Question 1

In the aggregate demand-aggregate supply model, the short-run effects of an unanticipated increase in the money supply will be

Accepted Answer

A) lower real interest rates and an increase in aggregate demand. 
B) higher real interest rates and an increase in aggregate demand. 
C) lower real interest rates and a reduction in aggregate demand. 
D) higher real interest rates and a reduction in aggregate demand. 
A) lower real interest rates and an increase in aggregate demand. 
B) higher real interest rates and an increase in aggregate demand. 
C) lower real interest rates and a reduction in aggregate demand. 
D) higher real interest rates and a reduction in aggregate demand.

Question 2

The short-run impact of an unanticipated shift to a more restrictive monetary policy is most likely to be a reduction in

Accepted Answer

A) prices, while real output is unaffected. 
B) the rate of unemployment. 
C) real output. 
D) the size of the budget deficit. 
A) prices, while real output is unaffected. 
B) the rate of unemployment. 
C) real output. 
D) the size of the budget deficit.

Question 3

The quantity of money that households and businesses will demand

Accepted Answer

A) increases if income falls but decreases if interest rates rise. 
B) increases if income falls and increases if interest rates rise. 
C) decreases if income falls but increases if interest rates rise. 
D) decreases if income falls and decreases if interest rates rise. 
A) increases if income falls but decreases if interest rates rise. 
B) increases if income falls and increases if interest rates rise. 
C) decreases if income falls but increases if interest rates rise. 
D) decreases if income falls and decreases if interest rates rise.

Question 4

When continued for several years, rapid growth in the money supply relative to the growth of real output will likely lead to an extended period of

Accepted Answer

A) low unemployment. 
B) high inflation. 
C) low nominal interest rates. 
D) high rates of real economic growth. 
A) low unemployment. 
B) high inflation. 
C) low nominal interest rates. 
D) high rates of real economic growth.

Question 5

An analysis of countries experiencing rapid inflation indicates that inflation is generally

Accepted Answer

A) caused by strong labor unions that push wages up rapidly. 
B) caused by rapid growth in the money supply. 
C) the result of restrictive macroeconomic policy, which pushes up interest rates. 
D) the result of bad weather conditions that reduce the supply of agriculture products. 
A) caused by strong labor unions that push wages up rapidly. 
B) caused by rapid growth in the money supply. 
C) the result of restrictive macroeconomic policy, which pushes up interest rates. 
D) the result of bad weather conditions that reduce the supply of agriculture products.

Question 6

When the Fed increases the money supply by buying Treasury securities, it will

Accepted Answer

A) decrease short-term interest rates to a greater degree than long-term interest rates. 
B) decrease long-term interest rates to a greater degree than short-term interest rates. 
C) increase short-term interest rates to a greater degree than long-term interest rates. 
D) increase long-term interest rates to a greater degree than short-term interest rates. 
A) decrease short-term interest rates to a greater degree than long-term interest rates. 
B) decrease long-term interest rates to a greater degree than short-term interest rates. 
C) increase short-term interest rates to a greater degree than long-term interest rates. 
D) increase long-term interest rates to a greater degree than short-term interest rates.

Question 7

A shift to a more expansionary monetary policy will generally _________ in the short run, but if the rapid monetary expansion persists, the long-run result will be ______.(fill in the blanks.)

Accepted Answer

A) expand output and employment; inflation 
B) increase the general level of prices; expand output and employment 
C) increase the rate of unemployment; reduce the rate of inflation 
D) reduce the rate of inflation; increase the rate of unemployment 
A) expand output and employment; inflation 
B) increase the general level of prices; expand output and employment 
C) increase the rate of unemployment; reduce the rate of inflation 
D) reduce the rate of inflation; increase the rate of unemployment

Question 8

Suppose the velocity of money is 6, the amount of money in circulation is $600 billion, the index of prices is 180, and real GDP is $20 billion. According to the strict quantity theory of money, if the money supply decreased to $300 billion,

Accepted Answer

A) the velocity of money would rise to 12. 
B) the index of prices would fall to 90. 
C) real GDP would decrease to $10 billion. 
D) the velocity of money would decline to 3. 
A) the velocity of money would rise to 12. 
B) the index of prices would fall to 90. 
C) real GDP would decrease to $10 billion. 
D) the velocity of money would decline to 3.

Question 9

If the Federal Reserve increases its bond purchases, the short-run effects will be

Accepted Answer

A) an increase in the money supply and lower real interest rates. 
B) a decrease in the money supply and lower real interest rates. 
C) an increase in the money supply and higher real interest rates. 
D) a decrease in the money supply and higher real interest rates. 
A) an increase in the money supply and lower real interest rates. 
B) a decrease in the money supply and lower real interest rates. 
C) an increase in the money supply and higher real interest rates. 
D) a decrease in the money supply and higher real interest rates.

Question 10

Countries that persistently expand the supply of money at a rapid rate can expect to experience

Accepted Answer

A) high rates of inflation 
B) rapid economic growth. 
C) lower interest rates. 
D) low rates of unemployment. 
A) high rates of inflation 
B) rapid economic growth. 
C) lower interest rates. 
D) low rates of unemployment.

Question 11

Answer the following questions:
a.What is the equation of exchange? Explain each component.
b.What assumptions are placed on the equation of exchange to generate the quantity theory of money?
c.Explain the quantity theory of money and what it implies about the impact of changes in the money supply on real output and prices.

Accepted Answer

a.
The equation of exchange is MV = PY.

Question 12

An increase in the money supply

Accepted Answer

A) lowers the interest rate, causing a decrease in investment and an increase in GDP. 
B) lowers the interest rate, causing an increase in investment and a decrease in GDP. 
C) lowers the interest rate, causing an increase in investment and an increase in GDP. 
D) raises the interest rate, causing an increase in investment and an increase in GDP. 
E) raises the interest rate, causing a decrease in investment and a decrease in GDP. 
A) lowers the interest rate, causing a decrease in investment and an increase in GDP. 
B) lowers the interest rate, causing an increase in investment and a decrease in GDP. 
C) lowers the interest rate, causing an increase in investment and an increase in GDP. 
D) raises the interest rate, causing an increase in investment and an increase in GDP. 
E) raises the interest rate, causing a decrease in investment and a decrease in GDP.

In the aggregate demand-aggregate supply model, the short-run effects of an unanticipated increase in the money supply will be

The short-run impact of an unanticipated shift to a more restrictive monetary policy is most likely to be a reduction in

The quantity of money that households and businesses will demand

When continued for several years, rapid growth in the money supply relative to the growth of real output will likely lead to an extended period of

An analysis of countries experiencing rapid inflation indicates that inflation is generally

When the Fed increases the money supply by buying Treasury securities, it will

A shift to a more expansionary monetary policy will generally ___ in the short run, but if the rapid monetary expansion persists, the long-run result will be .(fill in the blanks.)

Suppose the velocity of money is 6, the amount of money in circulation is $600 billion, the index of prices is 180, and real GDP is $20 billion. According to the strict quantity theory of money, if the money supply decreased to $300 billion,

If the Federal Reserve increases its bond purchases, the short-run effects will be

Countries that persistently expand the supply of money at a rapid rate can expect to experience

An increase in the money supply

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy, Incentives, and Secondary Effects

Money and the Banking System

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Filters

Exam 14: Modern Macroeconomics and Monetary Policy

In the aggregate demand-aggregate supply model, the short-run effects of an unanticipated increase in the money supply will be

The short-run impact of an unanticipated shift to a more restrictive monetary policy is most likely to be a reduction in

The quantity of money that households and businesses will demand

When continued for several years, rapid growth in the money supply relative to the growth of real output will likely lead to an extended period of

An analysis of countries experiencing rapid inflation indicates that inflation is generally

When the Fed increases the money supply by buying Treasury securities, it will

A shift to a more expansionary monetary policy will generally _________ in the short run, but if the rapid monetary expansion persists, the long-run result will be ______.(fill in the blanks.)

Suppose the velocity of money is 6, the amount of money in circulation is $600 billion, the index of prices is 180, and real GDP is $20 billion. According to the strict quantity theory of money, if the money supply decreased to $300 billion,

If the Federal Reserve increases its bond purchases, the short-run effects will be

Countries that persistently expand the supply of money at a rapid rate can expect to experience

An increase in the money supply

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy, Incentives, and Secondary Effects

Money and the Banking System

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Filters

A shift to a more expansionary monetary policy will generally ___ in the short run, but if the rapid monetary expansion persists, the long-run result will be .(fill in the blanks.)