Question 1

Which of the following is an example of a contractionary monetary policy?

Accepted Answer

A) Transfer payments to poor families are reduced. 
B) The Fed buys government securities in the open market. 
C) The discount rate is raised. 
D) The required reserve ratio is lowered. 
E) Anything the Fed does to shift the money supply to the right is a contractionary policy. 
A) Transfer payments to poor families are reduced. 
B) The Fed buys government securities in the open market. 
C) The discount rate is raised. 
D) The required reserve ratio is lowered. 
E) Anything the Fed does to shift the money supply to the right is a contractionary policy.

Question 2

If interest rates are __________ to changes in the money supply and planned investment expenditures are __________ to interest rate changes,then monetary policy will be ineffective in changing aggregate demand.

Accepted Answer

A) responsive; sensitive 
B) responsive; insensitive 
C) not responsive; sensitive 
D) not responsive; insensitive 
E) none of the above 
A) responsive; sensitive 
B) responsive; insensitive 
C) not responsive; sensitive 
D) not responsive; insensitive 
E) none of the above

Question 3

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

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

Question 4

If the situation is serious enough,the FOMC may act between regular meetings.

Accepted Answer

A) True 
 B)False

Question 5

The federal government made a profit off of their bailout of insurance giant AIG.

Accepted Answer

A) True 
 B)False

Question 6

If something causes the velocity of money to increase,the same amount of money will

Accepted Answer

A) be able to support more transactions,so nominal GDP can increase 
B) be forced to support more transactions,so nominal GDP will decrease 
C) be able to support fewer transactions,so nominal GDP will decrease 
D) no longer have to support so many transactions,so nominal GDP can increase 
E) mean nothing can happen to nominal GDP 
A) be able to support more transactions,so nominal GDP can increase 
B) be forced to support more transactions,so nominal GDP will decrease 
C) be able to support fewer transactions,so nominal GDP will decrease 
D) no longer have to support so many transactions,so nominal GDP can increase 
E) mean nothing can happen to nominal GDP

Question 7

In the history of monetary policy,the period of October 1979 to October 1982 was notable for

Accepted Answer

A) being a period of steady prices and low unemployment 
B) the emphasis placed on controlling interest rates during that period 
C) the emphasis placed on controlling the money supply during that period 
D) the rapid increase in the growth of the money supply during that period 
E) the rapid rise in prices during that period 
A) being a period of steady prices and low unemployment 
B) the emphasis placed on controlling interest rates during that period 
C) the emphasis placed on controlling the money supply during that period 
D) the rapid increase in the growth of the money supply during that period 
E) the rapid rise in prices during that period

Question 8

If the Fed sells government securities to banks,eventually we expect

Accepted Answer

A) the price level to increase 
B) planned investment expenditures to increase 
C) aggregate demand to increase 
D) short-run aggregate supply to increase 
E) interest rates to increase 
A) the price level to increase 
B) planned investment expenditures to increase 
C) aggregate demand to increase 
D) short-run aggregate supply to increase 
E) interest rates to increase

Question 9

If the Fed decreases the money supply,causing the interest rate to rise,GDP

Accepted Answer

A) increases by the same amount as the increase in the interest rate 
B) decreases by more than the increase in the interest rate because of the multiplier 
C) decreases by the same amount as the decrease in investment 
D) decreases by more than the decrease in investment because of the multiplier 
E) decreases by less than the decrease in investment because of the multiplier 
A) increases by the same amount as the increase in the interest rate 
B) decreases by more than the increase in the interest rate because of the multiplier 
C) decreases by the same amount as the decrease in investment 
D) decreases by more than the decrease in investment because of the multiplier 
E) decreases by less than the decrease in investment because of the multiplier

Question 10

If the money supply is $300,the price level is $4,and real GDP is $1,500,what is the nominal value of output?

Accepted Answer

A) $1,200 
B) $4,500 
C) $6,000 
D) $180,000 
E) $500 
A) $1,200 
B) $4,500 
C) $6,000 
D) $180,000 
E) $500

Question 11

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) decrease taxes 
C) sell U.S.government bonds to banks 
D) lower the discount rate 
E) lower the required reserve ratio 
A) decrease government spending 
B) decrease taxes 
C) sell U.S.government bonds to banks 
D) lower the discount rate 
E) lower the required reserve ratio

Question 12

If money demand increases and the Fed does not alter its monetary policy,then

Accepted Answer

A) the money supply will increase 
B) the money supply will decrease 
C) interest rates will decrease 
D) interest rates will increase 
E) velocity will decrease 
A) the money supply will increase 
B) the money supply will decrease 
C) interest rates will decrease 
D) interest rates will increase 
E) velocity will decrease

Question 13

If the Fed wants to close a contractionary gap,it might

Accepted Answer

A) increase government spending 
B) increase taxes 
C) decrease taxes 
D) sell U.S.government bonds to banks 
E) lower the discount rate 
A) increase government spending 
B) increase taxes 
C) decrease taxes 
D) sell U.S.government bonds to banks 
E) lower the discount rate

Question 14

An increase in the money supply can increase the price level,real GDP,or both,but it is impossible to tell exactly what will happen without knowing the slope of the aggregate supply curve.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is not a goal of quantitative easing?

Accepted Answer

A) stabilizing financial markets 
B) reducing long-term interest rates 
C) improving the investment environment 
D) lowering the unemployment rate 
E) neither c or d is a goal of quantitative easing 
A) stabilizing financial markets 
B) reducing long-term interest rates 
C) improving the investment environment 
D) lowering the unemployment rate 
E) neither c or d is a goal of quantitative easing

Question 16

Velocity will be higher

Accepted Answer

A) the less frequently workers are paid 
B) the fewer transactions there are to make 
C) the less effective money is as a store of value 
D) the less people use credit cards to make purchases 
E) the slower the physical transportation of money between one person and another 
A) the less frequently workers are paid 
B) the fewer transactions there are to make 
C) the less effective money is as a store of value 
D) the less people use credit cards to make purchases 
E) the slower the physical transportation of money between one person and another

Question 17

Exhibit 15-5  
-The economy pictured in Exhibit 15-5 is

Accepted Answer

A) in a long-run equilibrium at the price level P and income level Y 
B) in a short-run equilibrium at the price level P and income level Y 
C) experiencing a contractionary gap at price level P and income level Y 
D) not able to reach a long-run equilibrium without government intervention 
E) in a short-run equilibrium at the price level P' and income level Y 
A) in a long-run equilibrium at the price level P and income level Y 
B) in a short-run equilibrium at the price level P and income level Y 
C) experiencing a contractionary gap at price level P and income level Y 
D) not able to reach a long-run equilibrium without government intervention 
E) in a short-run equilibrium at the price level P' and income level Y

Question 18

If the money supply is $600,the price level is $2,and real GDP is $300,what is velocity?

Accepted Answer

A) 1 
B) 150 
C) 300 
D) 600 
E) 1,200 
A) 1 
B) 150 
C) 300 
D) 600 
E) 1,200

Question 19

If the money supply is increasing at a constant 8 percent,velocity is constant,real GDP is increasing at 5 percent,and the inflation rate is 3 percent,which of the following is true?

Accepted Answer

A) The growth rate of GDP is too low to be maintained. 
B) The inflation rate is too low to be maintained. 
C) Velocity is too low to be maintained. 
D) The money supply growth rate is too low to be maintained. 
E) This situation can continue indefinitely. 
A) The growth rate of GDP is too low to be maintained. 
B) The inflation rate is too low to be maintained. 
C) Velocity is too low to be maintained. 
D) The money supply growth rate is too low to be maintained. 
E) This situation can continue indefinitely.

Question 20

If the demand for money increases,

Accepted Answer

A) the interest rate will fall 
B) there will be a movement downward along the money demand curve 
C) there will be a movement upward (to the left)along the money demand curve 
D) there will be a rightward shift of the money demand curve 
E) there will be a leftward shift of the money demand curve 
A) the interest rate will fall 
B) there will be a movement downward along the money demand curve 
C) there will be a movement upward (to the left)along the money demand curve 
D) there will be a rightward shift of the money demand curve 
E) there will be a leftward shift of the money demand curve

Exam 16: Monetary Theory and Policy

Which of the following is an example of a contractionary monetary policy?

If interest rates are __________ to changes in the money supply and planned investment expenditures are __________ to interest rate changes,then monetary policy will be ineffective in changing aggregate demand.

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

If the situation is serious enough,the FOMC may act between regular meetings.

The federal government made a profit off of their bailout of insurance giant AIG.

If something causes the velocity of money to increase,the same amount of money will

In the history of monetary policy,the period of October 1979 to October 1982 was notable for

If the Fed sells government securities to banks,eventually we expect

If the Fed decreases the money supply,causing the interest rate to rise,GDP

If the money supply is $300,the price level is $4,and real GDP is $1,500,what is the nominal value of output?

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

If money demand increases and the Fed does not alter its monetary policy,then

If the Fed wants to close a contractionary gap,it might

An increase in the money supply can increase the price level,real GDP,or both,but it is impossible to tell exactly what will happen without knowing the slope of the aggregate supply curve.

Which of the following is not a goal of quantitative easing?

Velocity will be higher

Exhibit 15-5 -The economy pictured in Exhibit 15-5 is

If the money supply is $600,the price level is $2,and real GDP is $300,what is velocity?

If the money supply is increasing at a constant 8 percent,velocity is constant,real GDP is increasing at 5 percent,and the inflation rate is 3 percent,which of the following is true?

If the demand for money increases,

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

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If interest rates are to changes in the money supply and planned investment expenditures are to interest rate changes,then monetary policy will be ineffective in changing aggregate demand.