Question 1

Exhibit 15-1  
-Referring to Exhibit 15-1,an increase in the interest rate will cause a move from

Accepted Answer

A) B to A 
B) A to B 
C) DM to DM' 
D) DM to DM* 
E) C to D 
A) B to A 
B) A to B 
C) DM to DM' 
D) DM to DM* 
E) C to D

Question 2

As the interest rate decreases,

Accepted Answer

A) the demand for investment curve shifts to the right 
B) the demand for investment curve shifts to the left 
C) there is a downward movement along the demand for investment curve 
D) there is an upward movement along the demand for investment curve 
E) GDP decreases 
A) the demand for investment curve shifts to the right 
B) the demand for investment curve shifts to the left 
C) there is a downward movement along the demand for investment curve 
D) there is an upward movement along the demand for investment curve 
E) GDP decreases

Question 3

There is considerable disagreement about whether the Fed should

Accepted Answer

A) engage in open market operations 
B) have the power to set reserve requirements 
C) reduce the money supply when the economy is growing 
D) allow banks to invest in the stock market 
E) attempt to control interest rates or should instead attempt to control the money supply 
A) engage in open market operations 
B) have the power to set reserve requirements 
C) reduce the money supply when the economy is growing 
D) allow banks to invest in the stock market 
E) attempt to control interest rates or should instead attempt to control the money supply

Question 4

Which of the following statements best describes the historical relationship between increases in the money supply (M1)and inflation in the U.S.?

Accepted Answer

A) All three major episodes of inflation since 1914 were preceded and accompanied by an increase in the growth rate of M1. 
B) There is no strong evidence of any relationship between inflation and increases in the money supply in the 20th century. 
C) Since the formation of the Fed in 1914,there have been no significant periods of inflation 
D) In all three major episodes of inflation since 1914,increases in the growth rate of M1 occurred after the inflation subsided. 
E) There were significant periods of inflation during each decade of the 20th century and each was preceded and accompanied by an increase in the growth rate of M1. 
A) All three major episodes of inflation since 1914 were preceded and accompanied by an increase in the growth rate of M1. 
B) There is no strong evidence of any relationship between inflation and increases in the money supply in the 20th century. 
C) Since the formation of the Fed in 1914,there have been no significant periods of inflation 
D) In all three major episodes of inflation since 1914,increases in the growth rate of M1 occurred after the inflation subsided. 
E) There were significant periods of inflation during each decade of the 20th century and each was preceded and accompanied by an increase in the growth rate of M1.

Question 5

Which of the following is not assumed to be constant along the money demand curve?

Accepted Answer

A) the price level 
B) the interest rate 
C) real GDP 
D) nominal GDP 
E) individual's tastes and preferences 
A) the price level 
B) the interest rate 
C) real GDP 
D) nominal GDP 
E) individual's tastes and preferences

Question 6

The interest rate that banks charge one another for overnight lending of reserves is the

Accepted Answer

A) federal funds rate 
B) interbank credit card rate 
C) subprime mortgage rate 
D) prime rate 
E) local funds rate 
A) federal funds rate 
B) interbank credit card rate 
C) subprime mortgage rate 
D) prime rate 
E) local funds rate

Question 7

If the Fed sells U.S.government securities to drain reserves from banks,which of the following will probably occur?

Accepted Answer

A) The demand for money will increase and the interest rate will rise. 
B) The money supply will increase and the interest rate will fall. 
C) The interest rate will rise and the quantity of money demanded will fall. 
D) The money supply will decrease and the interest rate will fall. 
E) The interest rate will fall and the quantity of money demanded will increase. 
A) The demand for money will increase and the interest rate will rise. 
B) The money supply will increase and the interest rate will fall. 
C) The interest rate will rise and the quantity of money demanded will fall. 
D) The money supply will decrease and the interest rate will fall. 
E) The interest rate will fall and the quantity of money demanded will increase.

Question 8

Exhibit 15-7  
-Referring to Exhibit 15-7,a decrease in the level of real GDP will cause a move from

Accepted Answer

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

Question 9

A decrease in the interest rate 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 10

While monetary targets are important,also significant is what Fed officials have to say.Sometimes reassurance is all that's required to calm market jitters.

Accepted Answer

A) True 
 B)False

Question 11

The Fed's grip is tightest on the

Accepted Answer

A) prime rate 
B) federal funds rate 
C) mortgage rate 
D) credit card rate 
E) student loan rate 
A) prime rate 
B) federal funds rate 
C) mortgage rate 
D) credit card rate 
E) student loan rate

Question 12

If the Fed increases 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 13

The opportunity cost of holding money

Accepted Answer

A) includes bank service charges 
B) is the interest foregone on potential interest-earning assets 
C) varies inversely with the rate of interest 
D) affects relatively few individuals 
E) is determined exclusively by the Fed 
A) includes bank service charges 
B) is the interest foregone on potential interest-earning assets 
C) varies inversely with the rate of interest 
D) affects relatively few individuals 
E) is determined exclusively by the Fed

Question 14

The money demand curve will shift when there is a change in

Accepted Answer

A) interest rates 
B) velocity 
C) the money supply 
D) the opportunity cost of holding money 
E) nominal GDP 
A) interest rates 
B) velocity 
C) the money supply 
D) the opportunity cost of holding money 
E) nominal GDP

Question 15

The extent to which a given increase in nominal income is the result of a price level change or a change in real income is primarily determined by

Accepted Answer

A) the quantity theory of money 
B) the equation of exchange 
C) the slope of the aggregate demand curve 
D) the slope of the short-run aggregate supply curve 
E) none of the above 
A) the quantity theory of money 
B) the equation of exchange 
C) the slope of the aggregate demand curve 
D) the slope of the short-run aggregate supply curve 
E) none of the above

Question 16

When the demand for money is shown on a graph,the __________ is on the vertical axis,and the __________ is on the horizontal axis.

Accepted Answer

A) quantity of money; interest rate 
B) interest rate; quantity of money 
C) real GDP; quantity of money 
D) nominal GDP; quantity of money 
E) price level; quantity of money 
A) quantity of money; interest rate 
B) interest rate; quantity of money 
C) real GDP; quantity of money 
D) nominal GDP; quantity of money 
E) price level; quantity of money

Question 17

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 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 18

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 excess reserves in the banking system 
C) sell U.S.government bonds to banks 
D) increase the discount rate 
E) lower the required reserve ratio 
A) decrease government spending 
B) decrease excess reserves in the banking system 
C) sell U.S.government bonds to banks 
D) increase the discount rate 
E) lower the required reserve ratio

Question 19

The demand for money is based primarily on money's role as a(n)

Accepted Answer

A) store of wealth 
B) medium of exchange 
C) standard of value 
D) interest-bearing asset 
E) non-interest-bearing asset 
A) store of wealth 
B) medium of exchange 
C) standard of value 
D) interest-bearing asset 
E) non-interest-bearing asset

Question 20

Which of the following is the last step in the sequence?

Accepted Answer

A) A strong dollar relative to foreign currencies hurts U.S.exporters 
B) As the money supply increases,interest rates fall in the short run 
C) The value of the dollar declines 
D) Low U.S.interest rates makes the dollar less attractive to foreign investors 
E) The Fed chooses an expansionary monetary policy 
A) A strong dollar relative to foreign currencies hurts U.S.exporters 
B) As the money supply increases,interest rates fall in the short run 
C) The value of the dollar declines 
D) Low U.S.interest rates makes the dollar less attractive to foreign investors 
E) The Fed chooses an expansionary monetary policy

Exam 16: Monetary Theory and Policy

Exhibit 15-1 -Referring to Exhibit 15-1,an increase in the interest rate will cause a move from

As the interest rate decreases,

There is considerable disagreement about whether the Fed should

Which of the following statements best describes the historical relationship between increases in the money supply (M1)and inflation in the U.S.?

Which of the following is not assumed to be constant along the money demand curve?

The interest rate that banks charge one another for overnight lending of reserves is the

If the Fed sells U.S.government securities to drain reserves from banks,which of the following will probably occur?

Exhibit 15-7 -Referring to Exhibit 15-7,a decrease in the level of real GDP will cause a move from

A decrease in the interest rate will

While monetary targets are important,also significant is what Fed officials have to say.Sometimes reassurance is all that's required to calm market jitters.

The Fed's grip is tightest on the

If the Fed increases the money supply,GDP

The opportunity cost of holding money

The money demand curve will shift when there is a change in

The extent to which a given increase in nominal income is the result of a price level change or a change in real income is primarily determined by

When the demand for money is shown on a graph,the __________ is on the vertical axis,and the __________ is on the horizontal axis.

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 reserve requirement,the equilibrium will move from

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

The demand for money is based primarily on money's role as a(n)

Which of the following is the last step in the sequence?

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

When the demand for money is shown on a graph,the is on the vertical axis,and the is on the horizontal axis.

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 reserve requirement,the equilibrium will move from