Question 1

Effective expansionary monetary policy,according to Keynesian theorists,will do all of the following except

Accepted Answer

A) Increase bank lending capacity. 
B) Lower real output. 
C) Encourage people to borrow and spend money. 
D) Reduce interest rates. 
A) Increase bank lending capacity. 
B) Lower real output. 
C) Encourage people to borrow and spend money. 
D) Reduce interest rates.

Question 2

The speculative demand for money is related to money functioning as a

Accepted Answer

A) Store of value. 
B) Standard of value. 
C) Medium of exchange. 
D) Unit of account. 
A) Store of value. 
B) Standard of value. 
C) Medium of exchange. 
D) Unit of account.

Question 3

Assume the aggregate supply curve is horizontal and the economy is experiencing a recession.Which of the following is most likely to occur if the Fed pursues expansionary monetary policy?

Accepted Answer

A) The equilibrium price level and output will both increase. 
B) The equilibrium price level and output will both decrease. 
C) The equilibrium price level will increase but output will stay the same. 
D) The equilibrium output will increase but the price level will stay the same until full employment is reached. 
A) The equilibrium price level and output will both increase. 
B) The equilibrium price level and output will both decrease. 
C) The equilibrium price level will increase but output will stay the same. 
D) The equilibrium output will increase but the price level will stay the same until full employment is reached.

Question 4

Which of the following causes the opportunity cost of holding money in the form of cash to decrease?

Accepted Answer

A) Lower interest rates. 
B) Higher short-term yields. 
C) Higher reserve requirement. 
D) Higher long-term yields. 
A) Lower interest rates. 
B) Higher short-term yields. 
C) Higher reserve requirement. 
D) Higher long-term yields.

Question 5

Refer to Figure 15.6.Which of the following Fed actions is most likely to decrease the aggregate demand curve from AD2 to AD1?

Accepted Answer

A) Buying bonds in the open market. 
B) Raising the federal funds rate. 
C) Lowering the discount rate. 
D) Decreasing the reserve requirement. 
A) Buying bonds in the open market. 
B) Raising the federal funds rate. 
C) Lowering the discount rate. 
D) Decreasing the reserve requirement.

Question 6

Why is expansionary monetary policy ineffective in the liquidity trap?

Accepted Answer

In the liquidity trap,people are willing

Question 7

How can the Fed increase the level of output for the economy through open market operations?

Accepted Answer

When the Fed buys bonds through open mar

Question 8

The Fed's diversity reflects

Accepted Answer

A) Changes in the targets the Fed sets for adjusting monetary policy. 
B) Fixed rules that are set for monetary growth rates. 
C) Guidance from Congress. 
D) The targeting of interest rates as the only goal to be achieved by monetary policy. 
A) Changes in the targets the Fed sets for adjusting monetary policy. 
B) Fixed rules that are set for monetary growth rates. 
C) Guidance from Congress. 
D) The targeting of interest rates as the only goal to be achieved by monetary policy.

Question 9

Monetary policy is most likely to result in inflation when the aggregate supply curve is

Accepted Answer

A) Vertical and the Fed lowers the discount rate. 
B) Vertical and the Fed raises the reserve requirement. 
C) Horizontal and the Fed sells securities. 
D) Horizontal and the Fed lowers the reserve ratio. 
A) Vertical and the Fed lowers the discount rate. 
B) Vertical and the Fed raises the reserve requirement. 
C) Horizontal and the Fed sells securities. 
D) Horizontal and the Fed lowers the reserve ratio.

Question 10

Monetary restraint is associated with all of the following except

Accepted Answer

A) A decrease in interest rates. 
B) A decrease in the money supply. 
C) An increase in the reserve requirement. 
D) A decrease in aggregate demand. 
A) A decrease in interest rates. 
B) A decrease in the money supply. 
C) An increase in the reserve requirement. 
D) A decrease in aggregate demand.

Question 11

Currency held by the public,balances in transactions accounts,plus balances in most savings accounts and money market mutual funds are the

Accepted Answer

A) Money demand. 
B) Federal funds. 
C) Money supply (M1). 
D) Money supply (M2). 
A) Money demand. 
B) Federal funds. 
C) Money supply (M1). 
D) Money supply (M2).

Question 12

Assume the price level is flexible both upward and downward but the Fed desires to keep the price level stable.If the level of aggregate supply decreases,the Fed must

Accepted Answer

A) Reduce interest rates. 
B) Reduce the reserve requirement. 
C) Increase the money supply. 
D) Decrease the money supply. 
A) Reduce interest rates. 
B) Reduce the reserve requirement. 
C) Increase the money supply. 
D) Decrease the money supply.

Question 13

If the anticipated inflation rate is 5 percent and the nominal interest rate is 9 percent,the real interest rate will be

Accepted Answer

A) 4 percent. 
B) Negative 14 percent. 
C) 14 percent. 
D) 5 percent. 
A) 4 percent. 
B) Negative 14 percent. 
C) 14 percent. 
D) 5 percent.

Question 14

Which of the following is a series of events that accurately describes the steps by which restrictive monetary policy is effective?

Accepted Answer

A) Decrease in interest rate,decrease in M1,and increase in investment. 
B) Decrease in M1,increase in interest rate,and decrease in investment. 
C) Increase in M1,decrease in investment,and decrease in interest rate. 
D) Increase in M1,increase in interest rate,and increase in investment. 
A) Decrease in interest rate,decrease in M1,and increase in investment. 
B) Decrease in M1,increase in interest rate,and decrease in investment. 
C) Increase in M1,decrease in investment,and decrease in interest rate. 
D) Increase in M1,increase in interest rate,and increase in investment.

Question 15

U.S.multinational nonbank corporations can borrow money from all of the following except

Accepted Answer

A) Domestic banks. 
B) Foreign bond markets. 
C) Foreign subsidiaries. 
D) Federal Reserve district banks. 
A) Domestic banks. 
B) Foreign bond markets. 
C) Foreign subsidiaries. 
D) Federal Reserve district banks.

Question 16

The price of money is foregone interest earnings.

Accepted Answer

A) True 
 B)False

Question 17

According to the equation of exchange,total spending will rise if the money supply decreases and velocity is stable.

Accepted Answer

A) True 
 B)False

Question 18

Refer to Figure 15.7.Suppose the Federal Reserve ________ bonds in the open market.The money supply will decrease and cause a shift from point ________.

Accepted Answer

A) buys;B to point A 
B) sells;B to point C 
C) buys;B to point C 
D) sells;C to point B 
A) buys;B to point A 
B) sells;B to point C 
C) buys;B to point C 
D) sells;C to point B

Question 19

Which diagram in Figure 15.1 best represents a situation in which lower interest rates do not stimulate additional investment?

Accepted Answer

A) b and d. 
B) b. 
C) c. 
D) d. 
A) b and d. 
B) b. 
C) c. 
D) d.

Question 20

What should happen to the equilibrium interest rate and the corresponding rate of investment if the Fed decreases the discount rate?

Accepted Answer

A) The equilibrium interest rate and the equilibrium rate of investment should both increase. 
B) The equilibrium interest rate should increase,and the equilibrium rate of investment should decrease. 
C) The equilibrium interest rate should decrease,and the equilibrium rate of investment should increase. 
D) The equilibrium interest rate and the equilibrium rate of investment should both decrease. 
A) The equilibrium interest rate and the equilibrium rate of investment should both increase. 
B) The equilibrium interest rate should increase,and the equilibrium rate of investment should decrease. 
C) The equilibrium interest rate should decrease,and the equilibrium rate of investment should increase. 
D) The equilibrium interest rate and the equilibrium rate of investment should both decrease.

Exam 15: Monetary Policy

Effective expansionary monetary policy,according to Keynesian theorists,will do all of the following except

The speculative demand for money is related to money functioning as a

Assume the aggregate supply curve is horizontal and the economy is experiencing a recession.Which of the following is most likely to occur if the Fed pursues expansionary monetary policy?

Which of the following causes the opportunity cost of holding money in the form of cash to decrease?

Refer to Figure 15.6.Which of the following Fed actions is most likely to decrease the aggregate demand curve from AD2 to AD1?

Why is expansionary monetary policy ineffective in the liquidity trap?

How can the Fed increase the level of output for the economy through open market operations?

The Fed's diversity reflects

Monetary policy is most likely to result in inflation when the aggregate supply curve is

Monetary restraint is associated with all of the following except

Currency held by the public,balances in transactions accounts,plus balances in most savings accounts and money market mutual funds are the

Assume the price level is flexible both upward and downward but the Fed desires to keep the price level stable.If the level of aggregate supply decreases,the Fed must

If the anticipated inflation rate is 5 percent and the nominal interest rate is 9 percent,the real interest rate will be

Which of the following is a series of events that accurately describes the steps by which restrictive monetary policy is effective?

U.S.multinational nonbank corporations can borrow money from all of the following except

The price of money is foregone interest earnings.

According to the equation of exchange,total spending will rise if the money supply decreases and velocity is stable.

Refer to Figure 15.7.Suppose the Federal Reserve ________ bonds in the open market.The money supply will decrease and cause a shift from point ________.

Which diagram in Figure 15.1 best represents a situation in which lower interest rates do not stimulate additional investment?

What should happen to the equilibrium interest rate and the corresponding rate of investment if the Fed decreases the discount rate?

Economics: the Core Issues

The Useconomy: a Global View

Supply and Demand

The Role of Government

National Income Accounting

Unemployment

Inflation

The Business Cycle

Aggregate Demand

Self-Adjustment or Instability

Fiscal Policy

Deficits and Debt

Money and Banks

The Federal Reserve System

Supply-Side Policy: Short-Run Options

Growth and Productivity: Long-Run Possibilities

Theory Versus Reality

Consumer Choice

Elasticity

The Costs of Production

The Competitive Firm

Competitive Markets

Monopoly

Oligopoly

Monopolistic Competition

Natural Monopolies: Deregulation

Environmental Protection

The Farm Problem

The Labor Market

Labor Unions

Financial Markets

Taxes: Equity Versus Efficiency

Transfer Payments: Welfare and Social Security

International Trade

International Finance

Global Poverty

Filters

Refer to Figure 15.6.Which of the following Fed actions is most likely to decrease the aggregate demand curve from AD₂ to AD₁?

Refer to Figure 15.7.Suppose the Federal Reserve bonds in the open market.The money supply will decrease and cause a shift from point .