Question 1

A rightward shift of the money supply ________.

Accepted Answer

A)  may come about from an increase in the quantity of money supplied by the Federal Reserve 
B)  may come about from a decrease in the price level 
C)  leads to a decrease in interest rates ceteris paribus 
D)  all of the above 
E)  none of the above 
A)  may come about from an increase in the quantity of money supplied by the Federal Reserve 
B)  may come about from a decrease in the price level 
C)  leads to a decrease in interest rates ceteris paribus 
D)  all of the above 
E)  none of the above

Question 2

Suppose the nominal interest rate is five percent, and the inflation rate rises from two percent to three percent. Might an increase in the nominal interest rate to 5.5 percent be consistent with the Taylor Principle? If not, what consequences might ensue?

Accepted Answer

Yes, it might be. The Taylor Principle r

Question 3

As income rises ________.

Accepted Answer

A)  the number of transactions households and firms undertake should increase 
B)  wealth also rises 
C)  demand for real money balances should increase 
D)  all of the above 
E)  none of the above 
A)  the number of transactions households and firms undertake should increase 
B)  wealth also rises 
C)  demand for real money balances should increase 
D)  all of the above 
E)  none of the above

Question 4

If the nominal interest rate is above the equilibrium level ________.

Accepted Answer

A)  the supply of real money balances will fall 
B)  the quantity of real money balances people are holding is too low, and is rising 
C)  people are selling financial assets in order to increase real money balances 
D)  all of the above 
E)  none of the above 
A)  the supply of real money balances will fall 
B)  the quantity of real money balances people are holding is too low, and is rising 
C)  people are selling financial assets in order to increase real money balances 
D)  all of the above 
E)  none of the above

Question 5

Increased liquidity in the banking system occurs when ________.

Accepted Answer

A)  people buy more bonds 
B)  the demand for real money balances declines 
C)  banks buy more bonds from the central bank 
D)  all of the above 
E)  none of the above 
A)  people buy more bonds 
B)  the demand for real money balances declines 
C)  banks buy more bonds from the central bank 
D)  all of the above 
E)  none of the above

Question 6

Typically, central banks increase the supply of money by ________.

Accepted Answer

A)  buying bonds from banks 
B)  printing currency 
C)  directing the government to issue more money to banks 
D)  all of the above 
E)  none of the above 
A)  buying bonds from banks 
B)  printing currency 
C)  directing the government to issue more money to banks 
D)  all of the above 
E)  none of the above

Question 7

If government cuts taxes ________.

Accepted Answer

A)  after tax income should increase shifting AD to the left to a lower equilibrium level of output 
B)  after tax income should increase shifting AD to the right to a higher equilibrium level of output 
C)  after tax income and the equilibrium level of output remain unchanged 
D)  after tax income remains unchanged but the equilibrium level of output would increase 
E)  none of the above 
A)  after tax income should increase shifting AD to the left to a lower equilibrium level of output 
B)  after tax income should increase shifting AD to the right to a higher equilibrium level of output 
C)  after tax income and the equilibrium level of output remain unchanged 
D)  after tax income remains unchanged but the equilibrium level of output would increase 
E)  none of the above

Question 8

If people begin to generally feel better about the future ________.

Accepted Answer

A)  autonomous consumption should rise 
B)  autonomous investment should rise 
C)  the AD curve will shift to the right 
D)  all of the above 
E)  none of the above 
A)  autonomous consumption should rise 
B)  autonomous investment should rise 
C)  the AD curve will shift to the right 
D)  all of the above 
E)  none of the above

Question 9

The IS Curve ________.

Accepted Answer

A)  demonstrates how central banks respond to changes in inflation with changes in the interest rate 
B)  shows how changes in interest rates affect equilibrium output 
C)  explains short run fluctuations in output and inflation 
D)  all of the above 
E)  none of the above 
A)  demonstrates how central banks respond to changes in inflation with changes in the interest rate 
B)  shows how changes in interest rates affect equilibrium output 
C)  explains short run fluctuations in output and inflation 
D)  all of the above 
E)  none of the above

Question 10

A leftward shift of the money supply ________.

Accepted Answer

A)  may come about from an increase in the quantity of money supplied by the Federal Reserve 
B)  may come about from an increase in the price level 
C)  leads to a decrease in interest rates ceteris paribus 
D)  all of the above 
E)  none of the above 
A)  may come about from an increase in the quantity of money supplied by the Federal Reserve 
B)  may come about from an increase in the price level 
C)  leads to a decrease in interest rates ceteris paribus 
D)  all of the above 
E)  none of the above

Question 11

MP Curve
  
-On the graph above, which pair of points best represents the impacts in the U. S. of the financial crisis and policy response from 2007 through 2008?

Accepted Answer

A)  H to I 
B)  K to G 
C)  I to H 
D)  K to F 
E)  G to J 
A)  H to I 
B)  K to G 
C)  I to H 
D)  K to F 
E)  G to J

Question 12

According to liquidity preference theory, as real income increases, so does ________.

Accepted Answer

A)  the supply of real money balances 
B)  the demand for real money balances 
C)  the real interest rate 
D)  all of the above 
E)  none of the above 
A)  the supply of real money balances 
B)  the demand for real money balances 
C)  the real interest rate 
D)  all of the above 
E)  none of the above

Question 13

Demand for real money balances depends on ________.

Accepted Answer

A)  the price level 
B)  the real interest rate 
C)  the opportunity cost of holding money 
D)  all of the above 
E)  none of the above 
A)  the price level 
B)  the real interest rate 
C)  the opportunity cost of holding money 
D)  all of the above 
E)  none of the above

Question 14

If the Federal Reserve raises interest rates in an autonomous tightening ________ .

Accepted Answer

A)  the MP curve shifts up, there is an upward movement along the IS curve, and the AD curve shifts to the left to a lower level of equilibrium output 
B)  the MP curve shifts down, there is a downward movement along the IS curve and the AD curve shifts to the right to a higher level of equilibrium output 
C)  the MP curve shifts up, there is a downward movement along the IS curve and the AD curve shifts to the right to a lower level of equilibrium output 
D)  the MP curve shifts down, there is an upward movement along the IS curve and the AD curve shifts to the left to a higher level of equilibrium output 
E)  none of the above 
A)  the MP curve shifts up, there is an upward movement along the IS curve, and the AD curve shifts to the left to a lower level of equilibrium output 
B)  the MP curve shifts down, there is a downward movement along the IS curve and the AD curve shifts to the right to a higher level of equilibrium output 
C)  the MP curve shifts up, there is a downward movement along the IS curve and the AD curve shifts to the right to a lower level of equilibrium output 
D)  the MP curve shifts down, there is an upward movement along the IS curve and the AD curve shifts to the left to a higher level of equilibrium output 
E)  none of the above

Question 15

The IS curve is Y = 20 - 1.5r, and the aggregate demand curve is Y = 15.5 - 0.3π. When the interest rate is 7 percent, the inflation rate is ________ percent.

Accepted Answer

A)  14.6 
B)  9.5 
C)  3.6 
D)  20 
E)  none of the above 
A)  14.6 
B)  9.5 
C)  3.6 
D)  20 
E)  none of the above

Question 16

When the Federal Reserve increases the money supply, people ________.

Accepted Answer

A)  increase their purchases of bonds and other financial assets 
B)  may, in the short run, increase their purchases of goods and services 
C)  decrease the quantity of money holdings 
D)  all of the above 
E)  none of the above 
A)  increase their purchases of bonds and other financial assets 
B)  may, in the short run, increase their purchases of goods and services 
C)  decrease the quantity of money holdings 
D)  all of the above 
E)  none of the above

Question 17

The liquidity preference function shows that as ________.

Accepted Answer

A)  real income decreases, so does the demand for real money balances 
B)  the nominal interest rate increases, so does the demand for real money balances 
C)  real income decreases, so does the real interest rate 
D)  all of the above 
E)  none of the above 
A)  real income decreases, so does the demand for real money balances 
B)  the nominal interest rate increases, so does the demand for real money balances 
C)  real income decreases, so does the real interest rate 
D)  all of the above 
E)  none of the above

Question 18

Why is the demand for real money balances downward sloping?

Accepted Answer

A)  because the opportunity cost of holding money decreases as interest rates decrease 
B)  because when the interest rate falls the quantity of money demanded increases 
C)  because lower interest rates encourage firms and households to increase their money holdings 
D)  all of the above 
E)  none of the above 
A)  because the opportunity cost of holding money decreases as interest rates decrease 
B)  because when the interest rate falls the quantity of money demanded increases 
C)  because lower interest rates encourage firms and households to increase their money holdings 
D)  all of the above 
E)  none of the above

Question 19

The AD Curve ________.

Accepted Answer

A)  indicates the level of aggregate output corresponding to different goods-market-clearing levels of the inflation rate 
B)  is downward sloping, because with higher inflation comes lower interest rates and lower spending, so equilibrium aggregate output declines 
C)  explains how inflation affects output in the short run 
D)  all of the above 
E)  none of the above 
A)  indicates the level of aggregate output corresponding to different goods-market-clearing levels of the inflation rate 
B)  is downward sloping, because with higher inflation comes lower interest rates and lower spending, so equilibrium aggregate output declines 
C)  explains how inflation affects output in the short run 
D)  all of the above 
E)  none of the above

Question 20

If the central bank did not follow the Taylor principle, an increase in inflation would lead to ________.

Accepted Answer

A)  a decrease in the nominal interest rate 
B)  an increase in inflation 
C)  a decrease in aggregate expenditure 
D)  all of the above 
E)  none of the above 
A)  a decrease in the nominal interest rate 
B)  an increase in inflation 
C)  a decrease in aggregate expenditure 
D)  all of the above 
E)  none of the above

Exam 10: Monetary Policy and Aggregate Demand

A rightward shift of the money supply ________.

Suppose the nominal interest rate is five percent, and the inflation rate rises from two percent to three percent. Might an increase in the nominal interest rate to 5.5 percent be consistent with the Taylor Principle? If not, what consequences might ensue?

As income rises ________.

If the nominal interest rate is above the equilibrium level ________.

Increased liquidity in the banking system occurs when ________.

Typically, central banks increase the supply of money by ________.

If government cuts taxes ________.

If people begin to generally feel better about the future ________.

The IS Curve ________.

A leftward shift of the money supply ________.

MP Curve -On the graph above, which pair of points best represents the impacts in the U. S. of the financial crisis and policy response from 2007 through 2008?

According to liquidity preference theory, as real income increases, so does ________.

Demand for real money balances depends on ________.

If the Federal Reserve raises interest rates in an autonomous tightening ________ .

The IS curve is Y = 20 - 1.5r, and the aggregate demand curve is Y = 15.5 - 0.3π. When the interest rate is 7 percent, the inflation rate is ________ percent.

When the Federal Reserve increases the money supply, people ________.

The liquidity preference function shows that as ________.

Why is the demand for real money balances downward sloping?

The AD Curve ________.

If the central bank did not follow the Taylor principle, an increase in inflation would lead to ________.

The Policy and Practice of Macroeconomics

Measuring Macroeconomic Data

Aggregate Production and Productivity

Saving and Investment in Closed and Open Economies

Money and Inflation

The Sources of Growth and the Solow Model

Drivers of Growth: Technology, Policy, and Institutions

Business Cycles: an Introduction

The Is Curve

Aggregate Supply and the Phillips Curve

The Aggregate Demand and Supply Model

Macroeconomic Policy and Aggregate Demand and Supply Analysis

The Financial System and Economic Growth

Financial Crises and the Economy

Fiscal Policy and the Government Budget

Exchange Rates and International Economic Policy

Consumption and Saving

Investment

The Labor Market, Employment, and Unemployment

The Role of Expectations in Macroeconomic Policy

Modern Business Cycle Theory

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