Question 1

When the Fed sells government bonds,the reserves of the banking system

Accepted Answer

A) increase,so the money supply increases. 
B) increase,so the money supply decreases. 
C) decrease,so the money supply increases. 
D) decrease,so the money supply decreases. 
A) increase,so the money supply increases. 
B) increase,so the money supply decreases. 
C) decrease,so the money supply increases. 
D) decrease,so the money supply decreases.

Question 2

In which of the following cases does the aggregate-demand curve shift to the right?

Accepted Answer

A) The price level rises,causing the interest rate to fall. 
B) The price level falls,causing the interest rate to fall. 
C) The money supply increases,causing the interest rate to fall. 
D) The money supply decreases,causing the interest rate to fall. 
A) The price level rises,causing the interest rate to fall. 
B) The price level falls,causing the interest rate to fall. 
C) The money supply increases,causing the interest rate to fall. 
D) The money supply decreases,causing the interest rate to fall.

Question 3

Which of the following claims concerning the importance of effects that explain the slope of the U.S.aggregate-demand curve is correct?

Accepted Answer

A) The exchange-rate effect is relatively small because exports and imports are a small part of real GDP. 
B) The interest-rate effect is relatively small because investment spending is not very responsive to interest rate changes. 
C) The wealth effect is relatively large because money holdings are a significant portion of most households' wealth. 
D) None of the above is correct. 
A) The exchange-rate effect is relatively small because exports and imports are a small part of real GDP. 
B) The interest-rate effect is relatively small because investment spending is not very responsive to interest rate changes. 
C) The wealth effect is relatively large because money holdings are a significant portion of most households' wealth. 
D) None of the above is correct.

Question 4

Using the liquidity-preference model,when the Federal Reserve decreases the money supply,

Accepted Answer

A) the equilibrium interest rate increases. 
B) the aggregate-demand curve shifts to the right. 
C) the quantity of goods and services demanded is unchanged for a given price level. 
D) the short-run aggregate-supply curve shifts to the left. 
A) the equilibrium interest rate increases. 
B) the aggregate-demand curve shifts to the right. 
C) the quantity of goods and services demanded is unchanged for a given price level. 
D) the short-run aggregate-supply curve shifts to the left.

Question 5

The opportunity cost of holding money

Accepted Answer

A) decreases when the interest rate decreases,so people desire to hold more of it. 
B) decreases when the interest rate decreases,so people desire to hold less of it. 
C) increases when the interest rate decreases,so people desire to hold more of it. 
D) increases when the interest rate decreases,so people desire to hold less of it. 
A) decreases when the interest rate decreases,so people desire to hold more of it. 
B) decreases when the interest rate decreases,so people desire to hold less of it. 
C) increases when the interest rate decreases,so people desire to hold more of it. 
D) increases when the interest rate decreases,so people desire to hold less of it.

Question 6

The theory of liquidity preference is most helpful in understanding

Accepted Answer

A) the wealth effect. 
B) the exchange-rate effect. 
C) the interest-rate effect. 
D) misperceptions theory. 
A) the wealth effect. 
B) the exchange-rate effect. 
C) the interest-rate effect. 
D) misperceptions theory.

Question 7

Which of the following events would shift money demand to the right?

Accepted Answer

A) an increase in the interest rate or an increase in the price level 
B) an increase in the interest rate,but not an increase in the price level 
C) an increase in the price level,but not an increase in the interest rate 
D) neither an increase in the interest rate nor an increase in the price level 
A) an increase in the interest rate or an increase in the price level 
B) an increase in the interest rate,but not an increase in the price level 
C) an increase in the price level,but not an increase in the interest rate 
D) neither an increase in the interest rate nor an increase in the price level

Question 8

An increase in the money supply will

Accepted Answer

A) increase interest rates,decreasing investment and aggregate demand. 
B) reduce interest rates,increasing investment and aggregate demand. 
C) reduce interest rates,decreasing investment and increasing aggregate demand. 
D) increase interest rates,increasing investment and aggregate demand. 
A) increase interest rates,decreasing investment and aggregate demand. 
B) reduce interest rates,increasing investment and aggregate demand. 
C) reduce interest rates,decreasing investment and increasing aggregate demand. 
D) increase interest rates,increasing investment and aggregate demand.

Question 9

The interest-rate effect

Accepted Answer

A) depends on the idea that decreases in interest rates increase the quantity of goods and services demanded. 
B) depends on the idea that decreases in interest rates decrease the quantity of goods and services demanded. 
C) is responsible for the downward slope of the money-demand curve. 
D) is the least important reason,in the case of the United States,for the downward slope of the aggregate-demand curve. 
A) depends on the idea that decreases in interest rates increase the quantity of goods and services demanded. 
B) depends on the idea that decreases in interest rates decrease the quantity of goods and services demanded. 
C) is responsible for the downward slope of the money-demand curve. 
D) is the least important reason,in the case of the United States,for the downward slope of the aggregate-demand curve.

Question 10

Which of the following sequences best explains the negative slope of the aggregate-demand curve?

Accepted Answer

A) price level ↑ ⇒ demand for money ↓ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓ 
B) price level ↑ ⇒ demand for money ↑ ⇒ equilibrium interest rate ↓ ⇒ quantity of goods and services demanded ↓ 
C) price level ↓ ⇒ demand for money ↓ ⇒ equilibrium interest rate ↓ ⇒ quantity of goods and services demanded ↑ 
D) price level ↓ ⇒ equilibrium interest rate ↓ ⇒ demand for money ↑ ⇒ quantity of goods and services demanded ↑ 
A) price level ↑ ⇒ demand for money ↓ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓ 
B) price level ↑ ⇒ demand for money ↑ ⇒ equilibrium interest rate ↓ ⇒ quantity of goods and services demanded ↓ 
C) price level ↓ ⇒ demand for money ↓ ⇒ equilibrium interest rate ↓ ⇒ quantity of goods and services demanded ↑ 
D) price level ↓ ⇒ equilibrium interest rate ↓ ⇒ demand for money ↑ ⇒ quantity of goods and services demanded ↑

Question 11

In recent years,the Fed has chosen to target interest rates rather than the money supply because

Accepted Answer

A) Congress passed a law requiring them to do so. 
B) the President requested them to do so. 
C) the money supply is hard to measure with sufficient precision. 
D) changes in the interest rate change aggregate demand,but changes in the money supply do not. 
A) Congress passed a law requiring them to do so. 
B) the President requested them to do so. 
C) the money supply is hard to measure with sufficient precision. 
D) changes in the interest rate change aggregate demand,but changes in the money supply do not.

Question 12

Figure 34-4.On the figure,MS represents money supply and MD represents money demand.  
-Refer to Figure 34-4.Suppose the money-demand curve is currently MD1.If the current interest rate is r2,then

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 will respond by selling interest-bearing bonds or by withdrawing money from interest-bearing bank accounts. 
C) bond issuers and banks will respond by lowering the interest rates they offer. 
D) in response,the money-demand curve will shift rightward from its current position to establish equilibrium in the money market. 
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 will respond by selling interest-bearing bonds or by withdrawing money from interest-bearing bank accounts. 
C) bond issuers and banks will respond by lowering the interest rates they offer. 
D) in response,the money-demand curve will shift rightward from its current position to establish equilibrium in the money market.

Question 13

Economists who are skeptical about the relevance of "liquidity traps" argue that

Accepted Answer

A) a central bank continues to have tools to stimulate the economy,even after its interest rate target hits its lower bound of zero. 
B) a central bank continues to have the option of committing itself to future monetary contraction,even after its interest rate target hits its lower bound of zero. 
C) a central bank can greatly reduce the likelihood of a liquidity trap by setting the target rate of inflation at zero. 
D) while the concept of a liquidity trap is theoretically possible,nothing resembling a liquidity trap ever has been observed in the real world. 
A) a central bank continues to have tools to stimulate the economy,even after its interest rate target hits its lower bound of zero. 
B) a central bank continues to have the option of committing itself to future monetary contraction,even after its interest rate target hits its lower bound of zero. 
C) a central bank can greatly reduce the likelihood of a liquidity trap by setting the target rate of inflation at zero. 
D) while the concept of a liquidity trap is theoretically possible,nothing resembling a liquidity trap ever has been observed in the real world.

Question 14

People choose to hold a smaller quantity of money if​

Accepted Answer

A) ​the interest rate increases,which causes the opportunity cost of holding money to increase. 
B) ​the interest rate increases,which causes the opportunity cost of holding money to decrease. 
C) ​the interest rate decreases,which causes the opportunity cost of holding money to increase. 
D) ​the interest rate decreases,which causes the opportunity cost of holding money to decrease. 
A) ​the interest rate increases,which causes the opportunity cost of holding money to increase. 
B) ​the interest rate increases,which causes the opportunity cost of holding money to decrease. 
C) ​the interest rate decreases,which causes the opportunity cost of holding money to increase. 
D) ​the interest rate decreases,which causes the opportunity cost of holding money to decrease.

Question 15

According to liquidity preference theory,equilibrium in the money market is achieved by adjustments in

Accepted Answer

A) the price level. 
B) the interest rate. 
C) the exchange rate. 
D) real wealth. 
A) the price level. 
B) the interest rate. 
C) the exchange rate. 
D) real wealth.

Question 16

Charisse is of the opinion that the interest rate depends on the economy's saving propensities and investment opportunities.Most economists would say that Charisse's opinion is

Accepted Answer

A) Keynesian in nature,and that her view is more valid for the long run than for the short run. 
B) classical in nature,and that her view is more valid for the long run than for the short run. 
C) Keynesian in nature,and that her view is more valid for the short run than for the long run. 
D) classical in nature,and that her view is more valid for the short run than for the long run. 
A) Keynesian in nature,and that her view is more valid for the long run than for the short run. 
B) classical in nature,and that her view is more valid for the long run than for the short run. 
C) Keynesian in nature,and that her view is more valid for the short run than for the long run. 
D) classical in nature,and that her view is more valid for the short run than for the long run.

Question 17

According to liquidity preference theory,if there were a surplus of money,then

Accepted Answer

A) the interest rate would be above equilibrium and the quantity of money demanded would be too large for equilibrium. 
B) the interest rate would be above equilibrium and the quantity of money demanded would be too small for equilibrium. 
C) the interest rate would be below equilibrium and the quantity of money demanded would be too small for equilibrium. 
D) the interest rate would be below equilibrium and the quantity of money demanded would be too large for equilibrium. 
A) the interest rate would be above equilibrium and the quantity of money demanded would be too large for equilibrium. 
B) the interest rate would be above equilibrium and the quantity of money demanded would be too small for equilibrium. 
C) the interest rate would be below equilibrium and the quantity of money demanded would be too small for equilibrium. 
D) the interest rate would be below equilibrium and the quantity of money demanded would be too large for equilibrium.

Question 18

The idea that a decrease in the price level raises the real value of households' money holdings,which increases consumer spending and the quantity of goods and services demanded is known as

Accepted Answer

A) the interest-rate effect. 
B) the exchange-rate effect. 
C) the theory of liquidity preference. 
D) the wealth effect. 
A) the interest-rate effect. 
B) the exchange-rate effect. 
C) the theory of liquidity preference. 
D) the wealth effect.

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

When the Fed sells government bonds,the reserves of the banking system

In which of the following cases does the aggregate-demand curve shift to the right?

Which of the following claims concerning the importance of effects that explain the slope of the U.S.aggregate-demand curve is correct?

Using the liquidity-preference model,when the Federal Reserve decreases the money supply,

The opportunity cost of holding money

The theory of liquidity preference is most helpful in understanding

Which of the following events would shift money demand to the right?

An increase in the money supply will

The interest-rate effect

Which of the following sequences best explains the negative slope of the aggregate-demand curve?

In recent years,the Fed has chosen to target interest rates rather than the money supply because

Figure 34-4.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 34-4.Suppose the money-demand curve is currently MD1.If the current interest rate is r2,then

Economists who are skeptical about the relevance of "liquidity traps" argue that

People choose to hold a smaller quantity of money if​

According to liquidity preference theory,equilibrium in the money market is achieved by adjustments in

Charisse is of the opinion that the interest rate depends on the economy's saving propensities and investment opportunities.Most economists would say that Charisse's opinion is

According to liquidity preference theory,if there were a surplus of money,then

The idea that a decrease in the price level raises the real value of households' money holdings,which increases consumer spending and the quantity of goods and services demanded is known as

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

Application International Trade: Part A

Application International Trade: Part B

Figure 34-4.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 34-4.Suppose the money-demand curve is currently MD₁.If the current interest rate is r₂,then

People choose to hold a smaller quantity of money if