Question 1

Monetary policy affects both the aggregate price level and output in the long run.

Accepted Answer

A) True 
 B)False

Question 2

Expansionary monetary policy works by decreasing consumption, allowing other sectors of the economy to spend more.

Accepted Answer

A) True 
 B)False

Question 3

If the Federal Reserve wants to lower interest rates, it can _____ the money supply by _____ Treasury bills.

Accepted Answer

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

Question 4

Other things equal, if the amount of money demanded is greater than the amount of money supplied, then the interest rate may fall.

Accepted Answer

A) True 
 B)False

Question 5

A decrease in the supply of money will lead to a(n) _____ in equilibrium real GDP and a(n) _____ in equilibrium interest rates.

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 6

People forgo interest and hold money:

Accepted Answer

A)  because they are required to. 
B)  to reduce their transaction costs. 
C)  because there are no substitutes for money. 
D)  because banks are too risky. 
A)  because they are required to. 
B)  to reduce their transaction costs. 
C)  because there are no substitutes for money. 
D)  because banks are too risky.

Question 7

A change in _____ does NOT shift the money demand curve.

Accepted Answer

A)  the interest rate 
B)  the price level 
C)  banking technology 
D)  real GDP 
A)  the interest rate 
B)  the price level 
C)  banking technology 
D)  real GDP

Question 8

When real GDP is above potential GDP, the Fed uses contractionary monetary policy.

Accepted Answer

A) True 
 B)False

Question 9

If the economy is at potential output and the Fed decreases the money supply, in the short run the price level will likely_____ and real GDP will likely_____ .

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 10

According to the loanable funds model, in the short run, contractionary monetary policy shifts the _____ curve for loanable funds to the _____.

Accepted Answer

A)  demand; right 
B)  supply; right 
C)  demand; left 
D)  supply; left 
A)  demand; right 
B)  supply; right 
C)  demand; left 
D)  supply; left

Question 11

Other things equal, rising interest rates lead to a _____ in investment spending and a _____ in _____ spending.

Accepted Answer

A)  fall; fall; consumer 
B)  rise; rise; consumer 
C)  fall; rise; consumer 
D)  fall; rise; investment 
A)  fall; fall; consumer 
B)  rise; rise; consumer 
C)  fall; rise; consumer 
D)  fall; rise; investment

Question 12

The demand curve for money will shift to the right because of a:

Accepted Answer

A)  fall in the interest rate. 
B)  rise in real GDP. 
C)  rise in the interest rate. 
D)  fall in real GDP. 
A)  fall in the interest rate. 
B)  rise in real GDP. 
C)  rise in the interest rate. 
D)  fall in real GDP.

Question 13

The factors that could cause money demand to shift do NOT include:

Accepted Answer

A)  real aggregate spending. 
B)  institutional constraints in the banking system. 
C)  technology of transactions. 
D)  interest rates. 
A)  real aggregate spending. 
B)  institutional constraints in the banking system. 
C)  technology of transactions. 
D)  interest rates.

Question 14

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

Accepted Answer

A)  Japanese banks pay interest on checking accounts. 
B)  most stores in Japan do not accept credit cards. 
C)  the ATMs are open all night. 
D)  the average price level is lower in Japan. 
A)  Japanese banks pay interest on checking accounts. 
B)  most stores in Japan do not accept credit cards. 
C)  the ATMs are open all night. 
D)  the average price level is lower in Japan.

Question 15

The interest rate is determined in the money market in the short run.

Accepted Answer

A) True 
 B)False

Question 16

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 MS2 and the Fed conducts contractionary monetary policy, in the short run the interest rate increases to r1. In the long run prices will _____ thereby _________ the demand for money.

Accepted Answer

A)  decrease, decreasing 
B)  decrease, increasing 
C)  increase, decreasing 
D)  increase, increasing 
A)  decrease, decreasing 
B)  decrease, increasing 
C)  increase, decreasing 
D)  increase, increasing

Question 17

Every year more and more purchases are made with credit cards on the Internet. Given this trend, all else equal, we would expect:

Accepted Answer

A)  the money demand curve to shift outward. 
B)  the money demand curve to shift inward. 
C)  a downward movement along a fixed money demand curve. 
D)  an upward movement along a fixed money demand curve. 
A)  the money demand curve to shift outward. 
B)  the money demand curve to shift inward. 
C)  a downward movement along a fixed money demand curve. 
D)  an upward movement along a fixed money demand curve.

Question 18

A decrease in the demand for money would result from a(n):

Accepted Answer

A)  increase in income. 
B)  increase in real GDP. 
C)  decrease in the price level. 
D)  increase in nominal GDP. 
A)  increase in income. 
B)  increase in real GDP. 
C)  decrease in the price level. 
D)  increase in nominal GDP.

Question 19

The federal funds rate is:

Accepted Answer

A)  determined by the supply of and demand for money. 
B)  set by Congress. 
C)  determined in the real market by the aggregate supply and aggregate demand curves. 
D)  the interest rate that banks pay when they borrow directly from the Fed. 
A)  determined by the supply of and demand for money. 
B)  set by Congress. 
C)  determined in the real market by the aggregate supply and aggregate demand curves. 
D)  the interest rate that banks pay when they borrow directly from the Fed.

Question 20

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

Accepted Answer

A) True 
 B)False

Monetary policy affects both the aggregate price level and output in the long run.

Expansionary monetary policy works by decreasing consumption, allowing other sectors of the economy to spend more.

If the Federal Reserve wants to lower interest rates, it can _ the money supply by _ Treasury bills.

Other things equal, if the amount of money demanded is greater than the amount of money supplied, then the interest rate may fall.

A decrease in the supply of money will lead to a(n) _ in equilibrium real GDP and a(n) _ in equilibrium interest rates.

People forgo interest and hold money:

A change in _____ does NOT shift the money demand curve.

When real GDP is above potential GDP, the Fed uses contractionary monetary policy.

If the economy is at potential output and the Fed decreases the money supply, in the short run the price level will likely_ and real GDP will likely_ .

According to the loanable funds model, in the short run, contractionary monetary policy shifts the _ curve for loanable funds to the _.

Other things equal, rising interest rates lead to a ___ in investment spending and a _ in ___ spending.

The demand curve for money will shift to the right because of a:

The factors that could cause money demand to shift do NOT include:

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

The interest rate is determined in the money market in the short run.

Every year more and more purchases are made with credit cards on the Internet. Given this trend, all else equal, we would expect:

A decrease in the demand for money would result from a(n):

The federal funds rate is:

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

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

Monetary policy affects both the aggregate price level and output in the long run.

Expansionary monetary policy works by decreasing consumption, allowing other sectors of the economy to spend more.

If the Federal Reserve wants to lower interest rates, it can _____ the money supply by _____ Treasury bills.

Other things equal, if the amount of money demanded is greater than the amount of money supplied, then the interest rate may fall.

A decrease in the supply of money will lead to a(n) _____ in equilibrium real GDP and a(n) _____ in equilibrium interest rates.

People forgo interest and hold money:

A change in _____ does NOT shift the money demand curve.

When real GDP is above potential GDP, the Fed uses contractionary monetary policy.

If the economy is at potential output and the Fed decreases the money supply, in the short run the price level will likely_____ and real GDP will likely_____ .

According to the loanable funds model, in the short run, contractionary monetary policy shifts the _____ curve for loanable funds to the _____.

Other things equal, rising interest rates lead to a _____ in investment spending and a _____ in _____ spending.

The demand curve for money will shift to the right because of a:

The factors that could cause money demand to shift do NOT include:

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

The interest rate is determined in the money market in the short run.

Every year more and more purchases are made with credit cards on the Internet. Given this trend, all else equal, we would expect:

A decrease in the demand for money would result from a(n):

The federal funds rate is:

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

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

If the Federal Reserve wants to lower interest rates, it can _ the money supply by _ Treasury bills.

A decrease in the supply of money will lead to a(n) _ in equilibrium real GDP and a(n) _ in equilibrium interest rates.

If the economy is at potential output and the Fed decreases the money supply, in the short run the price level will likely_ and real GDP will likely_ .

According to the loanable funds model, in the short run, contractionary monetary policy shifts the _ curve for loanable funds to the _.

Other things equal, rising interest rates lead to a ___ in investment spending and a _ in ___ spending.