Question 1

If the interest rate increases,the opportunity cost of holding money __________,and the quantity demanded of money __________.

Accepted Answer

A)  does not change; does not change 
B)  increases; also increases 
C)  decreases; increases 
D)  increases; decreases 
E)  decreases; also decreases 
A)  does not change; does not change 
B)  increases; also increases 
C)  decreases; increases 
D)  increases; decreases 
E)  decreases; also decreases

Question 2

A change in the money supply will change investment when

Accepted Answer

A)  the money supply is a function of the price level. 
B)  investment is interest-sensitive. 
C)  investment depends only on the level of GDP. 
D)  investment is interest-insensitive. 
E)  the supply for money is a function of the interest rate. 
A)  the money supply is a function of the price level. 
B)  investment is interest-sensitive. 
C)  investment depends only on the level of GDP. 
D)  investment is interest-insensitive. 
E)  the supply for money is a function of the interest rate.

Question 3

According to Keynesians,__________ monetary policy will not remove the economy from a(an)__________ gap if __________.

Accepted Answer

A)  contractionary; recessionary; investment is interest-insensitive 
B)  expansionary; recessionary; the economy is in the liquidity trap 
C)  expansionary; inflationary; investment is interest-insensitive 
D)  contractionary; inflationary; the economy has been in the inflationary gap for more than one year 
E)  none of the above 
A)  contractionary; recessionary; investment is interest-insensitive 
B)  expansionary; recessionary; the economy is in the liquidity trap 
C)  expansionary; inflationary; investment is interest-insensitive 
D)  contractionary; inflationary; the economy has been in the inflationary gap for more than one year 
E)  none of the above

Question 4

The predetermined-money-growth-rate rule states that the annual growth rate in the money supply will be constant at the average annual growth rate of Real GDP.

Accepted Answer

A) True 
 B)False

Question 5

Exhibit 15-2
  
-Refer to Exhibit 15-2. If the interest rate is i1 and the relevant money supply curve is S2,then there is a

Accepted Answer

A)  shortage of money between points B and A. 
B)  surplus of money between points B and A. 
C)  surplus of money between points C and D. 
D)  shortage of money between points C and D. 
A)  shortage of money between points B and A. 
B)  surplus of money between points B and A. 
C)  surplus of money between points C and D. 
D)  shortage of money between points C and D.

Question 6

As the opportunity cost of holding money decreases,the quantity demanded of money

Accepted Answer

A)  increases. 
B)  decreases. 
C)  remains unchanged. 
D)  increases, then decreases. 
E)  decreases, then increases. 
A)  increases. 
B)  decreases. 
C)  remains unchanged. 
D)  increases, then decreases. 
E)  decreases, then increases.

Question 7

Which of the following statements is likely to be made by an economist who believes in activist monetary policy? (1)The more closely monetary policy can be designed to meet the particulars of a given economic environment,the better.(2)Because of long and uncertain time lags,activist monetary policy may be destabilizing rather than stabilizing.(3)There is sufficient flexibility in wages and prices in modern economies to allow the economy to equilibrate in reasonable speed at the natural level of Real GDP.(4)The "same-for-all-seasons" monetary policy is the way to proceed.(5)There is evidence that monetary policy in the mid-1970s caused a recession.

Accepted Answer

A)  (1), (2), and (3) 
B)  (1), (4), and (5) 
C)  (1) and (5) 
D)  (4) and (5) 
E)  (1), (3), and (4) 
A)  (1), (2), and (3) 
B)  (1), (4), and (5) 
C)  (1) and (5) 
D)  (4) and (5) 
E)  (1), (3), and (4)

Question 8

Suppose that the bond market and the money market both start out in equilibrium,then the Federal Reserve decreases the money supply. The result will be a ______________ in the money market and a _________________ in the bond market,which will push bond prices _________________ and interest rates will ___________________ until a new equilibrium is reached.

Accepted Answer

A)  surplus; shortage; up; fall 
B)  shortage; surplus; down; rise 
C)  surplus; shortage; down; rise 
D)  shortage; surplus; down; fall 
A)  surplus; shortage; up; fall 
B)  shortage; surplus; down; rise 
C)  surplus; shortage; down; rise 
D)  shortage; surplus; down; fall

Question 9

According to the monetarist transmission mechanism,a decrease in the supply of money will result in

Accepted Answer

A)  individuals initially holding excess bonds. 
B)  individuals initially holding excess money. 
C)  a leftward shift in the aggregate demand curve. 
D)  a and c 
A)  individuals initially holding excess bonds. 
B)  individuals initially holding excess money. 
C)  a leftward shift in the aggregate demand curve. 
D)  a and c

Question 10

The money supply increased and the AD curve did not shift to the right.This is consistent with the

Accepted Answer

A)  Keynesian transmission mechanism when there is either a liquidity trap or interest-insensitive investment. 
B)  monetarist transmission mechanism when there is interest-insensitive investment. 
C)  Keynesian transmission mechanism when there is a liquidity trap. 
D)  monetarist transmission mechanism when there is a liquidity trap. 
E)  c and d 
A)  Keynesian transmission mechanism when there is either a liquidity trap or interest-insensitive investment. 
B)  monetarist transmission mechanism when there is interest-insensitive investment. 
C)  Keynesian transmission mechanism when there is a liquidity trap. 
D)  monetarist transmission mechanism when there is a liquidity trap. 
E)  c and d

Question 11

Activists believe that

Accepted Answer

A)  monetary policy should not be used to smooth out the business cycle. 
B)  fiscal policy should not be used to smooth out the business cycle. 
C)  the frequent use of fiscal or monetary policy is called for to smooth out the business cycle. 
D)  rules should be established for the conduct of both monetary and fiscal policy. 
A)  monetary policy should not be used to smooth out the business cycle. 
B)  fiscal policy should not be used to smooth out the business cycle. 
C)  the frequent use of fiscal or monetary policy is called for to smooth out the business cycle. 
D)  rules should be established for the conduct of both monetary and fiscal policy.

Question 12

Monetary policy is

Accepted Answer

A)  the policy concerning changes in the money supply that is pursued to achieve particular macroeconomic goals. 
B)  the expenditures and taxation policy that the government pursues to achieve particular macroeconomic goals. 
C)  the investment policy that businesses pursue to achieve particular macroeconomic goals. 
D)  the spending and saving policy that consumers pursue to achieve particular macroeconomic goals. 
E)  the spending policy that the Treasury pursues to achieve particular macroeconomic goals. 
A)  the policy concerning changes in the money supply that is pursued to achieve particular macroeconomic goals. 
B)  the expenditures and taxation policy that the government pursues to achieve particular macroeconomic goals. 
C)  the investment policy that businesses pursue to achieve particular macroeconomic goals. 
D)  the spending and saving policy that consumers pursue to achieve particular macroeconomic goals. 
E)  the spending policy that the Treasury pursues to achieve particular macroeconomic goals.

Question 13

An individual buys a bond for $1,000 and sells it one year later for $1,050.What is the annual interest rate return that this individual has received on this bond?

Accepted Answer

A)  5.0 percent 
B)  50.0 percent 
C)  7.5 percent 
D)  4.0 percent 
E)  0.05 percent 
A)  5.0 percent 
B)  50.0 percent 
C)  7.5 percent 
D)  4.0 percent 
E)  0.05 percent

Question 14

The Taylor Rule provides policymakers with a target for

Accepted Answer

A)  the federal funds rate. 
B)  the discount rate. 
C)  the inflation rate. 
D)  the unemployment rate. 
E)  c and d 
A)  the federal funds rate. 
B)  the discount rate. 
C)  the inflation rate. 
D)  the unemployment rate. 
E)  c and d

Question 15

Economists who favor activist monetary policy argue that

Accepted Answer

A)  the economy does not always equilibrate quickly enough at the Natural Real GDP or full-employment output and therefore needs help. 
B)  activist monetary policy is effective at smoothing out the business cycle. 
C)  activist monetary policy is flexible and flexibility is a desirable quality in monetary policy. 
D)  a and b 
E)  a, b and c 
A)  the economy does not always equilibrate quickly enough at the Natural Real GDP or full-employment output and therefore needs help. 
B)  activist monetary policy is effective at smoothing out the business cycle. 
C)  activist monetary policy is flexible and flexibility is a desirable quality in monetary policy. 
D)  a and b 
E)  a, b and c

Question 16

The SRAS curve is upward sloping,there is a liquidity trap,and investment spending is sensitive to changes in the interest rate.According to the monetarist transmission mechanism,if the money supply increases the AD curve __________ and the price level __________.

Accepted Answer

A)  does not change; does not change 
B)  shifts to the left; falls 
C)  shifts to the right; rises 
D)  does not change; rises 
E)  none of the above 
A)  does not change; does not change 
B)  shifts to the left; falls 
C)  shifts to the right; rises 
D)  does not change; rises 
E)  none of the above

Question 17

Exhibit 15-2
  
-Refer to Exhibit 15-2.A(n)__________ in the money supply from S1 to S2 would have a tendency to __________ the opportunity cost of holding money.

Accepted Answer

A)  increase; raise 
B)  increase; lower 
C)  decrease; raise 
D)  decrease; lower 
A)  increase; raise 
B)  increase; lower 
C)  decrease; raise 
D)  decrease; lower

Question 18

Suppose that a rules-based monetary policy proposal specifies that the money supply will grow 3 percent each year.If velocity grows 1 percent this year and Real GDP grows 2 percent,the price level will __________ by __________ percent.

Accepted Answer

A)  rise; 3 
B)  fall; 2 
C)  rise; 2 
D)  rise; 6 
E)  fall; 5 
A)  rise; 3 
B)  fall; 2 
C)  rise; 2 
D)  rise; 6 
E)  fall; 5

Question 19

Exhibit 15-l
  
-Refer to Exhibit 15-l.A Keynesian monetary policy to eliminate a recessionary gap can be portrayed as a move between points

Accepted Answer

A)  A and B. 
B)  B and C. 
C)  C and D. 
D)  D and A. 
A)  A and B. 
B)  B and C. 
C)  C and D. 
D)  D and A.

Question 20

The supply of bonds rises,ceteris paribus,and the price of bonds __________.This __________ the interest rate and __________ the quantity demanded of money.

Accepted Answer

A)  rises; raises; lowers 
B)  falls; lowers; raises 
C)  rises; lowers; lowers 
D)  falls; raises; lowers 
E)  falls; lowers; lowers 
A)  rises; raises; lowers 
B)  falls; lowers; raises 
C)  rises; lowers; lowers 
D)  falls; raises; lowers 
E)  falls; lowers; lowers

Exam 15: Monetary Policy

If the interest rate increases,the opportunity cost of holding money __________,and the quantity demanded of money __________.

A change in the money supply will change investment when

According to Keynesians,__________ monetary policy will not remove the economy from a(an)__________ gap if __________.

The predetermined-money-growth-rate rule states that the annual growth rate in the money supply will be constant at the average annual growth rate of Real GDP.

Exhibit 15-2 -Refer to Exhibit 15-2. If the interest rate is i1 and the relevant money supply curve is S2,then there is a

As the opportunity cost of holding money decreases,the quantity demanded of money

According to the monetarist transmission mechanism,a decrease in the supply of money will result in

The money supply increased and the AD curve did not shift to the right.This is consistent with the

Activists believe that

Monetary policy is

An individual buys a bond for $1,000 and sells it one year later for $1,050.What is the annual interest rate return that this individual has received on this bond?

The Taylor Rule provides policymakers with a target for

Economists who favor activist monetary policy argue that

The SRAS curve is upward sloping,there is a liquidity trap,and investment spending is sensitive to changes in the interest rate.According to the monetarist transmission mechanism,if the money supply increases the AD curve __________ and the price level __________.

Exhibit 15-2 -Refer to Exhibit 15-2.A(n)__________ in the money supply from S1 to S2 would have a tendency to __________ the opportunity cost of holding money.

Suppose that a rules-based monetary policy proposal specifies that the money supply will grow 3 percent each year.If velocity grows 1 percent this year and Real GDP grows 2 percent,the price level will __________ by __________ percent.

Exhibit 15-l -Refer to Exhibit 15-l.A Keynesian monetary policy to eliminate a recessionary gap can be portrayed as a move between points

The supply of bonds rises,ceteris paribus,and the price of bonds __________.This __________ the interest rate and __________ the quantity demanded of money.

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

Money and the Economy

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

Consumer Choice: Maximizing Utility and Behavioral Economics

Production and Costs

Perfect Competition

Monopoly

Monopolistic Competition, Oligopoly, and Game Theory

Government and Product Markets: Antitrust and Regulation

Factor Markets: With Emphasis on the Labor Market

Wages,Unions,and Labor

The Distribution of Income and Poverty

Interest, Rent, and Profit

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

International Trade

International Finance

Globalization and International Impacts on the Economy

The Economic Case For and Against Government: Five Topics Considered

Stocks, Bonds, Futures, and Options

Agriculture: Problems, Policies, and Unintended Effects

Filters

If the interest rate increases,the opportunity cost of holding money ,and the quantity demanded of money .

According to Keynesians, monetary policy will not remove the economy from a(an) gap if __.

Exhibit 15-2 -Refer to Exhibit 15-2. If the interest rate is i₁ and the relevant money supply curve is S₂,then there is a

The SRAS curve is upward sloping,there is a liquidity trap,and investment spending is sensitive to changes in the interest rate.According to the monetarist transmission mechanism,if the money supply increases the AD curve and the price level .

Exhibit 15-2 -Refer to Exhibit 15-2.A(n) in the money supply from S₁ to S₂ would have a tendency to the opportunity cost of holding money.

Suppose that a rules-based monetary policy proposal specifies that the money supply will grow 3 percent each year.If velocity grows 1 percent this year and Real GDP grows 2 percent,the price level will by percent.

The supply of bonds rises,ceteris paribus,and the price of bonds .This the interest rate and __ the quantity demanded of money.