Question 1

Exhibit 20-2  Money market demand and supply curves  As shown in Exhibit 20-2, assume the money supply curve shifts rightward from MS1 to MS2 and the economy is operating along the intermediate segment of the aggregate supply curve. The result will be a:

Accepted Answer

A)  higher interest rate and no effect on real GDP or the price level. 
B)  lower investment, lower real GDP, and lower price level. 
C)  higher investment, higher real GDP, and higher price level. 
D)  higher investment, lower real GDP, and lower price level.

Question 2

Which of the following correctly gives us the equation of exchange?

Accepted Answer

A)  TR = PQ. 
B)  MV = VM. 
C)  MV = PQ. 
D)  TR = VM.

Question 3

The opportunity cost of holding money is properly measured by the rate of interest on financial assets such as bonds.

Accepted Answer

A) True 
 B)False

Question 4

Assume the economy is experiencing a recessionary gap. Keynesian economists would support which of the following policies:

Accepted Answer

A)  Nonstabilization 
B)  Expansionary 
C)  Nonintervention 
D)  Fixed wage

Question 5

The Keynesian mechanism through which monetary policy affects the price level, real GDP, and employment depends on the impact of the:

Accepted Answer

A)  interest rate on savings. 
B)  inflation on investment. 
C)  interest rate on investment. 
D)  interest rate on bond prices.

Question 6

The belief that the velocity of money is not constant but highly predictable is associated with the:

Accepted Answer

A)  classical school. 
B)  Keynesian school. 
C)  supply-side school. 
D)  rational expectations school 
E)  monetarist school.

Question 7

Discuss the determinants of the equilibrium interest rate and how it may change. What can the Fed do to change the interest rate?

Accepted Answer

The answer of Discuss the determinants of the equilibrium interest...

Question 8

When the Fed decreases the money supply, interest rates:

Accepted Answer

A)  rise. 
B)  fall. 
C)  are unaffected. 
D)  rise and then fall. 
E)  fall and then rise.

Question 9

The demand for money that households keep for emergency purposes is known as the:

Accepted Answer

A)  precautionary demand. 
B)  emergency demand. 
C)  speculative demand. 
D)  transactions demand. 
E)  temporary demand.

Question 10

Assume the economy is operating at a real GDP above full-employment real GDP. Classical economists would prescribe which of the following policies?

Accepted Answer

A)  Nonintervention 
B)  Active monetary policy 
C)  Contractionary 
D)  Expansionary

Question 11

One reason that people hold money is to pay for unexpected car repairs and other unpredictable expenses. This motive for holding money is called:

Accepted Answer

A)  transactions demand. 
B)  precautionary demand. 
C)  speculative demand. 
D)  noncyclical demand.

Question 12

Exhibit 20A-3  Macro AD/AS Model
 As shown in Exhibit 20A-3, assume the marginal propensity to consume MPC equals 0.75. Using discretionary fiscal policy, federal government spending should be ____ in order to restore the economy from E1 to full employment.

Accepted Answer

A)  increased by $1 trillion 
B)  increased by $2 trillion 
C)  decreased by $2 trillion 
D)  increased by $.50 trillion 
E)  increased by $.80 trillion

Question 13

The assumption that the velocity of money and the quantity being produced is constant is held by the:

Accepted Answer

A)  Keynesian school. 
B)  supply-side school. 
C)  neo-Keynesian school. 
D)  rational expectations school. 
E)  classical school.

Question 14

Exhibit 20-4  Aggregate demand and supply model  In Exhibit 20-4, which one of the following actions could the Fed use to shift the AD curve from AD3 to AD2?

Accepted Answer

A)  Lower the legal reserve requirement. 
B)  Lower the discount rate. 
C)  Lower the federal funds rate. 
D)  Raise the discount rate. 
E)  Buy government securities.

Question 15

Monetarists believe that an increase in the money supply will lead to:

Accepted Answer

A)  both c and d. 
B)  all of the following. 
C)  an increase in the price level. 
D)  an increase in nominal GDP 
E)  an increase in real GDP.

Question 16

If the velocity of the M1 money supply is 4 and nominal GDP is $200 billion, the stock of money in circulation must be:

Accepted Answer

A)  $25 billion. 
B)  $50 billion. 
C)  $100 billion. 
D)  $800 billion.

Question 17

The opportunity cost of holding money is measured by the rate of interest.

Accepted Answer

A) True 
 B)False

Question 18

People learn to hold a specific quantity of money for the groceries, theater tickets, gasoline, clothes, film, and other items they habitually purchase. This behavior is representative of the:

Accepted Answer

A)  precautionary demand. 
B)  speculative demand. 
C)  transactions demand. 
D)  volatility demand. 
E)  liquidity demand.

Question 19

Which of the following is the velocity of money?

Accepted Answer

A)  How quickly the average worker gets paid after his or her work is done. 
B)  The average speed of ATM machines. 
C)  The average number of times per year that a given dollar of the money supply is spent. 
D)  None of the above.

Question 20

The quantity of money held in response to interest rates is the:

Accepted Answer

A)  transactions motive for holding money. 
B)  precautionary motive for holding money. 
C)  speculative motive for holding money. 
D)  unit-of-account motive for holding money.

Exam 20: Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

Exhibit 20-2 Money market demand and supply curves As shown in Exhibit 20-2, assume the money supply curve shifts rightward from MS₁ to MS₂ and the economy is operating along the intermediate segment of the aggregate supply curve. The result will be a:

Which of the following correctly gives us the equation of exchange?

The opportunity cost of holding money is properly measured by the rate of interest on financial assets such as bonds.

Assume the economy is experiencing a recessionary gap. Keynesian economists would support which of the following policies:

The Keynesian mechanism through which monetary policy affects the price level, real GDP, and employment depends on the impact of the:

The belief that the velocity of money is not constant but highly predictable is associated with the:

Discuss the determinants of the equilibrium interest rate and how it may change. What can the Fed do to change the interest rate?

When the Fed decreases the money supply, interest rates:

The demand for money that households keep for emergency purposes is known as the:

Assume the economy is operating at a real GDP above full-employment real GDP. Classical economists would prescribe which of the following policies?

One reason that people hold money is to pay for unexpected car repairs and other unpredictable expenses. This motive for holding money is called:

Exhibit 20A-3 Macro AD/AS Model As shown in Exhibit 20A-3, assume the marginal propensity to consume MPC equals 0.75. Using discretionary fiscal policy, federal government spending should be ____ in order to restore the economy from E₁ to full employment.

The assumption that the velocity of money and the quantity being produced is constant is held by the:

Exhibit 20-4 Aggregate demand and supply model In Exhibit 20-4, which one of the following actions could the Fed use to shift the AD curve from AD₃ to AD₂?

Monetarists believe that an increase in the money supply will lead to:

If the velocity of the M1 money supply is 4 and nominal GDP is $200 billion, the stock of money in circulation must be:

The opportunity cost of holding money is measured by the rate of interest.

People learn to hold a specific quantity of money for the groceries, theater tickets, gasoline, clothes, film, and other items they habitually purchase. This behavior is representative of the:

Which of the following is the velocity of money?

The quantity of money held in response to interest rates is the:

Exam 20: Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

Exhibit 20-2 Money market demand and supply curves As shown in Exhibit 20-2, assume the money supply curve shifts rightward from MS1 to MS2 and the economy is operating along the intermediate segment of the aggregate supply curve. The result will be a:

Which of the following correctly gives us the equation of exchange?

The opportunity cost of holding money is properly measured by the rate of interest on financial assets such as bonds.

Assume the economy is experiencing a recessionary gap. Keynesian economists would support which of the following policies:

The Keynesian mechanism through which monetary policy affects the price level, real GDP, and employment depends on the impact of the:

The belief that the velocity of money is not constant but highly predictable is associated with the:

Discuss the determinants of the equilibrium interest rate and how it may change. What can the Fed do to change the interest rate?

When the Fed decreases the money supply, interest rates:

The demand for money that households keep for emergency purposes is known as the:

Assume the economy is operating at a real GDP above full-employment real GDP. Classical economists would prescribe which of the following policies?

One reason that people hold money is to pay for unexpected car repairs and other unpredictable expenses. This motive for holding money is called:

Exhibit 20A-3 Macro AD/AS Model As shown in Exhibit 20A-3, assume the marginal propensity to consume MPC equals 0.75. Using discretionary fiscal policy, federal government spending should be ____ in order to restore the economy from E1 to full employment.

The assumption that the velocity of money and the quantity being produced is constant is held by the:

Exhibit 20-4 Aggregate demand and supply model In Exhibit 20-4, which one of the following actions could the Fed use to shift the AD curve from AD3 to AD2?

Monetarists believe that an increase in the money supply will lead to:

If the velocity of the M1 money supply is 4 and nominal GDP is $200 billion, the stock of money in circulation must be:

The opportunity cost of holding money is measured by the rate of interest.

People learn to hold a specific quantity of money for the groceries, theater tickets, gasoline, clothes, film, and other items they habitually purchase. This behavior is representative of the:

Which of the following is the velocity of money?

The quantity of money held in response to interest rates is the:

Exhibit 20-2 Money market demand and supply curves As shown in Exhibit 20-2, assume the money supply curve shifts rightward from MS₁ to MS₂ and the economy is operating along the intermediate segment of the aggregate supply curve. The result will be a:

Exhibit 20A-3 Macro AD/AS Model As shown in Exhibit 20A-3, assume the marginal propensity to consume MPC equals 0.75. Using discretionary fiscal policy, federal government spending should be ____ in order to restore the economy from E₁ to full employment.

Exhibit 20-4 Aggregate demand and supply model In Exhibit 20-4, which one of the following actions could the Fed use to shift the AD curve from AD₃ to AD₂?