Question 1

In symbols,the equation of exchange says

Accepted Answer

A)  MP = QV. 
B)  MQ = PV. 
C)  MV = PQ. 
D)  MP = MQ. 
A)  MP = QV. 
B)  MQ = PV. 
C)  MV = PQ. 
D)  MP = MQ.

Question 2

Exhibit 14-1
  
-Refer to Exhibit 14-1.What sequence of points shows the short- and long-run consequences of a rise in the money supply under monetarist assumptions?

Accepted Answer

A)  A-E-B 
B)  B-D-A 
C)  A-D-B 
D)  B-A 
A)  A-E-B 
B)  B-D-A 
C)  A-D-B 
D)  B-A

Question 3

The liquidity effect is the

Accepted Answer

A)  increase in the interest rate brought on by an increase in GDP. 
B)  increase in the interest rate due to a higher expected inflation rate. 
C)  decrease in the interest rate due to an increase in the supply of loanable funds. 
D)  response, in terms of rate of flow, of the money supply to a change in government spending. 
E)  rate of change in the price level caused by a change in the supply of money. 
A)  increase in the interest rate brought on by an increase in GDP. 
B)  increase in the interest rate due to a higher expected inflation rate. 
C)  decrease in the interest rate due to an increase in the supply of loanable funds. 
D)  response, in terms of rate of flow, of the money supply to a change in government spending. 
E)  rate of change in the price level caused by a change in the supply of money.

Question 4

The equation of exchange is an economic theory.

Accepted Answer

A) True 
 B)False

Question 5

Exhibit 14-1
  
-Refer to Exhibit 14-1.What sequence of points shows the short- and long-run consequences of a fall in velocity under monetarist assumptions?

Accepted Answer

A)  A-E-B 
B)  B-D-A 
C)  A-D-B 
D)  B-A 
A)  A-E-B 
B)  B-D-A 
C)  A-D-B 
D)  B-A

Question 6

The simple quantity theory of money predicts that changes in

Accepted Answer

A)  the money supply lead to strictly proportional changes in the price level. 
B)  the money supply do not affect the price level. 
C)  the price level lead to strictly proportional changes in velocity and GDP. 
D)  velocity lead to nearly proportional changes in the money supply. 
A)  the money supply lead to strictly proportional changes in the price level. 
B)  the money supply do not affect the price level. 
C)  the price level lead to strictly proportional changes in velocity and GDP. 
D)  velocity lead to nearly proportional changes in the money supply.

Question 7

When the Fed conducts open market operations,the impact of the buying or selling of bonds will include changes in

Accepted Answer

A)  the money supply. 
B)  interest rates. 
C)  the expected rate of inflation. 
D)  a and c 
E)  a, b and c 
A)  the money supply. 
B)  interest rates. 
C)  the expected rate of inflation. 
D)  a and c 
E)  a, b and c

Question 8

Monetarists can be described as a group of macroeconomists who

Accepted Answer

A)  emphasize the importance of the federal government's involvement in the economy to dampen the harmful effects of the business cycle. 
B)  emphasize the importance of the money supply as a determinant of macroeconomic activity. 
C)  tend to view government spending and taxation policy as the chief means of stabilizing the economy. 
D)  feel that money should not be created in the private banking system, but only by government. 
A)  emphasize the importance of the federal government's involvement in the economy to dampen the harmful effects of the business cycle. 
B)  emphasize the importance of the money supply as a determinant of macroeconomic activity. 
C)  tend to view government spending and taxation policy as the chief means of stabilizing the economy. 
D)  feel that money should not be created in the private banking system, but only by government.

Question 9

Which of the following is consistent with the equation of exchange?

Accepted Answer

A)  Total spending must equal the total sales revenues of business firms. 
B)  The money supply multiplied by velocity must equal GDP. 
C)  The money supply multiplied by velocity must equal the price level times Real GDP. 
D)  a and b 
E)  a, b and c 
A)  Total spending must equal the total sales revenues of business firms. 
B)  The money supply multiplied by velocity must equal GDP. 
C)  The money supply multiplied by velocity must equal the price level times Real GDP. 
D)  a and b 
E)  a, b and c

Question 10

A decrease in the interest rate due to an increase in the supply of loanable funds is referred to as the __________ effect.

Accepted Answer

A)  expectations 
B)  liquidity 
C)  income 
D)  a and c 
E)  a, b and c 
A)  expectations 
B)  liquidity 
C)  income 
D)  a and c 
E)  a, b and c

Question 11

Based upon the equation of exchange,which of the following (ceteris paribus)is most likely to bring about inflation?

Accepted Answer

A)  An increase in the money supply. 
B)  A decrease in velocity. 
C)  An increase in Real GDP. 
D)  a and b 
E)  a and c 
A)  An increase in the money supply. 
B)  A decrease in velocity. 
C)  An increase in Real GDP. 
D)  a and b 
E)  a and c

Question 12

The equation of exchange is

Accepted Answer

A)  an identity. 
B)  a theory. 
C)  an abstraction 
D)  a hypothesis. 
E)  a, b, and c 
A)  an identity. 
B)  a theory. 
C)  an abstraction 
D)  a hypothesis. 
E)  a, b, and c

Question 13

Changes in the money supply can affect

Accepted Answer

A)  expected inflation rates. 
B)  actual inflation rates. 
C)  the supply of loans. 
D)  a and b 
E)  a, b and c 
A)  expected inflation rates. 
B)  actual inflation rates. 
C)  the supply of loans. 
D)  a and b 
E)  a, b and c

Question 14

The simple quantity theory of money can be written as

Accepted Answer

A)  P = MV/Q. 
B)  MV = Q/P. 
C)  PM = VQ. 
D)  Q = PMV. 
E)  all of the above 
A)  P = MV/Q. 
B)  MV = Q/P. 
C)  PM = VQ. 
D)  Q = PMV. 
E)  all of the above

Question 15

In the equation of exchange,"Q" stands for

Accepted Answer

A)  the interest rate. 
B)  quality. 
C)  GDP. 
D)  Real GDP. 
A)  the interest rate. 
B)  quality. 
C)  GDP. 
D)  Real GDP.

Question 16

Suppose the Fed buys government securities from the public.The liquidity effect of this is that the interest rate will

Accepted Answer

A)  increase. 
B)  decrease. 
C)  remain constant. 
D)  any of the above are possible 
A)  increase. 
B)  decrease. 
C)  remain constant. 
D)  any of the above are possible

Question 17

According to the simple quantity theory of money in the AD-AS framework,when the money supply decreases,the result is __________ in Real GDP and __________ in the price level.

Accepted Answer

A)  no change; no change 
B)  a rise; no change 
C)  no change; a rise 
D)  a rise; a fall 
E)  no change; a fall 
A)  no change; no change 
B)  a rise; no change 
C)  no change; a rise 
D)  a rise; a fall 
E)  no change; a fall

Question 18

If the Fed increases its open market purchases of government securities,it exerts a downward pressure on the interest rate.Such a phenomenon is usually referred to as the ___________________ effect.

Accepted Answer

A)  income 
B)  substitution 
C)  open market 
D)  liquidity 
E)  expectations 
A)  income 
B)  substitution 
C)  open market 
D)  liquidity 
E)  expectations

Question 19

Ceteris paribus,the greater the increase in the money supply,the __________ the inflation rate,the __________ the expected inflation rate,and the __________ the interest rate.

Accepted Answer

A)  higher; higher; higher 
B)  lower; lower; lower 
C)  higher; lower; higher 
D)  lower; higher; lower 
E)  higher; lower; lower 
A)  higher; higher; higher 
B)  lower; lower; lower 
C)  higher; lower; higher 
D)  lower; higher; lower 
E)  higher; lower; lower

Question 20

The spread (difference)between the yield on conventional bonds and the yield on indexed bonds with the same maturities is an indication of the expected inflation rate.

Accepted Answer

A) True 
 B)False

Exam 14: Money and the Economy

In symbols,the equation of exchange says

Exhibit 14-1 -Refer to Exhibit 14-1.What sequence of points shows the short- and long-run consequences of a rise in the money supply under monetarist assumptions?

The liquidity effect is the

The equation of exchange is an economic theory.

Exhibit 14-1 -Refer to Exhibit 14-1.What sequence of points shows the short- and long-run consequences of a fall in velocity under monetarist assumptions?

The simple quantity theory of money predicts that changes in

When the Fed conducts open market operations,the impact of the buying or selling of bonds will include changes in

Monetarists can be described as a group of macroeconomists who

Which of the following is consistent with the equation of exchange?

A decrease in the interest rate due to an increase in the supply of loanable funds is referred to as the __________ effect.

Based upon the equation of exchange,which of the following (ceteris paribus)is most likely to bring about inflation?

The equation of exchange is

Changes in the money supply can affect

The simple quantity theory of money can be written as

In the equation of exchange,"Q" stands for

Suppose the Fed buys government securities from the public.The liquidity effect of this is that the interest rate will

According to the simple quantity theory of money in the AD-AS framework,when the money supply decreases,the result is __________ in Real GDP and __________ in the price level.

If the Fed increases its open market purchases of government securities,it exerts a downward pressure on the interest rate.Such a phenomenon is usually referred to as the ___________________ effect.

Ceteris paribus,the greater the increase in the money supply,the __________ the inflation rate,the __________ the expected inflation rate,and the __________ the interest rate.

The spread (difference)between the yield on conventional bonds and the yield on indexed bonds with the same maturities is an indication of the expected inflation rate.

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand: Theory

Prices: Free, Controlled, and Relative

Supply, Demand, and Price: Applications

Macroeconomic Measurements: Prices and Unemployment

Macroeconomic Measurements: GDP and Real GDP

Aggregate Demand and Aggregate Supply

Classical Macroeconomics and the Self Regulating Economy

Keynesian Macroeconomics and Economic Instability: A Critique of the Self-Regulating Economy

Fiscal Policy and the Federal Budget

Money, Banking,and the Financial System

The Federal Reserve System

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Expectations Theory and the Economy

Economic Growth: Resources, Technology, Ideas, and Institutions

The Financial Crisis of 2007-2009

Debates in Macroeconomics Over the Role and Effects of Government

Elasticity

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Perfect Competition

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Government and Product Markets: Antitrust and Regulation

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Market Failure: Externalities, Public Goods, and Asymmetric Information

Public Choice and Special-Interest-Group Politics

Building Theories to Explain Everyday Life: From Observations to Questions to Theories to Predictions

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Globalization and International Impacts on the Economy

The Economic Case For and Against Government: Five Topics Considered

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Agriculture: Problems, Policies, and Unintended Effects

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According to the simple quantity theory of money in the AD-AS framework,when the money supply decreases,the result is in Real GDP and in the price level.

Ceteris paribus,the greater the increase in the money supply,the the inflation rate,the the expected inflation rate,and the __ the interest rate.