Question 1

Over the past 40 years,the most frequent target for the Fed's monetary policy has been

Accepted Answer

A) the prime interest rate 
B) the federal funds rate 
C) the M1 money supply 
D) the M2 money supply 
E) the M3 money supply 
A) the prime interest rate 
B) the federal funds rate 
C) the M1 money supply 
D) the M2 money supply 
E) the M3 money supply

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

The velocity of money increases for all of the following reasons except

Accepted Answer

A) use of electronic transmission of funds 
B) increased use of charge accounts 
C) increased use of automatic teller machines 
D) a rising inflation rate 
E) decreased use of credit cards 
A) use of electronic transmission of funds 
B) increased use of charge accounts 
C) increased use of automatic teller machines 
D) a rising inflation rate 
E) decreased use of credit cards

Question 4

For interest rates to remain stable during economic expansions,the money supply should

Accepted Answer

A) decrease at a faster rate than the demand for money 
B) grow at the same rate as money demand 
C) grow at a faster rate than money demand 
D) grow at a slower rate than money demand 
E) decrease at a slower rate than the demand for money 
A) decrease at a faster rate than the demand for money 
B) grow at the same rate as money demand 
C) grow at a faster rate than money demand 
D) grow at a slower rate than money demand 
E) decrease at a slower rate than the demand for money

Question 5

The velocity of M1 money has moved erratically in the past several years because

Accepted Answer

A) of low and stable rates of inflation 
B) of regulatory changes allowing banks to pay interest on checkable deposits 
C) interest rates have been stable 
D) monetary policy has been highly erratic 
E) a large number of banks and savings and loan associations have gone bankrupt 
A) of low and stable rates of inflation 
B) of regulatory changes allowing banks to pay interest on checkable deposits 
C) interest rates have been stable 
D) monetary policy has been highly erratic 
E) a large number of banks and savings and loan associations have gone bankrupt

Question 6

In the short run,a decrease in the money supply will cause a decrease in Gross Domestic Product and a decrease in the price level.

Accepted Answer

A) True 
 B)False

Question 7

Exhibit 15-6  
-If the Federal Reserve is targeting the money supply when the demand for money decreases,their proper response is to

Accepted Answer

A) decrease the money supply 
B) keep the money supply on a path of constant,predictable growth 
C) increase the money supply to match the increase in the demand for money 
D) stimulate inflation to increase the demand for money 
E) stimulate a decrease in the price level to increase the demand for money 
A) decrease the money supply 
B) keep the money supply on a path of constant,predictable growth 
C) increase the money supply to match the increase in the demand for money 
D) stimulate inflation to increase the demand for money 
E) stimulate a decrease in the price level to increase the demand for money

Question 8

If the Fed decreases the money supply,GDP

Accepted Answer

A) increases because the resulting increase in the interest rate leads to a decrease in investment 
B) increases because the resulting decrease in the interest rate leads to an increase in investment 
C) decreases because the resulting increase in the interest rate leads to a decrease in investment 
D) decreases because the resulting increase in the interest rate leads to an increase in investment 
E) decreases because the resulting decrease in the interest rate leads to an increase in investment 
A) increases because the resulting increase in the interest rate leads to a decrease in investment 
B) increases because the resulting decrease in the interest rate leads to an increase in investment 
C) decreases because the resulting increase in the interest rate leads to a decrease in investment 
D) decreases because the resulting increase in the interest rate leads to an increase in investment 
E) decreases because the resulting decrease in the interest rate leads to an increase in investment

Question 9

For interest rates to remain stable during economic contractions,monetary authorities should

Accepted Answer

A) reduce the demand for money 
B) increase the demand for money 
C) match the rate of growth in the money supply to the rate of growth in nominal GDP 
D) reduce the rate of growth in the money supply below the rate of growth in the demand for money 
E) slow the growth of the money supply,or even let the money supply shrink 
A) reduce the demand for money 
B) increase the demand for money 
C) match the rate of growth in the money supply to the rate of growth in nominal GDP 
D) reduce the rate of growth in the money supply below the rate of growth in the demand for money 
E) slow the growth of the money supply,or even let the money supply shrink

Question 10

If the money supply increases,the interest rate will __________ and people will want to hold a __________ quantity of money.

Accepted Answer

A) rise; greater 
B) rise; smaller 
C) not change; greater 
D) fall; greater 
E) fall; smaller 
A) rise; greater 
B) rise; smaller 
C) not change; greater 
D) fall; greater 
E) fall; smaller

Question 11

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 12

In recent years,much of the emphasis of Fed policy has been on

Accepted Answer

A) controlling short-term interest rates 
B) implementing a system of price controls 
C) regulating bank managers 
D) controlling the money supply 
E) making changes in the international financial markets 
A) controlling short-term interest rates 
B) implementing a system of price controls 
C) regulating bank managers 
D) controlling the money supply 
E) making changes in the international financial markets

Question 13

The demand for money is depicted by a curve downward sloping curve because if the interest rate falls,the opportunity cost of holding assets in the form of money decreases.

Accepted Answer

A) True 
 B)False

Question 14

To execute the policy of lowering the federal funds rate,the FOMC authorizes the New York Fed to make open-market sales to increase bank reserves until the federal funds rate falls to the target level.

Accepted Answer

A) True 
 B)False

Question 15

Increases in the expected inflation rate cause

Accepted Answer

A) the velocity of money to increase 
B) the velocity of money to decrease 
C) money to become a better store of wealth 
D) decreases in the actual price level 
E) the money supply to increase 
A) the velocity of money to increase 
B) the velocity of money to decrease 
C) money to become a better store of wealth 
D) decreases in the actual price level 
E) the money supply to increase

Question 16

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 17

If the money supply is $1,000,the price level is 3,and real income (or output)is $5,000,then the velocity of money is

Accepted Answer

A) 0.2 
B) 0.6 
C) 1.67 
D) 5 
E) 15 
A) 0.2 
B) 0.6 
C) 1.67 
D) 5 
E) 15

Question 18

Exhibit 15-2
 
-Each of the following can cause the supply of money to shift from S to S* in Exhibit 15-2,except

Accepted Answer

A) an increase in the required reserve ratio 
B) the sale of US Treasury securities by the Fed 
C) a decrease in the required reserve ratio 
D) a decrease in the discount rate 
E) an increase in excess reserves in the banking system 
A) an increase in the required reserve ratio 
B) the sale of US Treasury securities by the Fed 
C) a decrease in the required reserve ratio 
D) a decrease in the discount rate 
E) an increase in excess reserves in the banking system

Question 19

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 20

Those who argue against interest rate targets for monetary policy claim that

Accepted Answer

A) the necessary changes in money supply reinforce business cycles 
B) the necessary changes in money supply dampen expansions 
C) increased crowding out reduces private investment even more 
D) inflation would fall 
E) monetary policy is too effective 
A) the necessary changes in money supply reinforce business cycles 
B) the necessary changes in money supply dampen expansions 
C) increased crowding out reduces private investment even more 
D) inflation would fall 
E) monetary policy is too effective

Exam 16: Monetary Theory and Policy

Over the past 40 years,the most frequent target for the Fed's monetary policy has been

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

The velocity of money increases for all of the following reasons except

For interest rates to remain stable during economic expansions,the money supply should

The velocity of M1 money has moved erratically in the past several years because

In the short run,a decrease in the money supply will cause a decrease in Gross Domestic Product and a decrease in the price level.

Exhibit 15-6 -If the Federal Reserve is targeting the money supply when the demand for money decreases,their proper response is to

If the Fed decreases the money supply,GDP

For interest rates to remain stable during economic contractions,monetary authorities should

If the money supply increases,the interest rate will __________ and people will want to hold a __________ quantity of money.

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

In recent years,much of the emphasis of Fed policy has been on

The demand for money is depicted by a curve downward sloping curve because if the interest rate falls,the opportunity cost of holding assets in the form of money decreases.

To execute the policy of lowering the federal funds rate,the FOMC authorizes the New York Fed to make open-market sales to increase bank reserves until the federal funds rate falls to the target level.

Increases in the expected inflation rate cause

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

If the money supply is $1,000,the price level is 3,and real income (or output)is $5,000,then the velocity of money is

Exhibit 15-2 -Each of the following can cause the supply of money to shift from S to S* in Exhibit 15-2,except

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

Those who argue against interest rate targets for monetary policy claim that

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

If the money supply increases,the interest rate will and people will want to hold a quantity of money.

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