Question 1

Long-term interest rates are higher than short-term rates. This reflects a belief that:

Accepted Answer

A)  short-term rates will fall. 
B)  short-term rates will rise. 
C)  short-term rates will remain the same. 
D)  the Federal Reserve is undergoing a change in policy. 
A)  short-term rates will fall. 
B)  short-term rates will rise. 
C)  short-term rates will remain the same. 
D)  the Federal Reserve is undergoing a change in policy.

Question 2

Suppose that the Federal Reserve buys Treasury bills. We can expect this transaction to _____ the money supply, _____ Treasury bill prices, and _____ interest rates.

Accepted Answer

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

Question 3

Monetary policy affects GDP and the price level by:

Accepted Answer

A)  changing aggregate supply. 
B)  changing aggregate demand. 
C)  changing the aggregate amount of labor supplied. 
D)  changing exports. 
A)  changing aggregate supply. 
B)  changing aggregate demand. 
C)  changing the aggregate amount of labor supplied. 
D)  changing exports.

Question 4

The zero lower bound for interest rates is the target that the Taylor rule sets.

Accepted Answer

A) True 
 B)False

Question 5

Which statement is FALSE? In the long run, monetary policy:

Accepted Answer

A)  affects only the aggregate price level. 
B)  does not affect aggregate output. 
C)  is neutral. 
D)  increases potential output. 
A)  affects only the aggregate price level. 
B)  does not affect aggregate output. 
C)  is neutral. 
D)  increases potential output.

Question 6

We hold money to:

Accepted Answer

A)  earn interest. 
B)  reduce transaction costs. 
C)  increase transaction costs. 
D)  protect our purchasing power. 
A)  earn interest. 
B)  reduce transaction costs. 
C)  increase transaction costs. 
D)  protect our purchasing power.

Question 7

When long-term interest rates are higher than short-term rates, as they were in 2010, it:

Accepted Answer

A)  implies that short-term interest rates are expected to fall. 
B)  has no implication for short-term interest rates. 
C)  implies that inflation will fall. 
D)  implies that short-term interest rates are expected to rise. 
A)  implies that short-term interest rates are expected to fall. 
B)  has no implication for short-term interest rates. 
C)  implies that inflation will fall. 
D)  implies that short-term interest rates are expected to rise.

Question 8

An increase in the demand for money with no change in supply will lead to _____ in the equilibrium quantity of money and _____ in the equilibrium interest rate.

Accepted Answer

A)  no change; a rise 
B)  no change; a fall 
C)  a decrease; a rise 
D)  an increase; a fall 
A)  no change; a rise 
B)  no change; a fall 
C)  a decrease; a rise 
D)  an increase; a fall

Question 9

Monetary neutrality implies that in the long run:

Accepted Answer

A)  monetary policy does not affect the level of economic activity. 
B)  long-run aggregate supply depends on monetary policy. 
C)  changing the money supply does not affect the aggregate price level. 
D)  aggregate demand is independent from monetary policy. 
A)  monetary policy does not affect the level of economic activity. 
B)  long-run aggregate supply depends on monetary policy. 
C)  changing the money supply does not affect the aggregate price level. 
D)  aggregate demand is independent from monetary policy.

Question 10

According to the liquidity preference model, the supply and demand for money determine the interest rate.

Accepted Answer

A) True 
 B)False

Question 11

If banks were suddenly prohibited from paying interest on checking accounts, the demand for money would likely decrease.

Accepted Answer

A) True 
 B)False

Question 12

Use the following to answer questions:
Figure: A Money Market  
-(Figure: A Money Market) Refer to Figure: A Money Market. Holding the money supply constant, which reason might cause the equilibrium interest rate to decrease to r1?

Accepted Answer

A)  The inflation rate rises to historically high levels. 
B)  Higher payroll taxes cause employers to pay workers cash under the table. 
C)  A recession decreases real GDP. 
D)  There is a significant increase in the stock market. 
A)  The inflation rate rises to historically high levels. 
B)  Higher payroll taxes cause employers to pay workers cash under the table. 
C)  A recession decreases real GDP. 
D)  There is a significant increase in the stock market.

Question 13

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. If the economy is at point f because of an open market sale by the Federal Reserve and no further monetary policy is implemented, in the long run nominal wages will _____ and _____ will shift to _____, real GDP will _____, and the price level will _____.

Accepted Answer

A)  increase; SRAS; SRAS'; decrease; increase 
B)  increase; SRAS; SRAS'; increase; decrease 
C)  decrease; S$\prime$; SRAS; increase; decrease 
D)  decrease; S$\prime$; SRAS; decrease; decrease 
A)  increase; SRAS; SRAS'; decrease; increase 
B)  increase; SRAS; SRAS'; increase; decrease 
C)  decrease; S$\prime$; SRAS; increase; decrease 
D)  decrease; S$\prime$; SRAS; decrease; decrease

Question 14

In the long run, the only effect of monetary policy is on the:

Accepted Answer

A)  long-run aggregate supply. 
B)  interest rate. 
C)  aggregate output level. 
D)  aggregate price level. 
A)  long-run aggregate supply. 
B)  interest rate. 
C)  aggregate output level. 
D)  aggregate price level.

Question 15

The money supply curve is:

Accepted Answer

A)  downward sloping. 
B)  vertical. 
C)  upward rising. 
D)  horizontal. 
A)  downward sloping. 
B)  vertical. 
C)  upward rising. 
D)  horizontal.

Question 16

If the economy is at potential output and the Fed decreases the money supply so that actual output is less than potential output, eventually nominal wages will decrease.

Accepted Answer

A) True 
 B)False

Question 17

If the economy is at potential output and the Fed decreases the money supply, run real GDP will likely decrease in the long run.

Accepted Answer

A) True 
 B)False

Question 18

If the economy is at potential output and the Fed decreases the money supply, in the short run the likely result will be a decrease in investment and a decrease in consumption.

Accepted Answer

A) True 
 B)False

Question 19

If requirements for having a credit card become stricter, so that fewer people qualify for one, the demand for money will decrease.

Accepted Answer

A) True 
 B)False

Question 20

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 may move from point i to point h as a result of:

Accepted Answer

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

Long-term interest rates are higher than short-term rates. This reflects a belief that:

Suppose that the Federal Reserve buys Treasury bills. We can expect this transaction to ___ the money supply, _ Treasury bill prices, and ___ interest rates.

Monetary policy affects GDP and the price level by:

The zero lower bound for interest rates is the target that the Taylor rule sets.

Which statement is FALSE? In the long run, monetary policy:

We hold money to:

When long-term interest rates are higher than short-term rates, as they were in 2010, it:

An increase in the demand for money with no change in supply will lead to _ in the equilibrium quantity of money and _ in the equilibrium interest rate.

Monetary neutrality implies that in the long run:

According to the liquidity preference model, the supply and demand for money determine the interest rate.

If banks were suddenly prohibited from paying interest on checking accounts, the demand for money would likely decrease.

Use the following to answer questions: Figure: A Money Market -(Figure: A Money Market) Refer to Figure: A Money Market. Holding the money supply constant, which reason might cause the equilibrium interest rate to decrease to r₁?

In the long run, the only effect of monetary policy is on the:

The money supply curve is:

If the economy is at potential output and the Fed decreases the money supply so that actual output is less than potential output, eventually nominal wages will decrease.

If the economy is at potential output and the Fed decreases the money supply, run real GDP will likely decrease in the long run.

If the economy is at potential output and the Fed decreases the money supply, in the short run the likely result will be a decrease in investment and a decrease in consumption.

If requirements for having a credit card become stricter, so that fewer people qualify for one, the demand for money will decrease.

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 may move from point i to point h as a result of:

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

Long-term interest rates are higher than short-term rates. This reflects a belief that:

Suppose that the Federal Reserve buys Treasury bills. We can expect this transaction to _____ the money supply, _____ Treasury bill prices, and _____ interest rates.

Monetary policy affects GDP and the price level by:

The zero lower bound for interest rates is the target that the Taylor rule sets.

Which statement is FALSE? In the long run, monetary policy:

We hold money to:

When long-term interest rates are higher than short-term rates, as they were in 2010, it:

An increase in the demand for money with no change in supply will lead to _____ in the equilibrium quantity of money and _____ in the equilibrium interest rate.

Monetary neutrality implies that in the long run:

According to the liquidity preference model, the supply and demand for money determine the interest rate.

If banks were suddenly prohibited from paying interest on checking accounts, the demand for money would likely decrease.

Use the following to answer questions: Figure: A Money Market -(Figure: A Money Market) Refer to Figure: A Money Market. Holding the money supply constant, which reason might cause the equilibrium interest rate to decrease to r1?

In the long run, the only effect of monetary policy is on the:

The money supply curve is:

If the economy is at potential output and the Fed decreases the money supply so that actual output is less than potential output, eventually nominal wages will decrease.

If the economy is at potential output and the Fed decreases the money supply, run real GDP will likely decrease in the long run.

If the economy is at potential output and the Fed decreases the money supply, in the short run the likely result will be a decrease in investment and a decrease in consumption.

If requirements for having a credit card become stricter, so that fewer people qualify for one, the demand for money will decrease.

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 may move from point i to point h as a result of:

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

Suppose that the Federal Reserve buys Treasury bills. We can expect this transaction to ___ the money supply, _ Treasury bill prices, and ___ interest rates.

An increase in the demand for money with no change in supply will lead to _ in the equilibrium quantity of money and _ in the equilibrium interest rate.

Use the following to answer questions: Figure: A Money Market -(Figure: A Money Market) Refer to Figure: A Money Market. Holding the money supply constant, which reason might cause the equilibrium interest rate to decrease to r₁?