Question 1

Suppose the Fed conducts an open market purchase. We can expect this transaction to

Accepted Answer

A)  reduce the money supply, increase bond prices, and lower interest rates. 
B)  increase the money supply, lower bond prices, and lower interest rates. 
C)  increase the money supply, raise bond prices, and lower interest rates. 
D)  reduce the money supply, reduce bond prices, and increase interest rates. 
A)  reduce the money supply, increase bond prices, and lower interest rates. 
B)  increase the money supply, lower bond prices, and lower interest rates. 
C)  increase the money supply, raise bond prices, and lower interest rates. 
D)  reduce the money supply, reduce bond prices, and increase interest rates.

Question 2

Figure 10-5  
-Refer to Figure 10-5. What happens in the product market as a result of the increase in money supply?

Accepted Answer

A)  The aggregate demand curve shifts to the left. 
B)  The aggregate demand curve shifts to the right. 
C)  The short-run aggregate supply curve shifts to the left. 
D)  The short-run aggregate supply curve shifts to the right. 
A)  The aggregate demand curve shifts to the left. 
B)  The aggregate demand curve shifts to the right. 
C)  The short-run aggregate supply curve shifts to the left. 
D)  The short-run aggregate supply curve shifts to the right.

Question 3

Scenario 1
Consider two money management strategies. The first strategy is called the cash strategy in which an individual deposits her monthly earnings in a checking account and draws down equal amounts each day to finance her daily expenditures. Assume that she earns no interest on her checking accounts and funds are exhausted at the end of the month. The second strategy is called the bond fund strategy. Here the individual deposits one-quarter of her earnings in a checking account and the remaining three-quarters in a bond fund. The bond fund pays 1% interest per month. At the end of the week when the money in the checking account is exhausted, the individual replenishes it by withdrawing another one-quarter of her earnings from the bond fund for the next week. This process is repeated at the end of the second week and third week until the bond fund is exhausted.
-Refer to Scenario 1. An individual is more likely to adopt the bond fund strategy when

Accepted Answer

A)  the inflation rate falls. 
B)  the interest rate is higher. 
C)  the cost of transferring funds between interest earning assets and checkable deposits is high. 
D)  bond funds become less liquid. 
A)  the inflation rate falls. 
B)  the interest rate is higher. 
C)  the cost of transferring funds between interest earning assets and checkable deposits is high. 
D)  bond funds become less liquid.

Question 4

An increase in the U.S. exchange rate will make U.S. exports.

Accepted Answer

A)  less attractive to foreigners and imports from other countries less attractive to the United States. 
B)  less attractive to foreigners and imports from other countries more attractive to the United States. 
C)  more attractive to foreigners and imports from other countries more attractive to the United States. 
D)  more attractive to foreigners and imports from other countries less attractive to the United States. 
A)  less attractive to foreigners and imports from other countries less attractive to the United States. 
B)  less attractive to foreigners and imports from other countries more attractive to the United States. 
C)  more attractive to foreigners and imports from other countries more attractive to the United States. 
D)  more attractive to foreigners and imports from other countries less attractive to the United States.

Question 5

Higher interest rates in the United States will attract foreigners to U.S interest-earning assets. This

Accepted Answer

A)  decreases U.S. net exports. 
B)  increases U.S. net exports. 
C)  decreases U.S. imports. 
D)  will have no effect on net exports. 
A)  decreases U.S. net exports. 
B)  increases U.S. net exports. 
C)  decreases U.S. imports. 
D)  will have no effect on net exports.

Question 6

An increase in bond prices accompanies a decrease in interest rates.

Accepted Answer

A) True 
 B)False

Question 7

An increase in the money supply by the Federal Reserve is likely to increase 
I. net exports.
II. the exchange rate.
III. interest rates.
IV. aggregate demand.

Accepted Answer

A)  I, II, III, and IV 
B)  I, II, and IV 
C)  I, III, and IV 
D)  I and IV 
A)  I, II, III, and IV 
B)  I, II, and IV 
C)  I, III, and IV 
D)  I and IV

Question 8

An increase in financial innovations such as increased network of ATM machines and the widespread acceptance of debit cards

Accepted Answer

A)  will shift the demand for money to the right. 
B)  will shift the demand for money to the left. 
C)  increases the quantity of money people want to hold at each interest rate. 
D)  decreases the quantity of money people want to hold at each interest rate. 
A)  will shift the demand for money to the right. 
B)  will shift the demand for money to the left. 
C)  increases the quantity of money people want to hold at each interest rate. 
D)  decreases the quantity of money people want to hold at each interest rate.

Question 9

The supply curve of money shows, all other things unchanged, the

Accepted Answer

A)  quantity of money supplied at each price of bonds. 
B)  quantity of money supplied at each bond rate. 
C)  quantity of money supplied at each interest rate. 
D)  amount of money people supply at a specific interest rate. 
A)  quantity of money supplied at each price of bonds. 
B)  quantity of money supplied at each bond rate. 
C)  quantity of money supplied at each interest rate. 
D)  amount of money people supply at a specific interest rate.

Question 10

An increase in the supply of money will lead to a(n)

Accepted Answer

A)  increase in equilibrium real GDP and an increase in the equilibrium interest rate. 
B)  increase in equilibrium real GDP and a decrease in the equilibrium interest rate. 
C)  decrease in equilibrium real GDP and an increase in the equilibrium interest rate. 
D)  decrease in equilibrium real GDP and a decrease in the equilibrium interest rate. 
A)  increase in equilibrium real GDP and an increase in the equilibrium interest rate. 
B)  increase in equilibrium real GDP and a decrease in the equilibrium interest rate. 
C)  decrease in equilibrium real GDP and an increase in the equilibrium interest rate. 
D)  decrease in equilibrium real GDP and a decrease in the equilibrium interest rate.

Question 11

Figure 10-6  
-Refer to Figure 10-6. If the economy is experiencing an inflationary gap, the Fed would

Accepted Answer

A)  buy government bonds, which would increase the money supply and decrease interest rates. The results of such a policy are represented in Panel (a). 
B)  sell government bonds, which would decrease the money supply and increase interest rates. The results of such a policy are represented in Panel (b). 
C)  buy government bonds, which would decrease the money supply and increase interest rates. The results of such a policy are represented in Panel (b). 
D)  sell government bonds, which would increase the money supply and increase interest rates. The results of such a policy are represented in Panel (b). 
A)  buy government bonds, which would increase the money supply and decrease interest rates. The results of such a policy are represented in Panel (a). 
B)  sell government bonds, which would decrease the money supply and increase interest rates. The results of such a policy are represented in Panel (b). 
C)  buy government bonds, which would decrease the money supply and increase interest rates. The results of such a policy are represented in Panel (b). 
D)  sell government bonds, which would increase the money supply and increase interest rates. The results of such a policy are represented in Panel (b).

Question 12

Which of the following increases the demand for money?

Accepted Answer

A)  an increase in the costs of transferring between money and non-money accounts 
B)  a decrease in real GDP 
C)  a decrease in the price level 
D)  declining preferences by consumers for holding money 
A)  an increase in the costs of transferring between money and non-money accounts 
B)  a decrease in real GDP 
C)  a decrease in the price level 
D)  declining preferences by consumers for holding money

Question 13

If the Fed acts to increase the money supply,

Accepted Answer

A)  it will sell bonds, drive bond prices up, and drive interest rates down. 
B)  it will buy bonds, drive bond prices down, and drive interest rates down. 
C)  it will sell bonds, drive bond prices up, and drive interest rates up. 
D)  it will buy bonds, drive bond prices up, and drive interest rates down. 
A)  it will sell bonds, drive bond prices up, and drive interest rates down. 
B)  it will buy bonds, drive bond prices down, and drive interest rates down. 
C)  it will sell bonds, drive bond prices up, and drive interest rates up. 
D)  it will buy bonds, drive bond prices up, and drive interest rates down.

Question 14

Figure 10-6  
-Refer to Figure 10-6. Panel (a) illustrates what happens when the Fed

Accepted Answer

A)  lowers the money supply and lowers interest rates. 
B)  increases the money supply and increases interest rates. 
C)  increases the money supply and lowers interest rates. 
D)  lowers the money supply and increases interest rates. 
A)  lowers the money supply and lowers interest rates. 
B)  increases the money supply and increases interest rates. 
C)  increases the money supply and lowers interest rates. 
D)  lowers the money supply and increases interest rates.

Question 15

All else constant, an increase in the supply of money will lead to _______

Accepted Answer

A)  an increase in the equilibrium quantity of money and an increase in the equilibrium price of bonds. 
B)  an increase in the equilibrium quantity of money and a decrease in the equilibrium price of bonds. 
C)  a decrease in the equilibrium quantity of money and an increase in the equilibrium price of bonds. 
D)  a decrease in the equilibrium quantity of money and a decrease in the equilibrium price of bonds. 
A)  an increase in the equilibrium quantity of money and an increase in the equilibrium price of bonds. 
B)  an increase in the equilibrium quantity of money and a decrease in the equilibrium price of bonds. 
C)  a decrease in the equilibrium quantity of money and an increase in the equilibrium price of bonds. 
D)  a decrease in the equilibrium quantity of money and a decrease in the equilibrium price of bonds.

Question 16

Figure 10-8  
-Refer to Figure 10-8. Assume that the economy is at point b. A decrease in the money supply would cause

Accepted Answer

A)  a shift of the aggregate demand curve from AD1 to AD2. 
B)  a shift of the aggregate demand curve from AD2 to AD1. 
C)  a shift of the short run aggregate supply curve from AS1 to AS2. 
D)  a shift of the short run aggregate supply curve from AS2 to AS1. 
A)  a shift of the aggregate demand curve from AD1 to AD2. 
B)  a shift of the aggregate demand curve from AD2 to AD1. 
C)  a shift of the short run aggregate supply curve from AS1 to AS2. 
D)  a shift of the short run aggregate supply curve from AS2 to AS1.

Question 17

The Fed could conduct an open market purchase to eliminate an inflationary gap.

Accepted Answer

A) True 
 B)False

Question 18

Figure 10-4  
-Refer to Figure 10-4. What happens in the bond market as a result of the shift in the money demand curve from D1 to D2?

Accepted Answer

A)  The demand for bonds increases. 
B)  The demand for bonds decreases. 
C)  The supply of bonds increases. 
D)  The supply of bonds decreases. 
A)  The demand for bonds increases. 
B)  The demand for bonds decreases. 
C)  The supply of bonds increases. 
D)  The supply of bonds decreases.

Question 19

Which of the following statements is true? All other things unchanged,

Accepted Answer

A)  when bond prices rise, real GDP and the price level rise. 
B)  when bond prices fall, real GDP rises and the price level falls. 
C)  when bond prices rise, the interest rate rises, and aggregate demand and the price level fall. 
D)  when bond prices fall, the interest rate and aggregate demand fall. 
A)  when bond prices rise, real GDP and the price level rise. 
B)  when bond prices fall, real GDP rises and the price level falls. 
C)  when bond prices rise, the interest rate rises, and aggregate demand and the price level fall. 
D)  when bond prices fall, the interest rate and aggregate demand fall.

Question 20

The demand curve for money shows the quantity of money demanded at each interest rate, all other things unchanged.

Accepted Answer

A) True 
 B)False

Suppose the Fed conducts an open market purchase. We can expect this transaction to

Figure 10-5 -Refer to Figure 10-5. What happens in the product market as a result of the increase in money supply?

An increase in the U.S. exchange rate will make U.S. exports.

Higher interest rates in the United States will attract foreigners to U.S interest-earning assets. This

An increase in bond prices accompanies a decrease in interest rates.

An increase in the money supply by the Federal Reserve is likely to increase I. net exports. II. the exchange rate. III. interest rates. IV. aggregate demand.

An increase in financial innovations such as increased network of ATM machines and the widespread acceptance of debit cards

The supply curve of money shows, all other things unchanged, the

An increase in the supply of money will lead to a(n)

Figure 10-6 -Refer to Figure 10-6. If the economy is experiencing an inflationary gap, the Fed would

Which of the following increases the demand for money?

If the Fed acts to increase the money supply,

Figure 10-6 -Refer to Figure 10-6. Panel (a) illustrates what happens when the Fed

All else constant, an increase in the supply of money will lead to _______

Figure 10-8 -Refer to Figure 10-8. Assume that the economy is at point b. A decrease in the money supply would cause

The Fed could conduct an open market purchase to eliminate an inflationary gap.

Figure 10-4 -Refer to Figure 10-4. What happens in the bond market as a result of the shift in the money demand curve from D₁ to D₂?

Which of the following statements is true? All other things unchanged,

The demand curve for money shows the quantity of money demanded at each interest rate, all other things unchanged.

Economics: the Study of Choice

Demand and Supply

Applications of Demand and Supply

Macroeconomics: the Big Picture

Measuring Total Output and Income

Aggregate Demand and Aggregate Supply

Economic Growth

The Nature and Creation of Money

Monetary Policy and the Fed

Government and Fiscal Policy

Consumption and the Aggregate Expenditures Model

Investment and Economic Activity

Net Exports and International Finance

Inflation and Unemployment

A Brief History of Macroeconomic Thought and Policy

Inequality, Poverty, and Discrimination

Economic Development

Socialist Economies in Transition

Filters

Exam 10: Financial Markets and the Economy

Suppose the Fed conducts an open market purchase. We can expect this transaction to

Figure 10-5 -Refer to Figure 10-5. What happens in the product market as a result of the increase in money supply?

An increase in the U.S. exchange rate will make U.S. exports.

Higher interest rates in the United States will attract foreigners to U.S interest-earning assets. This

An increase in bond prices accompanies a decrease in interest rates.

An increase in the money supply by the Federal Reserve is likely to increase I. net exports. II. the exchange rate. III. interest rates. IV. aggregate demand.

An increase in financial innovations such as increased network of ATM machines and the widespread acceptance of debit cards

The supply curve of money shows, all other things unchanged, the

An increase in the supply of money will lead to a(n)

Figure 10-6 -Refer to Figure 10-6. If the economy is experiencing an inflationary gap, the Fed would

Which of the following increases the demand for money?

If the Fed acts to increase the money supply,

Figure 10-6 -Refer to Figure 10-6. Panel (a) illustrates what happens when the Fed

All else constant, an increase in the supply of money will lead to _______

Figure 10-8 -Refer to Figure 10-8. Assume that the economy is at point b. A decrease in the money supply would cause

The Fed could conduct an open market purchase to eliminate an inflationary gap.

Figure 10-4 -Refer to Figure 10-4. What happens in the bond market as a result of the shift in the money demand curve from D1 to D2?

Which of the following statements is true? All other things unchanged,

The demand curve for money shows the quantity of money demanded at each interest rate, all other things unchanged.

Economics: the Study of Choice

Demand and Supply

Applications of Demand and Supply

Macroeconomics: the Big Picture

Measuring Total Output and Income

Aggregate Demand and Aggregate Supply

Economic Growth

The Nature and Creation of Money

Monetary Policy and the Fed

Government and Fiscal Policy

Consumption and the Aggregate Expenditures Model

Investment and Economic Activity

Net Exports and International Finance

Inflation and Unemployment

A Brief History of Macroeconomic Thought and Policy

Inequality, Poverty, and Discrimination

Economic Development

Socialist Economies in Transition

Filters

Figure 10-4 -Refer to Figure 10-4. What happens in the bond market as a result of the shift in the money demand curve from D₁ to D₂?