Question 1

The demand for real money balances ________.

Accepted Answer

A)  is downward sloping with respect to prices 
B)  is downward sloping with respect to interest rates 
C)  is downward sloping with respect to income 
D)  all of the above 
E)  none of the above 
A)  is downward sloping with respect to prices 
B)  is downward sloping with respect to interest rates 
C)  is downward sloping with respect to income 
D)  all of the above 
E)  none of the above

Question 2

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

Accepted Answer

A)  the MP curve shifts up, raising the real interest for any given level of the inflation rate 
B)  there is an upward movement along the IS curve 
C)  the AD curve shifts to the left 
D)  all of the above 
E)  none of the above 
A)  the MP curve shifts up, raising the real interest for any given level of the inflation rate 
B)  there is an upward movement along the IS curve 
C)  the AD curve shifts to the left 
D)  all of the above 
E)  none of the above

Question 3

A key concern of monetary policy makers is credibility. In particular, that people believe that inflation will not deviate far from a rate consistent with a healthy macroeconomy. How might credibility affect the slope of the monetary policy curve?

Accepted Answer

Credibility implies that the monetary po

Question 4

The aggregate demand curve is Y = 15 - 0.2π when the inflation rate falls from 6 percent to 5 percent. Then, output increases from 13.8 to 17. The response of monetary policy to the inflation decline has been ________.

Accepted Answer

A)  autonomous tightening 
B)  automatic adjustment 
C)  autonomous easing 
D)  to increase autonomous spending 
E)  none of the above 
A)  autonomous tightening 
B)  automatic adjustment 
C)  autonomous easing 
D)  to increase autonomous spending 
E)  none of the above

Question 5

According to liquidity preference theory, an increase in the price level would ________.

Accepted Answer

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

Question 6

In the aggregate demand curve, the endogenous variable is ________.

Accepted Answer

A)  output 
B)  inflation 
C)  the real interest rate 
D)  real money balances 
E)  none of the above 
A)  output 
B)  inflation 
C)  the real interest rate 
D)  real money balances 
E)  none of the above

Question 7

When the Federal Reserve ________.

Accepted Answer

A)  drains liquidity, the federal funds rate falls 
B)  drains liquidity, real interest rates fall 
C)  provides more liquidity, the federal funds rate falls 
D)  all of the above 
E)  none of the above 
A)  drains liquidity, the federal funds rate falls 
B)  drains liquidity, real interest rates fall 
C)  provides more liquidity, the federal funds rate falls 
D)  all of the above 
E)  none of the above

Question 8

The MP curve may be used to represent how ________.

Accepted Answer

A)  movements of the inflation rate are determined by the real interest rate 
B)  monetary policy responds to changes in the real interest rate 
C)  movements of the real interest rate are related to the inflation rate 
D)  all of the above 
E)  none of the above 
A)  movements of the inflation rate are determined by the real interest rate 
B)  monetary policy responds to changes in the real interest rate 
C)  movements of the real interest rate are related to the inflation rate 
D)  all of the above 
E)  none of the above

Question 9

Autonomous tightening of monetary policy involves ________.

Accepted Answer

A)  raising interest rates and shifting the MP curve to the right 
B)  lowering interest rates and shifting the MP curve to the left 
C)  raising interest rates and shifting the MP curve to the left 
D)  lowering interest rates and shifting the MP curve to the right 
E)  none of the above 
A)  raising interest rates and shifting the MP curve to the right 
B)  lowering interest rates and shifting the MP curve to the left 
C)  raising interest rates and shifting the MP curve to the left 
D)  lowering interest rates and shifting the MP curve to the right 
E)  none of the above

Question 10

A decrease in income ________.

Accepted Answer

A)  lowers money demand for any given interest rate 
B)  lowers interest rates ceteris paribus 
C)  leads to a leftward shift of the money demand curve 
D)  all of the above 
E)  none of the above 
A)  lowers money demand for any given interest rate 
B)  lowers interest rates ceteris paribus 
C)  leads to a leftward shift of the money demand curve 
D)  all of the above 
E)  none of the above

Question 11

As the nominal interest rate increases ________.

Accepted Answer

A)  it becomes more costly to hold money instead of bonds 
B)  the quantity of money demanded falls 
C)  the opportunity cost of holding money rises 
D)  all of the above 
E)  none of the above 
A)  it becomes more costly to hold money instead of bonds 
B)  the quantity of money demanded falls 
C)  the opportunity cost of holding money rises 
D)  all of the above 
E)  none of the above

Question 12

________ is a good measure of the opportunity cost of holding money.

Accepted Answer

A)  The real interest rate 
B)  Liquidity preference 
C)  Real income 
D)  The inflation rate 
E)  none of the above 
A)  The real interest rate 
B)  Liquidity preference 
C)  Real income 
D)  The inflation rate 
E)  none of the above

Question 13

A decision to increase the parameter λ in the MP curve is an example of ________.

Accepted Answer

A)  autonomous easing 
B)  leftward movement along the curve 
C)  rightward movement along the curve 
D)  endogenous response 
E)  autonomous tightening 
A)  autonomous easing 
B)  leftward movement along the curve 
C)  rightward movement along the curve 
D)  endogenous response 
E)  autonomous tightening

Question 14

"Real money balances" refers to ________.

Accepted Answer

A)  the quantity of goods and services that money can buy 
B)  gold and silver 
C)  money that is actually available to be spent 
D)  all of the above 
E)  none of the above 
A)  the quantity of goods and services that money can buy 
B)  gold and silver 
C)  money that is actually available to be spent 
D)  all of the above 
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 inflation rate is 3 percent, output is ________.

Accepted Answer

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

Question 16

Which of the following is true about the Taylor principle?

Accepted Answer

A)  it explains the link between higher inflation and higher real interest rates 
B)  it is the foundation for an upward sloping MP curve 
C)  it reflects the practice of monetary policy 
D)  all of the above 
E)  none of the above 
A)  it explains the link between higher inflation and higher real interest rates 
B)  it is the foundation for an upward sloping MP curve 
C)  it reflects the practice of monetary policy 
D)  all of the above 
E)  none of the above

Question 17

As the nominal interest rate increases ________.

Accepted Answer

A)  it becomes more costly to hold bonds instead of money 
B)  the quantity of money demanded rises 
C)  the opportunity cost of holding money rises 
D)  all of the above 
E)  none of the above 
A)  it becomes more costly to hold bonds instead of money 
B)  the quantity of money demanded rises 
C)  the opportunity cost of holding money rises 
D)  all of the above 
E)  none of the above

Question 18

When people are holding money in excess of their demand for real money balances ________.

Accepted Answer

A)  the nominal interest rate will fall 
B)  they increase their purchases of goods and services 
C)  the central bank buys bonds to correct the imbalance 
D)  all of the above 
E)  none of the above 
A)  the nominal interest rate will fall 
B)  they increase their purchases of goods and services 
C)  the central bank buys bonds to correct the imbalance 
D)  all of the above 
E)  none of the above

Question 19

A central bank can control the real interest rate precisely, so long as ________ remains constant.

Accepted Answer

A)  the nominal interest rate 
B)  monetary policy 
C)  expected inflation 
D)  all of the above 
E)  none of the above 
A)  the nominal interest rate 
B)  monetary policy 
C)  expected inflation 
D)  all of the above 
E)  none of the above

Question 20

Why is the demand for real money balances related to the nominal interest rate, rather than the real interest rate?

Accepted Answer

Because expected inflation is irrelevant

Exam 10: Monetary Policy and Aggregate Demand

The demand for real money balances ________.

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

A key concern of monetary policy makers is credibility. In particular, that people believe that inflation will not deviate far from a rate consistent with a healthy macroeconomy. How might credibility affect the slope of the monetary policy curve?

The aggregate demand curve is Y = 15 - 0.2π when the inflation rate falls from 6 percent to 5 percent. Then, output increases from 13.8 to 17. The response of monetary policy to the inflation decline has been ________.

According to liquidity preference theory, an increase in the price level would ________.

In the aggregate demand curve, the endogenous variable is ________.

When the Federal Reserve ________.

The MP curve may be used to represent how ________.

Autonomous tightening of monetary policy involves ________.

A decrease in income ________.

As the nominal interest rate increases ________.

________ is a good measure of the opportunity cost of holding money.

A decision to increase the parameter λ in the MP curve is an example of ________.

"Real money balances" refers to ________.

The IS curve is Y = 20 - 1.5r, and the aggregate demand curve is Y = 15.5 - 0.3π. When the inflation rate is 3 percent, output is ________.

Which of the following is true about the Taylor principle?

As the nominal interest rate increases ________.

When people are holding money in excess of their demand for real money balances ________.

A central bank can control the real interest rate precisely, so long as ________ remains constant.

Why is the demand for real money balances related to the nominal interest rate, rather than the real interest rate?

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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