bearing bonds or by depositing money in interest-bearing bank accounts. 
C) bond issuers and banks respond by lowering the interest rates they offer. 
D) All of the above are correct.

Question 6

When there is an excess supply of money,

Accepted Answer

A) people will try to get rid of money causing interest rates to rise.Investment increases. 
B) people will try to get rid of money causing interest rates to fall.Investment decreases. 
C) people will try to get rid of money causing interest rates to fall.Investment increases. 
D) people will try to get rid of money causing interest rates to rise.Investment decreases. 
A) people will try to get rid of money causing interest rates to rise.Investment increases. 
B) people will try to get rid of money causing interest rates to fall.Investment decreases. 
C) people will try to get rid of money causing interest rates to fall.Investment increases. 
D) people will try to get rid of money causing interest rates to rise.Investment decreases.

Question 7

According to liquidity preference theory,if the price level increases,then the equilibrium interest rate

Accepted Answer

A) rises and the aggregate quantity of goods demanded rises. 
B) rises and the aggregate quantity of goods demanded falls. 
C) falls and the aggregate quantity of goods demanded rises. 
D) falls and the aggregate quantity of goods demanded falls. 
A) rises and the aggregate quantity of goods demanded rises. 
B) rises and the aggregate quantity of goods demanded falls. 
C) falls and the aggregate quantity of goods demanded rises. 
D) falls and the aggregate quantity of goods demanded falls.

Question 8

The interest rate that the Federal Reserve pays banks on the reserves they hold is called the

Accepted Answer

A) open-market rate. 
B) discount rate. 
C) preference rate. 
D) None of the above are correct. 
A) open-market rate. 
B) discount rate. 
C) preference rate. 
D) None of the above are correct.

Question 9

People hold money primarily because it

Accepted Answer

A) increases in value when there is inflation. 
B) serves as a store of value. 
C) serves as a medium of exchange. 
D) functions as a unit of account. 
A) increases in value when there is inflation. 
B) serves as a store of value. 
C) serves as a medium of exchange. 
D) functions as a unit of account.

Question 10

An increase in the U.S.interest rate

Accepted Answer

A) raises the opportunity cost of holding dollars. 
B) induces households to increase consumption. 
C) shifts money demand to the right. 
D) leads to a depreciation of the U.S.dollar. 
A) raises the opportunity cost of holding dollars. 
B) induces households to increase consumption. 
C) shifts money demand to the right. 
D) leads to a depreciation of the U.S.dollar.

Question 11

A surplus or shortage in the money market is eliminated by adjustments in the price level according to

Accepted Answer

A) both liquidity preference theory and classical theory. 
B) neither liquidity preference theory nor classical theory. 
C) liquidity preference theory,but not classical theory. 
D) classical theory,but not liquidity preference theory. 
A) both liquidity preference theory and classical theory. 
B) neither liquidity preference theory nor classical theory. 
C) liquidity preference theory,but not classical theory. 
D) classical theory,but not liquidity preference theory.

Question 12

In the graph of the money market,the money supply curve is

Accepted Answer

A) vertical.It shifts rightward if the Fed buys bonds. 
B) vertical.It shifts rightward if the Fed sells bonds. 
C) upward sloping.It shifts rightward if the Fed buys bonds. 
D) upward sloping.It shifts rightward if the Fed sells bonds. 
A) vertical.It shifts rightward if the Fed buys bonds. 
B) vertical.It shifts rightward if the Fed sells bonds. 
C) upward sloping.It shifts rightward if the Fed buys bonds. 
D) upward sloping.It shifts rightward if the Fed sells bonds.

Question 13

If there is excess demand for money,then people will

Accepted Answer

A) deposit more money into interest-bearing accounts,and the interest rate will fall. 
B) deposit more money into interest-bearing accounts,and the interest rate will rise. 
C) withdraw money from interest-bearing accounts,and the interest rate will fall. 
D) withdraw money from interest-bearing accounts,and the interest rate will rise. 
A) deposit more money into interest-bearing accounts,and the interest rate will fall. 
B) deposit more money into interest-bearing accounts,and the interest rate will rise. 
C) withdraw money from interest-bearing accounts,and the interest rate will fall. 
D) withdraw money from interest-bearing accounts,and the interest rate will rise.

Question 14

According to classical macroeconomic theory,

Accepted Answer

A) output is determined by the supplies of capital and labor and the available production technology. 
B) for any given level of output,the interest rate adjusts to balance the supply of,and demand for,loanable funds. 
C) given output and the interest rate,the price level adjusts to balance the supply of,and demand for,money. 
D) All of the above are correct. 
A) output is determined by the supplies of capital and labor and the available production technology. 
B) for any given level of output,the interest rate adjusts to balance the supply of,and demand for,loanable funds. 
C) given output and the interest rate,the price level adjusts to balance the supply of,and demand for,money. 
D) All of the above are correct.

Question 15

If the interest rate decreases

Accepted Answer

A) or if the price level increases,then people will want to hold more money. 
B) or if the price level increases,then people will want to hold less money. 
C) or if the price level decreases,then people will want to hold more money. 
D) or if the price level decreases,then people will want to hold less money. 
A) or if the price level increases,then people will want to hold more money. 
B) or if the price level increases,then people will want to hold less money. 
C) or if the price level decreases,then people will want to hold more money. 
D) or if the price level decreases,then people will want to hold less money.

Question 16

With respect to their impact on aggregate demand for the U.S.economy,which of the following represents the correct ordering of the wealth effect,interest-rate effect,and exchange-rate effect from most important to least important?

Accepted Answer

A) wealth effect,exchange-rate effect,interest-rate effect 
B) exchange-rate effect,interest-rate effect,wealth effect 
C) interest-rate effect,wealth effect,exchange-rate effect 
D) interest-rate effect,exchange-rate effect,wealth effect 
A) wealth effect,exchange-rate effect,interest-rate effect 
B) exchange-rate effect,interest-rate effect,wealth effect 
C) interest-rate effect,wealth effect,exchange-rate effect 
D) interest-rate effect,exchange-rate effect,wealth effect

Question 17

Suppose that the Federal reserve is concerned about the effects of falling stock prices on the economy.What could it do?

Accepted Answer

A) buy bonds to raise the interest rate 
B) buy bonds to lower the interest rate 
C) sell bonds to raise the interest rate 
D) sell bonds to raise the interest rate. 
A) buy bonds to raise the interest rate 
B) buy bonds to lower the interest rate 
C) sell bonds to raise the interest rate 
D) sell bonds to raise the interest rate.

Question 18

If expected inflation is constant and the nominal interest rate decreases by 2 percentage points,then the real interest rate

Accepted Answer

A) increases by 2 percentage points. 
B) increases,but by less than 2 percentage points. 
C) decreases,but by less than 2 percentage points. 
D) decreases by 2 percentage points. 
A) increases by 2 percentage points. 
B) increases,but by less than 2 percentage points. 
C) decreases,but by less than 2 percentage points. 
D) decreases by 2 percentage points.

Question 19

Figure 34-1  
-Refer to Figure 34-1.Which of the following is correct?

Accepted Answer

A) If the interest rate is 4 percent,there is excess money demand,and the interest rate will fall. 
B) If the interest rate is 3 percent,there is excess money supply,and the interest rate will rise. 
C) Starting with an interest rate of 4 percent,the demand for goods and services will increase until the money market reaches a new equilibrium. 
D) None of the above is correct. 
A) If the interest rate is 4 percent,there is excess money demand,and the interest rate will fall. 
B) If the interest rate is 3 percent,there is excess money supply,and the interest rate will rise. 
C) Starting with an interest rate of 4 percent,the demand for goods and services will increase until the money market reaches a new equilibrium. 
D) None of the above is correct.

Question 20

Other things the same,which of the following happens if the price level rises?

Accepted Answer

A) Money demand shifts rightward. 
B) Initially there is an excess demand for money in the money market. 
C) The interest rate rises. 
D) All of the above are correct. 
A) Money demand shifts rightward. 
B) Initially there is an excess demand for money in the money market. 
C) The interest rate rises. 
D) All of the above are correct.

Exam 21: The Influences of Monetary and Fiscal Policy on Aggregate Demand: How Monetary Policy Influences Aggregate Demand

If the price level rises,then

If the Federal Reserve decided to raise interest rates,it could

People choose to hold a larger quantity of money if

If people decide to hold less money,then

When the interest rate is above the equilibrium level,

When there is an excess supply of money,

According to liquidity preference theory,if the price level increases,then the equilibrium interest rate

The interest rate that the Federal Reserve pays banks on the reserves they hold is called the

People hold money primarily because it

An increase in the U.S.interest rate

A surplus or shortage in the money market is eliminated by adjustments in the price level according to

In the graph of the money market,the money supply curve is

If there is excess demand for money,then people will

According to classical macroeconomic theory,

If the interest rate decreases

With respect to their impact on aggregate demand for the U.S.economy,which of the following represents the correct ordering of the wealth effect,interest-rate effect,and exchange-rate effect from most important to least important?

Suppose that the Federal reserve is concerned about the effects of falling stock prices on the economy.What could it do?

If expected inflation is constant and the nominal interest rate decreases by 2 percentage points,then the real interest rate

Figure 34-1 -Refer to Figure 34-1.Which of the following is correct?

Other things the same,which of the following happens if the price level rises?

Ten Principles of Economics

Ten Principles of Economics: How People Make Decisions

Ten Principles of Economics: How People Interact

Ten Principles of Economics: How the Economy As a Whole Works

Ten Principles of Economics: Part A

Ten Principles of Economics: Part B

Thinking Like an Economist

Thinking Like an Economist: The Economist As Scientist

Thinking Like an Economist: The Economist As Policy Adviser

Thinking Like an Economist: Why Economists Disagree

Thinking Like an Economist: Lets Get Going

Thinking Like an Economist: Graphing a Brief Review

Thinking Like an Economist: Part A

Thinking Like an Economist: Part B

Interdependence and the Gains From Trade

Interdependence and the Gains From Trade: A Parable for the Modern Economy

Interdependence and the Gains From Trade: Comparative Advantage the Driving Force of Specialization

Interdependence and the Gains From Trade: Applications of Comparative Advantage

Interdependence and the Gains From Trade: Conclusion

Interdependence and the Gains From Trade: Part A

Interdependence and the Gains From Trade: Part B

The Market Forces of Supply and Demand

The Market Forces of Supply and Demand:Markets and Competition

The Market Forces of Supply and Demand: Demand

The Market Forces of Supply and Demand: Supply

The Market Forces of Supply and Demand: Supply and Demand Together

The Market Forces of Supply and DemandConclusion How Prices Allocate Resources

The Market Forces of Supply and Demand: Part A

The Market Forces of Supply and Demand: Part B

Elasticity and Its Applications

Elasticity and Its Applications: The Elasticity of Demand

Elasticity and Its Applications: The Elasticity of Supply

Elasticity and Its Applications: Three Applications of Supply,demand,and Elasticity

Elasticity and Its Applications: Part A

Elasticity and Its Applications: Part B

Supply Demand and Government Policies

Supply Demand and Government Policies: Controls on Prices

Supply Demand and Government Policies: Taxes

Supply Demand and Government Policies: Part A

Supply Demand and Government Policies: Part B

Consumers Producers and the Efficiency of Markets

Consumers Producers and the Efficiency of Markets: Consumer Surplus

Consumers Producers and the Efficiency of Markets: Producer Surplus

Consumers Producers and the Efficiency of Markets: Market Efficiency

Consumers Producers and the Efficiency of Markets: Conclusion Market Efficiency and Market Failure

Consumers Producers and the Efficiency of Markets: Part A

Consumers Producers and the Efficiency of Markets: Part B

Application the Cost of Taxation

Application the Cost of Taxation: The Deadweight Loss of Taxation

Application the Cost of Taxation: The Determinants of the Deadweight Loss

Application the Cost of Taxation: Deadweight Loss and Tax Revenue As Taxes Vary

Application the Cost of Taxation: Conclusion

Application the Cost of Taxation: Part A

Application the Cost of Taxation: Part B

Application International Trade

Application International Trade: The Determinants of Trade

Application International Trade: The Winners and Losers From Trade

Application International Trade: The Arguments for Restricting Trade

Application International Trade: Conclusion