Question 1

Expansionary monetary policy causes _____ in interest rates in the short run and _____ in interest rates in the long run.

Accepted Answer

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

Question 2

The Federal Open Market Committee sets the target interest rate for the next:

Accepted Answer

A)  three months. 
B)  six months. 
C)  three weeks. 
D)  six weeks. 
A)  three months. 
B)  six months. 
C)  three weeks. 
D)  six weeks.

Question 3

Given a recessionary gap, the Federal Reserve will use monetary policy to _____ real GDP and _____ aggregate demand.

Accepted Answer

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

Question 4

Which statement describes the difference between the Taylor rule and inflation targeting?

Accepted Answer

A)  The Federal Reserve uses inflation targeting, and the Bank of England uses the Taylor rule. 
B)  The Taylor rule responds to past inflation, and inflation targeting is based on a forecast of inflation. 
C)  Inflation targeting responds to past inflation, and the Taylor rule is based on a forecast of inflation. 
D)  Inflation targeting is used in conducting fiscal policy, while the Taylor rule is used in monetary policy. 
A)  The Federal Reserve uses inflation targeting, and the Bank of England uses the Taylor rule. 
B)  The Taylor rule responds to past inflation, and inflation targeting is based on a forecast of inflation. 
C)  Inflation targeting responds to past inflation, and the Taylor rule is based on a forecast of inflation. 
D)  Inflation targeting is used in conducting fiscal policy, while the Taylor rule is used in monetary policy.

Question 5

International data for 1970-2015 show that monetary neutrality occurs only in wealthy countries.

Accepted Answer

A) True 
 B)False

Question 6

The money demand curve is _____ because a lower interest rate _____ the opportunity cost of holding money.

Accepted Answer

A)  upward sloping; increases 
B)  downward sloping; increases 
C)  upward sloping; decreases 
D)  downward sloping; decreases 
A)  upward sloping; increases 
B)  downward sloping; increases 
C)  upward sloping; decreases 
D)  downward sloping; decreases

Question 7

If the economy is at potential output and the Fed increases the money supply, in the short run interest rates will likely:

Accepted Answer

A)  increase. 
B)  decrease. 
C)  remain constant. 
D)  fluctuate randomly. 
A)  increase. 
B)  decrease. 
C)  remain constant. 
D)  fluctuate randomly.

Question 8

In the income-expenditure model, contractionary monetary policy leads to _____ interest rates, a(n) _____ in planned investment spending, and a(n) _____ in equilibrium GDP.

Accepted Answer

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

Question 9

The appropriate monetary policy to stabilize the economy during a recession is an expansionary policy.

Accepted Answer

A) True 
 B)False

Question 10

Use the following to answer questions:
Figure: Short-Run Determination of the Interest Rate  
-(Figure: Short-Run Determination of the Interest Rate) Refer to Figure: Short-Run Determination of the Interest Rate. If the money supply is at MS1 and the central bank buys Treasury bills, then the resulting short-run shift in the supply of savings (loanable funds) may be represented by a shift of the:

Accepted Answer

A)  money supply curve to MS2, which raises the interest rate. 
B)  supply of loanable funds from S1 to S2, which lowers the interest rate. 
C)  supply of loanable funds from S2 to S1, which raises the interest rate. 
D)  interest rate from r2 to r1. 
A)  money supply curve to MS2, which raises the interest rate. 
B)  supply of loanable funds from S1 to S2, which lowers the interest rate. 
C)  supply of loanable funds from S2 to S1, which raises the interest rate. 
D)  interest rate from r2 to r1.

Question 11

In the short run, changes in the money supply change the interest rate, but in the long run, changes in the money supply have no effect on interest rates.

Accepted Answer

A) True 
 B)False

Question 12

According to the loanable funds model, in the short run, expansionary monetary policy:

Accepted Answer

A)  increases the supply of loanable funds. 
B)  increases the demand for loanable funds. 
C)  increases the quantity of loanable funds supplied. 
D)  has no effect on the supply of loanable funds. 
A)  increases the supply of loanable funds. 
B)  increases the demand for loanable funds. 
C)  increases the quantity of loanable funds supplied. 
D)  has no effect on the supply of loanable funds.

Question 13

If the money supply decreases by 10%, the aggregate price level will remain constant in the long run.

Accepted Answer

A) True 
 B)False

Question 14

If Congress imposes a $5 tax on each ATM transaction, the demand for money will likely:

Accepted Answer

A)  increase. 
B)  decrease. 
C)  fluctuate randomly. 
D)  be unaffected. 
A)  increase. 
B)  decrease. 
C)  fluctuate randomly. 
D)  be unaffected.

Question 15

Scenario: Money and Interest Rates Banks decide to do away with fees charged when other banks' customers use the bank's own ATM. The demand for money will _____, and the supply of money will _____.

Accepted Answer

A)  increase; not change 
B)  increase; decrease 
C)  decrease; not change 
D)  decrease; increase 
A)  increase; not change 
B)  increase; decrease 
C)  decrease; not change 
D)  decrease; increase

Question 16

The liquidity preference model uses the demand for and supply of money to determine:

Accepted Answer

A)  GDP. 
B)  the price level. 
C)  the interest rate. 
D)  nominal output. 
A)  GDP. 
B)  the price level. 
C)  the interest rate. 
D)  nominal output.

Question 17

The interest rate is determined in the loanable funds market in the short run.

Accepted Answer

A) True 
 B)False

Question 18

Use the following to answer questions:
Figure: Monetary Policy and the AD-SRAS Model  
-(Figure: Monetary Policy and the AD-SRAS Model) Refer to Figure: Monetary Policy and the AD-SRAS Model. The economy could move from point g to point f as a result of:

Accepted Answer

A)  an increase in the money supply. 
B)  a reduction in the discount rate. 
C)  a decrease in the money supply. 
D)  purchases of government securities in the open market. 
A)  an increase in the money supply. 
B)  a reduction in the discount rate. 
C)  a decrease in the money supply. 
D)  purchases of government securities in the open market.

Question 19

The demand for money is higher in Japan than in the United States because:

Accepted Answer

A)  telecommunications and information technology is more advanced in the United States than in Japan. 
B)  Japanese consumers use credit cards more than people in the United States. 
C)  Japanese interest rates are higher than those in the United States. 
D)  Japanese interest rates are lower than those in the United States. 
A)  telecommunications and information technology is more advanced in the United States than in Japan. 
B)  Japanese consumers use credit cards more than people in the United States. 
C)  Japanese interest rates are higher than those in the United States. 
D)  Japanese interest rates are lower than those in the United States.

Question 20

In the long run, changes in the money supply change prices but not real output and interest rates.

Accepted Answer

A) True 
 B)False

Expansionary monetary policy causes _ in interest rates in the short run and _ in interest rates in the long run.

The Federal Open Market Committee sets the target interest rate for the next:

Given a recessionary gap, the Federal Reserve will use monetary policy to _ real GDP and _ aggregate demand.

Which statement describes the difference between the Taylor rule and inflation targeting?

International data for 1970-2015 show that monetary neutrality occurs only in wealthy countries.

The money demand curve is _ because a lower interest rate _ the opportunity cost of holding money.

If the economy is at potential output and the Fed increases the money supply, in the short run interest rates will likely:

In the income-expenditure model, contractionary monetary policy leads to ___ interest rates, a(n) _ in planned investment spending, and a(n) ___ in equilibrium GDP.

The appropriate monetary policy to stabilize the economy during a recession is an expansionary policy.

In the short run, changes in the money supply change the interest rate, but in the long run, changes in the money supply have no effect on interest rates.

According to the loanable funds model, in the short run, expansionary monetary policy:

If the money supply decreases by 10%, the aggregate price level will remain constant in the long run.

If Congress imposes a $5 tax on each ATM transaction, the demand for money will likely:

Scenario: Money and Interest Rates Banks decide to do away with fees charged when other banks' customers use the bank's own ATM. The demand for money will _, and the supply of money will _.

The liquidity preference model uses the demand for and supply of money to determine:

The interest rate is determined in the loanable funds market in the short run.

Use the following to answer questions: Figure: Monetary Policy and the AD-SRAS Model -(Figure: Monetary Policy and the AD-SRAS Model) Refer to Figure: Monetary Policy and the AD-SRAS Model. The economy could move from point g to point f as a result of:

The demand for money is higher in Japan than in the United States because:

In the long run, changes in the money supply change prices but not real output and interest rates.

First Principles

Economic Models: Trade-Offs and Trade

Supply and Demand

Price Controls and Quotas: Meddling With Markets

International Trade

Macroeconomics: the Big Picture

GDP and the CPI: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending, and the Financial Syst

Income and Expenditure

Aggregate Demand and Aggregate Supply

Fiscal Policy

Money, Banking, and the Federal Reserve System

Inflation, Disinflation, and Deflation

Macroeconomics: Events and Ideas

International Macroeconomics

Filters

Exam 15: Monetary Policy

Expansionary monetary policy causes _____ in interest rates in the short run and _____ in interest rates in the long run.

The Federal Open Market Committee sets the target interest rate for the next:

Given a recessionary gap, the Federal Reserve will use monetary policy to _____ real GDP and _____ aggregate demand.

Which statement describes the difference between the Taylor rule and inflation targeting?

International data for 1970-2015 show that monetary neutrality occurs only in wealthy countries.

The money demand curve is _____ because a lower interest rate _____ the opportunity cost of holding money.

If the economy is at potential output and the Fed increases the money supply, in the short run interest rates will likely:

In the income-expenditure model, contractionary monetary policy leads to _____ interest rates, a(n) _____ in planned investment spending, and a(n) _____ in equilibrium GDP.

The appropriate monetary policy to stabilize the economy during a recession is an expansionary policy.

In the short run, changes in the money supply change the interest rate, but in the long run, changes in the money supply have no effect on interest rates.

According to the loanable funds model, in the short run, expansionary monetary policy:

If the money supply decreases by 10%, the aggregate price level will remain constant in the long run.

If Congress imposes a $5 tax on each ATM transaction, the demand for money will likely:

Scenario: Money and Interest Rates Banks decide to do away with fees charged when other banks' customers use the bank's own ATM. The demand for money will _____, and the supply of money will _____.

The liquidity preference model uses the demand for and supply of money to determine:

The interest rate is determined in the loanable funds market in the short run.

Use the following to answer questions: Figure: Monetary Policy and the AD-SRAS Model -(Figure: Monetary Policy and the AD-SRAS Model) Refer to Figure: Monetary Policy and the AD-SRAS Model. The economy could move from point g to point f as a result of:

The demand for money is higher in Japan than in the United States because:

In the long run, changes in the money supply change prices but not real output and interest rates.

First Principles

Economic Models: Trade-Offs and Trade

Supply and Demand

Price Controls and Quotas: Meddling With Markets

International Trade

Macroeconomics: the Big Picture

GDP and the CPI: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending, and the Financial Syst

Income and Expenditure

Aggregate Demand and Aggregate Supply

Fiscal Policy

Money, Banking, and the Federal Reserve System

Inflation, Disinflation, and Deflation

Macroeconomics: Events and Ideas

International Macroeconomics

Filters

Expansionary monetary policy causes _ in interest rates in the short run and _ in interest rates in the long run.

Given a recessionary gap, the Federal Reserve will use monetary policy to _ real GDP and _ aggregate demand.

The money demand curve is _ because a lower interest rate _ the opportunity cost of holding money.

In the income-expenditure model, contractionary monetary policy leads to ___ interest rates, a(n) _ in planned investment spending, and a(n) ___ in equilibrium GDP.

Scenario: Money and Interest Rates Banks decide to do away with fees charged when other banks' customers use the bank's own ATM. The demand for money will _, and the supply of money will _.