Question 1

The money demand curve describes how the quantity of money demanded varies with

Accepted Answer

A) nominal GDP 
B) real GDP 
C) the price level 
D) the interest rate 
E) consumption 
A) nominal GDP 
B) real GDP 
C) the price level 
D) the interest rate 
E) consumption

Question 2

If investment is not sensitive to changes in the interest rate,then changes in the money supply

Accepted Answer

A) will have no effect on interest rates 
B) will have a major impact on investment 
C) will have no effect on aggregate demand 
D) will have a major impact on aggregate demand 
E) mean the money supply curve will not be vertical 
A) will have no effect on interest rates 
B) will have a major impact on investment 
C) will have no effect on aggregate demand 
D) will have a major impact on aggregate demand 
E) mean the money supply curve will not be vertical

Question 3

An increase in the price level will

Accepted Answer

A) shift the money demand curve to the right 
B) shift the money demand curve to the left 
C) increase the quantity of money people want to hold 
D) decrease the quantity of money people want to hold 
E) have no impact on the money demand curve 
A) shift the money demand curve to the right 
B) shift the money demand curve to the left 
C) increase the quantity of money people want to hold 
D) decrease the quantity of money people want to hold 
E) have no impact on the money demand curve

Question 4

Planned investment expenditures will eventually decrease after

Accepted Answer

A) the money supply decreases 
B) the demand for money decreases 
C) the interest rate falls 
D) the Fed buys government securities 
E) business managers become more optimistic about future market conditions for their products 
A) the money supply decreases 
B) the demand for money decreases 
C) the interest rate falls 
D) the Fed buys government securities 
E) business managers become more optimistic about future market conditions for their products

Question 5

The goal of quantitative easing is to lower short-term interest rates.

Accepted Answer

A) True 
 B)False

Question 6

Exhibit 15-3  
-In the situation shown in Exhibit 15-3,how could the Fed return the economy to potential output?

Accepted Answer

A) decrease government spending 
B) increase taxes 
C) decrease taxes 
D) decrease the money supply 
E) increase the money supply 
A) decrease government spending 
B) increase taxes 
C) decrease taxes 
D) decrease the money supply 
E) increase the money supply

Question 7

The quantity theory of money states that increases in the money supply result in proportional increases in real GDP.

Accepted Answer

A) True 
 B)False

Question 8

Velocity measures

Accepted Answer

A) the average length of time that people hold wealth 
B) how fast aggregate spending will increase for a given decline in money demand 
C) how fast inflation will rise for a given increase in the money supply 
D) how quickly money changes hands 
E) how quickly banks can create money 
A) the average length of time that people hold wealth 
B) how fast aggregate spending will increase for a given decline in money demand 
C) how fast inflation will rise for a given increase in the money supply 
D) how quickly money changes hands 
E) how quickly banks can create money

Question 9

The equation of exchange states that the quantity of money multiplied by the velocity of money equals

Accepted Answer

A) real Gross Domestic Product 
B) the price level 
C) nominal Gross Domestic Product 
D) the turnover rate 
E) the demand for money 
A) real Gross Domestic Product 
B) the price level 
C) nominal Gross Domestic Product 
D) the turnover rate 
E) the demand for money

Question 10

If the money supply equals $1,000 and nominal GDP equals $3,000,then V

Accepted Answer

A) equals 1/3 
B) equals 3 
C) equals 3 million 
D) cannot be determined since we do not know anything about prices 
E) cannot be determined since we do not know anything about real GDP 
A) equals 1/3 
B) equals 3 
C) equals 3 million 
D) cannot be determined since we do not know anything about prices 
E) cannot be determined since we do not know anything about real GDP

Question 11

The equation of exchange states that

Accepted Answer

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

Question 12

According to the equation of exchange,M $\times$ V = P $\times$ C.

Accepted Answer

A) True 
 B)False

Question 13

In the quantity theory of money,it is assumed that M and P are the only elements in the equation that are free to fluctuate.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following are the twin statutory goals of the Fed?

Accepted Answer

A) price stability and maximum economic growth 
B) maximum employment and maximum economic growth 
C) maximum economic growth and equitable distribution of income 
D) price stability and maximum employment 
E) price stability and equitable distribution of income 
A) price stability and maximum economic growth 
B) maximum employment and maximum economic growth 
C) maximum economic growth and equitable distribution of income 
D) price stability and maximum employment 
E) price stability and equitable distribution of income

Question 15

In the long run,changes in the money supply affect only the price level because

Accepted Answer

A) the aggregate demand curve is vertical 
B) the aggregate demand curve is downward sloping 
C) the long-run aggregate supply curve is vertical 
D) the long-run aggregate supply curve is upward sloping 
E) current real GDP is less than the economy's potential GDP 
A) the aggregate demand curve is vertical 
B) the aggregate demand curve is downward sloping 
C) the long-run aggregate supply curve is vertical 
D) the long-run aggregate supply curve is upward sloping 
E) current real GDP is less than the economy's potential GDP

Question 16

Exhibit 15-8  
-In Exhibit 15-8,the demand for money is represented by D1 and the supply by S1.If the Fed raises the discount rate,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 17

The supply of money is depicted diagrammatically as a vertical line because the quantity of money supplied is totally dependent on the rate of interest.

Accepted Answer

A) True 
 B)False

Question 18

The behavior of the M1 velocity of money in recent years can be explained by

Accepted Answer

A) stability of interest rates 
B) a low and stable rate of inflation 
C) monetary policy that has been successful in stabilizing the economy 
D) financial innovation creating new substitutes for money M1 
E) a large number of banks and savings and loan associations going bankrupt 
A) stability of interest rates 
B) a low and stable rate of inflation 
C) monetary policy that has been successful in stabilizing the economy 
D) financial innovation creating new substitutes for money M1 
E) a large number of banks and savings and loan associations going bankrupt

Question 19

An increase in the money supply will

Accepted Answer

A) increase the demand for money at each interest rate 
B) decrease the demand for money at each interest rate 
C) lead people to try to exchange money for interest-bearing assets 
D) lead people to try to exchange interest-bearing assets for money 
E) increase the interest rate 
A) increase the demand for money at each interest rate 
B) decrease the demand for money at each interest rate 
C) lead people to try to exchange money for interest-bearing assets 
D) lead people to try to exchange interest-bearing assets for money 
E) increase the interest rate

Question 20

Exhibit 15-5  
-To bring the economy shown in Exhibit 15-5 to its potential output level,the Fed could

Accepted Answer

A) do nothing and the price level would fall to P' 
B) do nothing and the price level would remain at its current level 
C) increase the money supply and increase the price level to P" 
D) increase the money supply and decrease the price level to P' 
E) decrease the money supply and decrease the price level to P' 
A) do nothing and the price level would fall to P' 
B) do nothing and the price level would remain at its current level 
C) increase the money supply and increase the price level to P" 
D) increase the money supply and decrease the price level to P' 
E) decrease the money supply and decrease the price level to P'

Exam 16: Monetary Theory and Policy

The money demand curve describes how the quantity of money demanded varies with

If investment is not sensitive to changes in the interest rate,then changes in the money supply

An increase in the price level will

Planned investment expenditures will eventually decrease after

The goal of quantitative easing is to lower short-term interest rates.

Exhibit 15-3 -In the situation shown in Exhibit 15-3,how could the Fed return the economy to potential output?

The quantity theory of money states that increases in the money supply result in proportional increases in real GDP.

Velocity measures

The equation of exchange states that the quantity of money multiplied by the velocity of money equals

If the money supply equals $1,000 and nominal GDP equals $3,000,then V

The equation of exchange states that

According to the equation of exchange,M ×\times× V = P ×\times× C.

In the quantity theory of money,it is assumed that M and P are the only elements in the equation that are free to fluctuate.

Which of the following are the twin statutory goals of the Fed?

In the long run,changes in the money supply affect only the price level because

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

The supply of money is depicted diagrammatically as a vertical line because the quantity of money supplied is totally dependent on the rate of interest.

The behavior of the M1 velocity of money in recent years can be explained by

An increase in the money supply will

Exhibit 15-5 -To bring the economy shown in Exhibit 15-5 to its potential output level,the Fed could

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

According to the equation of exchange,M $\times$ V = P $\times$ C.

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