Question 1

If the demand for nonmoney assets exceeds the supply of nonmoney assets, the demand for money

Accepted Answer

A) must exceed the supply of money. 
B) must equal the supply of money. 
C) must be less than the supply of money. 
D) may be greater than, less than, or equal to the supply of money, depending on prevailing interest rates. 
A) must exceed the supply of money. 
B) must equal the supply of money. 
C) must be less than the supply of money. 
D) may be greater than, less than, or equal to the supply of money, depending on prevailing interest rates.

Question 2

An increase in real output causes the demand for real balances

Accepted Answer

A) to rise and the interest rate to fall. 
B) to fall and the interest rate to rise. 
C) and the interest rate to fall. 
D) and the interest rate to rise. 
A) to rise and the interest rate to fall. 
B) to fall and the interest rate to rise. 
C) and the interest rate to fall. 
D) and the interest rate to rise.

Question 3

Which of the following is the correct expression for the nominal market interest rate?

Accepted Answer

A) r = i + πe 
B) i = r + πe 
C) r = i πe 
D) i = r πe 
A) r = i + πe 
B) i = r + πe 
C) r = i πe 
D) i = r πe

Question 4

The LM curve slopes upward to the right because

Accepted Answer

A) the demand for money plus the demand for nonmoney assets must equal the supply of money plus the supply of nonmoney assets. 
B) a higher real interest rate is associated with a higher level of output in money market equilibrium. 
C) a higher real interest rate is associated with a higher level of saving in goods market equilibrium. 
D) in equilibrium the actual real interest rate must increase one-for-one with expected real interest rate. 
A) the demand for money plus the demand for nonmoney assets must equal the supply of money plus the supply of nonmoney assets. 
B) a higher real interest rate is associated with a higher level of output in money market equilibrium. 
C) a higher real interest rate is associated with a higher level of saving in goods market equilibrium. 
D) in equilibrium the actual real interest rate must increase one-for-one with expected real interest rate.

Question 5

An increase in the expected real interest rate will have a

Accepted Answer

A) large negative impact on household saving. 
B) large positive impact on household saving. 
C) small positive impact on household saving. 
D) small negative impact on household saving. 
A) large negative impact on household saving. 
B) large positive impact on household saving. 
C) small positive impact on household saving. 
D) small negative impact on household saving.

Question 6

In the long run, a rightward shift of the FE line will result in

Accepted Answer

A) the LM curve shifting down and to the right. 
B) the IS curve shifting up and to the left. 
C) an increase in the real interest rate. 
D) an increase in the price level. 
A) the LM curve shifting down and to the right. 
B) the IS curve shifting up and to the left. 
C) an increase in the real interest rate. 
D) an increase in the price level.

Question 7

With respect to the IS curve for a small open economy

Accepted Answer

A) higher levels of the real interest rate are consistent with higher levels of real output. 
B) higher levels of the real interest rate are consistent with lower levels of real output. 
C) any value of real output is consistent with the equilibrium real interest rate. 
D) any value of the equilibrium real interest rate is consistent with the equilibrium value of real output. 
A) higher levels of the real interest rate are consistent with higher levels of real output. 
B) higher levels of the real interest rate are consistent with lower levels of real output. 
C) any value of real output is consistent with the equilibrium real interest rate. 
D) any value of the equilibrium real interest rate is consistent with the equilibrium value of real output.

Question 8

A general equilibrium is an outcome in which

Accepted Answer

A) all the markets in the economy are in equilibrium at the same time. 
B) exports and imports are both zero. 
C) the inflation rate is zero. 
D) no further economic growth is possible. 
A) all the markets in the economy are in equilibrium at the same time. 
B) exports and imports are both zero. 
C) the inflation rate is zero. 
D) no further economic growth is possible.

Question 9

During the first Gulf War

Accepted Answer

A) the interest rate rose. 
B) current output rose. 
C) the IS curve shifted up to the right. 
D) the IS curve shifted down to the left. 
A) the interest rate rose. 
B) current output rose. 
C) the IS curve shifted up to the right. 
D) the IS curve shifted down to the left.

Question 10

If the demand for money is highly sensitive to the interest rate,

Accepted Answer

A) the LM curve is relatively flat. 
B) the IS curve is relatively steep. 
C) the LM curve is relatively steep. 
D) investment spending will also be highly sensitive to the interest rate. 
A) the LM curve is relatively flat. 
B) the IS curve is relatively steep. 
C) the LM curve is relatively steep. 
D) investment spending will also be highly sensitive to the interest rate.

Question 11

The money market includes trade in

Accepted Answer

A) only currency. 
B) only checkable deposits. 
C) only currency and checkable deposits. 
D) currency, checkable deposits, and other close substitutes for cash. 
A) only currency. 
B) only checkable deposits. 
C) only currency and checkable deposits. 
D) currency, checkable deposits, and other close substitutes for cash.

Question 12

In a large open economy,

Accepted Answer

A) domestic saving need not equal domestic investment. 
B) the domestic interest rate must equal the world interest rate. 
C) the IS curve will be steeper than in a closed economy. 
D) the IS curve will shift only if the FE curve shifts. 
A) domestic saving need not equal domestic investment. 
B) the domestic interest rate must equal the world interest rate. 
C) the IS curve will be steeper than in a closed economy. 
D) the IS curve will shift only if the FE curve shifts.

Question 13

At points not on the IS curve,

Accepted Answer

A) the federal government's budget must not be balanced. 
B) saving must not equal investment. 
C) the interest rate must not equal the inflation rate. 
D) the demand for money must not equal the supply of money. 
A) the federal government's budget must not be balanced. 
B) saving must not equal investment. 
C) the interest rate must not equal the inflation rate. 
D) the demand for money must not equal the supply of money.

Question 14

Which of the following does NOT necessarily hold when the economy is in long-run equilibrium?

Accepted Answer

A) Saving equals investment. 
B) The nominal interest rate is equal to the real interest rate. 
C) The current output supplied is equal to the current output demanded. 
D) Households and businesses are willing to accept the mix of money and nonmoney assets they hold. 
A) Saving equals investment. 
B) The nominal interest rate is equal to the real interest rate. 
C) The current output supplied is equal to the current output demanded. 
D) Households and businesses are willing to accept the mix of money and nonmoney assets they hold.

Question 15

Suppose that George is dissatisfied with the proportion of his wealth that is held in money. Is he likely to be satisfied with his nonmoney asset holdings of savings in bonds and stocks?

Accepted Answer

If George would prefer to hold

Question 16

An increase in expected inflation will

Accepted Answer

A) increase the attractiveness of nonmoney assets. 
B) decrease the nominal interest rate. 
C) shift the LM curve up and to the left. 
D) increase the nominal return on money. 
A) increase the attractiveness of nonmoney assets. 
B) decrease the nominal interest rate. 
C) shift the LM curve up and to the left. 
D) increase the nominal return on money.

Question 17

A closed economy is one in which

Accepted Answer

A) investment spending is zero. 
B) government spending is zero. 
C) there are no international flows of saving and investment. 
D) demand equals supply in every market. 
A) investment spending is zero. 
B) government spending is zero. 
C) there are no international flows of saving and investment. 
D) demand equals supply in every market.

Question 18

At a point below the IS curve,

Accepted Answer

A) there is an excess supply of goods. 
B) the real interest rate is below its equilibrium value. 
C) saving exceeds investment. 
D) there is a federal budget surplus. 
A) there is an excess supply of goods. 
B) the real interest rate is below its equilibrium value. 
C) saving exceeds investment. 
D) there is a federal budget surplus.

Question 19

The IS curve depicts the relationship between

Accepted Answer

A) aggregate demand for current output and the real interest rate. 
B) investment demand and the real interest rate. 
C) investment demand and the level of current output. 
D) national saving and the level of current output. 
A) aggregate demand for current output and the real interest rate. 
B) investment demand and the real interest rate. 
C) investment demand and the level of current output. 
D) national saving and the level of current output.

Question 20

If GDP exceeds its full-employment level in the short run, what will take place to restore general equilibrium?

Accepted Answer

A) Price level will rise, causing LM to shift upward. 
B) Price level will rise, causing LM to shift downward. 
C) Price level will fall, causing LM to shift upward. 
D) Price level will fall, causing LM to shift downward. 
A) Price level will rise, causing LM to shift upward. 
B) Price level will rise, causing LM to shift downward. 
C) Price level will fall, causing LM to shift upward. 
D) Price level will fall, causing LM to shift downward.

Exam 24: Linking the Financial System and the Economy: the Is-Lm-Fe Model

If the demand for nonmoney assets exceeds the supply of nonmoney assets, the demand for money

An increase in real output causes the demand for real balances

Which of the following is the correct expression for the nominal market interest rate?

The LM curve slopes upward to the right because

An increase in the expected real interest rate will have a

In the long run, a rightward shift of the FE line will result in

With respect to the IS curve for a small open economy

A general equilibrium is an outcome in which

During the first Gulf War

If the demand for money is highly sensitive to the interest rate,

The money market includes trade in

In a large open economy,

At points not on the IS curve,

Which of the following does NOT necessarily hold when the economy is in long-run equilibrium?

Suppose that George is dissatisfied with the proportion of his wealth that is held in money. Is he likely to be satisfied with his nonmoney asset holdings of savings in bonds and stocks?

An increase in expected inflation will

A closed economy is one in which

At a point below the IS curve,

The IS curve depicts the relationship between

If GDP exceeds its full-employment level in the short run, what will take place to restore general equilibrium?

Introducing Money and the Financial System

Money and the Payments System

Overview of the Financial System

Interest Rates and Rates of Return

The Theory of Portfolio Allocation

Determining Market Interest Rates

Risk Structure and Term Structure of Interest Rates

The Foreign-Exchange Market and Exchange Rates

Derivative Securities and Derivative Markets

Information and Financial Market Efficiency

Reducing Transactions Costs and Information Costs

What Financial Institutions Do

The Business of Banking

The Banking Industry

Banking Regulation: Crisis and Response

Banking in the International Economy

The Money Supply Process

Changes in the Monetary Base

Organization of Central Banks

Monetary Policy Tools

The Conduct of Monetary Policy

The International Financial System and Monetary Policy

The Demand for Money

Aggregate Demand and Aggregate Supply

Money and Output in the Short Run

Information Problems and Channels for Monetary Policy

Inflation: Causes and Consequences

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