Question 1

If the Fed decreases the money supply,

Accepted Answer

A) aggregate demand and aggregate supply both increase 
B) aggregate demand increases,which leads to movement along the short-run aggregate supply curve 
C) aggregate demand decreases,which leads to movement along the short-run aggregate supply curve 
D) aggregate supply increases,which leads to movement along the aggregate demand curve 
E) aggregate supply decreases,which leads to movement along the aggregate demand curve 
A) aggregate demand and aggregate supply both increase 
B) aggregate demand increases,which leads to movement along the short-run aggregate supply curve 
C) aggregate demand decreases,which leads to movement along the short-run aggregate supply curve 
D) aggregate supply increases,which leads to movement along the aggregate demand curve 
E) aggregate supply decreases,which leads to movement along the aggregate demand curve C

Question 2

Exhibit 15-4  
-In Exhibit 15-4,the Fed can return the economy to its potential output by

Accepted Answer

A) selling US Treasury securities inthe open market 
B) lowering the discount rate 
C) by lowering the reserve requirenment 
D) buying US Treasury securities in the open market 
E) printing money 
A) selling US Treasury securities inthe open market 
B) lowering the discount rate 
C) by lowering the reserve requirenment 
D) buying US Treasury securities in the open market 
E) printing money D

Question 3

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 B

Question 4

As a result of the bailout of AIG,shareholders in the insurance giant reaped huge gaains from the rise in the share price of the company.

Accepted Answer

A) True 
 B)False

Question 5

Which monetary policy would be appropriate to close a contractionary gap?

Accepted Answer

A) a tax cut 
B) a decrease in government purchases 
C) an increase in reserve requirements 
D) the Fed's purchase of U.S.government securities 
E) the Fed's raising the discount rate 
A) a tax cut 
B) a decrease in government purchases 
C) an increase in reserve requirements 
D) the Fed's purchase of U.S.government securities 
E) the Fed's raising the discount rate

Question 6

Exhibit 15-8  
-In Exhibit 15-8,the demand for money is represented by D1 and the supply by S1.If the Fed lowers the reserve requirement,the equilibrium will move from

Accepted Answer

A) A to B 
B) A to C 
C) A to E 
D) A to H 
E) A to I 
A) A to B 
B) A to C 
C) A to E 
D) A to H 
E) A to I

Question 7

Suppose the economy is in long-run equilibrium at the level of potential output.What will be the long-run effect of an expansionary monetary policy?

Accepted Answer

A) a higher price level 
B) a higher level of real output 
C) both a higher price level and a higher level of real output 
D) a lower price level 
E) a lower level of real output 
A) a higher price level 
B) a higher level of real output 
C) both a higher price level and a higher level of real output 
D) a lower price level 
E) a lower level of real output

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

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

Accepted Answer

A) True 
 B)False

Question 10

Exhibit 15-1  
-Referring to Exhibit 15-1,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 11

The equation of exchange is

Accepted Answer

A) quantity supplied equals quantity demanded 
B) quantity bought equals quantity sold 
C) M $\times$ V = P $\times$ Y 
D) C $\times$ I + G = Y 
E) input equals output 
A) quantity supplied equals quantity demanded 
B) quantity bought equals quantity sold 
C) M $\times$ V = P $\times$ Y 
D) C $\times$ I + G = Y 
E) input equals output

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

Exhibit 15-8  
-In Exhibit 15-8,the demand for money is represented by D1 and the supply by S1.If the Fed sells bonds on the open market,the equilibrium will move from

Accepted Answer

A) A to B 
B) A to C 
C) A to E 
D) A to H 
E) A to I 
A) A to B 
B) A to C 
C) A to E 
D) A to H 
E) A to I

Question 14

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 15

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 16

An increase in the money supply leads to a(n)

Accepted Answer

A) decline in interest rates,an increase in investment,and an increase in aggregate demand 
B) decline in interest rates,a decrease in investment,and an increase in aggregate demand 
C) decline in interest rates,an increase in investment,and a decline in aggregate demand 
D) increase in interest rates,an increase in investment,and an increase in aggregate demand 
E) decline in interest rates,a decline in investment,and a decline in aggregate demand 
A) decline in interest rates,an increase in investment,and an increase in aggregate demand 
B) decline in interest rates,a decrease in investment,and an increase in aggregate demand 
C) decline in interest rates,an increase in investment,and a decline in aggregate demand 
D) increase in interest rates,an increase in investment,and an increase in aggregate demand 
E) decline in interest rates,a decline in investment,and a decline in aggregate demand

Question 17

When the short-run aggregate supply curve is steep,then for a given increase in aggregate demand,

Accepted Answer

A) the increase in real GDP will be relatively small and the increase in the price level will be relatively large 
B) the increase in real GDP will be relatively large and the increase in the price level will be relatively small 
C) the increases in real GDP and the price level will be large 
D) the increases in real GDP and the price level will be small 
E) the decrease in real GDP will be larger than the decrease in the price level 
A) the increase in real GDP will be relatively small and the increase in the price level will be relatively large 
B) the increase in real GDP will be relatively large and the increase in the price level will be relatively small 
C) the increases in real GDP and the price level will be large 
D) the increases in real GDP and the price level will be small 
E) the decrease in real GDP will be larger than the decrease in the price level

Question 18

In the long run,an increase in aggregate demand

Accepted Answer

A) increases the price level and real output,but the effect on the price level is larger 
B) increases the price level and real output,but the effect on output is larger 
C) affects only real output 
D) affects only the price level 
E) has no effect at all 
A) increases the price level and real output,but the effect on the price level is larger 
B) increases the price level and real output,but the effect on output is larger 
C) affects only real output 
D) affects only the price level 
E) has no effect at all

Question 19

Which of the following statements about the velocity of money in the U.S.is correct?

Accepted Answer

A) From 1915 to 1947,the velocity of M1 increased. 
B) From 1947 to 1973,the velocity of M1 decreased. 
C) In the 1970s,velocity growth was extremely stable at approximately 3% to 4%. 
D) During most of this century,the velocity of money has remained unchanged. 
E) The velocity of money has decreased because of ATM machines and credit cards. 
A) From 1915 to 1947,the velocity of M1 increased. 
B) From 1947 to 1973,the velocity of M1 decreased. 
C) In the 1970s,velocity growth was extremely stable at approximately 3% to 4%. 
D) During most of this century,the velocity of money has remained unchanged. 
E) The velocity of money has decreased because of ATM machines and credit cards.

Question 20

If the Fed expands the money supply,a short-run aggregate supply curve __________ would yield the largest short-run increase in the price level.

Accepted Answer

A) that is vertical 
B) with a steep slope 
C) that coincides with the 45-degree line 
D) that is relatively flat 
E) that is horizontal 
A) that is vertical 
B) with a steep slope 
C) that coincides with the 45-degree line 
D) that is relatively flat 
E) that is horizontal

Exam 16: Monetary Theory and Policy

If the Fed decreases the money supply,

Exhibit 15-4 -In Exhibit 15-4,the Fed can return the economy to its potential output by

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

As a result of the bailout of AIG,shareholders in the insurance giant reaped huge gaains from the rise in the share price of the company.

Which monetary policy would be appropriate to close a contractionary gap?

Exhibit 15-8 -In Exhibit 15-8,the demand for money is represented by D1 and the supply by S1.If the Fed lowers the reserve requirement,the equilibrium will move from

Suppose the economy is in long-run equilibrium at the level of potential output.What will be the long-run effect of an expansionary monetary policy?

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

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

Exhibit 15-1 -Referring to Exhibit 15-1,an increase in the level of real GDP will cause a move from

The equation of exchange is

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

Exhibit 15-8 -In Exhibit 15-8,the demand for money is represented by D1 and the supply by S1.If the Fed sells bonds on the open market,the equilibrium will move from

The quantity theory of money states that

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

An increase in the money supply leads to a(n)

When the short-run aggregate supply curve is steep,then for a given increase in aggregate demand,

In the long run,an increase in aggregate demand

Which of the following statements about the velocity of money in the U.S.is correct?

If the Fed expands the money supply,a short-run aggregate supply curve __________ would yield the largest short-run increase in the price level.

The Art and Science of Economic Analysis

Economic Tools and Economics Systems

Economic Decision Makers

Demand, supply, and Markets

Introduction to Macroeconomics

Tracking the Useconomy

Unemployment and Inflation

Productivity and Growth

Aaggregate Expenditure and Aggregate Demand

Baggregate 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

Externalities and the Environment

International Finance

Economic Development

understanding Graphs

National Income Accounts

The Algebra of Demand-Side Equilibrium

Filters

Exhibit 15-8 -In Exhibit 15-8,the demand for money is represented by D₁ and the supply by S₁.If the Fed lowers the reserve requirement,the equilibrium will move from

Exhibit 15-8 -In Exhibit 15-8,the demand for money is represented by D₁ and the supply by S₁.If the Fed sells bonds on the open market,the equilibrium will move from