Question 1

Spending on consumer durables decreases as the interest rate increases.

Accepted Answer

A) True 
 B)False

Question 2

Based on the model of the money market, if prices in the economy decrease, the equilibrium interest rate should

Accepted Answer

A)  stay the same. 
B)  increase. 
C)  decrease. 
D)  increase to the same extent that the supply of money increases. 
A)  stay the same. 
B)  increase. 
C)  decrease. 
D)  increase to the same extent that the supply of money increases.

Question 3

What impact does the Fed's raising the interest rate have on the money supply and on the price level?

Accepted Answer

A)  An increase in interest rates raises the money supply and eventually reduces prices. 
B)  An increase in interest rates reduces the money demand which will slow the growth in prices. 
C)  An increase in interest rates lowers the money supply and raises the money demand, which will neutralize price increases. 
D)  An increase in interest rates will increase investment spending and GDP, which will lower prices. 
A)  An increase in interest rates raises the money supply and eventually reduces prices. 
B)  An increase in interest rates reduces the money demand which will slow the growth in prices. 
C)  An increase in interest rates lowers the money supply and raises the money demand, which will neutralize price increases. 
D)  An increase in interest rates will increase investment spending and GDP, which will lower prices.

Question 4

If the Fed wished to decrease inflation, it could

Accepted Answer

A)  increase the reserve requirement or conduct an open market sale. 
B)  increase the reserve requirement or conduct an open market purchase. 
C)  decrease the reserve requirement or conduct an open market sale. 
D)  decrease the reserve requirement or conduct an open market purchase. 
A)  increase the reserve requirement or conduct an open market sale. 
B)  increase the reserve requirement or conduct an open market purchase. 
C)  decrease the reserve requirement or conduct an open market sale. 
D)  decrease the reserve requirement or conduct an open market purchase.

Question 5

When the Federal Reserve decreases the money supply, it generally does so by purchasing bonds.

Accepted Answer

A) True 
 B)False

Question 6

At lower interest rates the

Accepted Answer

A)  money supply is indeterminate. 
B)  money supply is lower. 
C)  quantity of money demanded is higher. 
D)  quantity of money demanded is lower. 
A)  money supply is indeterminate. 
B)  money supply is lower. 
C)  quantity of money demanded is higher. 
D)  quantity of money demanded is lower.

Question 7

Which of the following factors does NOT shift the demand curve for money?

Accepted Answer

A)  changes in the interest rate 
B)  changes in the price level in the economy 
C)  changes in real income 
D)  changes in real GDP 
A)  changes in the interest rate 
B)  changes in the price level in the economy 
C)  changes in real income 
D)  changes in real GDP

Question 8

The opportunity cost of holding money is

Accepted Answer

A)  heavy and awkward. 
B)  the probability of theft or loss. 
C)  the ease of conducting everyday business. 
D)  the return that could have been earned from holding wealth in other assets. 
A)  heavy and awkward. 
B)  the probability of theft or loss. 
C)  the ease of conducting everyday business. 
D)  the return that could have been earned from holding wealth in other assets.

Question 9

If a bond was to pay off one year from now for $321 and the interest rate is 7 percent, what is the price of the bond?

Accepted Answer

A)  $147 
B)  $279 
C)  $300 
D)  $342 
A)  $147 
B)  $279 
C)  $300 
D)  $342

Question 10

What is the motivation for individuals to hold money?

Accepted Answer

A)  to reduce risk 
B)  to have liquidity 
C)  to facilitate transactions 
D)  all of the above 
A)  to reduce risk 
B)  to have liquidity 
C)  to facilitate transactions 
D)  all of the above

Question 11

Typically bond prices fall as interest rates rise.

Accepted Answer

A) True 
 B)False

Question 12

If the monthly unemployment rate increase mentioned in the Application was a temporary aberration, the best economic decision by the committee would be to

Accepted Answer

A)  increase the money supply to stimulate the economy. 
B)  decrease the money supply to stimulate the economy. 
C)  decrease the money supply to slow the economy down. 
D)  not change monetary policy. 
A)  increase the money supply to stimulate the economy. 
B)  decrease the money supply to stimulate the economy. 
C)  decrease the money supply to slow the economy down. 
D)  not change monetary policy.

Question 13

An open market sale by the Fed causes the value of the dollar to

Accepted Answer

A)  rise, increasing net exports. 
B)  rise, reducing net exports. 
C)  fall, increasing net exports. 
D)  fall, reducing net exports. 
A)  rise, increasing net exports. 
B)  rise, reducing net exports. 
C)  fall, increasing net exports. 
D)  fall, reducing net exports.

Question 14

An outside lag is

Accepted Answer

A)  a lag in implementing policy. 
B)  the period of time it takes for policies to work. 
C)  a policy aimed at increasing GDP. 
D)  a policy aimed at reducing GDP. 
A)  a lag in implementing policy. 
B)  the period of time it takes for policies to work. 
C)  a policy aimed at increasing GDP. 
D)  a policy aimed at reducing GDP.

Question 15

How can the Federal Reserve actually increase the money supply?

Accepted Answer

A)  by delaying transfer of money among banks 
B)  by raising the discount rate 
C)  by doubling the reserve requirement 
D)  by purchasing more government bonds in the open market 
A)  by delaying transfer of money among banks 
B)  by raising the discount rate 
C)  by doubling the reserve requirement 
D)  by purchasing more government bonds in the open market

Question 16

An increase in the level of real GDP in the economy leads to

Accepted Answer

A)  a leftward shift in the demand for money curve. 
B)  a rightward shift in the demand for money curve. 
C)  a leftward movement along the demand for money curve. 
D)  a rightward movement along the demand for money curve. 
A)  a leftward shift in the demand for money curve. 
B)  a rightward shift in the demand for money curve. 
C)  a leftward movement along the demand for money curve. 
D)  a rightward movement along the demand for money curve.

Question 17

The demand for money that arises so that individuals or firms can make purchases on quick notice is called the

Accepted Answer

A)  real demand for money. 
B)  transaction demand for money. 
C)  liquidity demand for money. 
D)  speculative demand for money. 
A)  real demand for money. 
B)  transaction demand for money. 
C)  liquidity demand for money. 
D)  speculative demand for money.

Question 18

Increased investment spending in the economy would be a possible result of

Accepted Answer

A)  an increase in interest rates. 
B)  an open market purchase of bonds by the Fed. 
C)  an open market sale of bonds by the Fed. 
D)  a decrease in the money supply. 
A)  an increase in interest rates. 
B)  an open market purchase of bonds by the Fed. 
C)  an open market sale of bonds by the Fed. 
D)  a decrease in the money supply.

Question 19

We use interest rates to measure the opportunity cost of holding money.

Accepted Answer

A) True 
 B)False

Question 20

The depreciation of the dollar will make U.S. goods ________ to foreigners and make imports ________ for U.S. residents.

Accepted Answer

A)  more expensive; more expensive 
B)  cheaper; cheaper 
C)  more expensive; cheaper 
D)  cheaper; more expensive 
A)  more expensive; more expensive 
B)  cheaper; cheaper 
C)  more expensive; cheaper 
D)  cheaper; more expensive

Spending on consumer durables decreases as the interest rate increases.

Based on the model of the money market, if prices in the economy decrease, the equilibrium interest rate should

What impact does the Fed's raising the interest rate have on the money supply and on the price level?

If the Fed wished to decrease inflation, it could

When the Federal Reserve decreases the money supply, it generally does so by purchasing bonds.

At lower interest rates the

Which of the following factors does NOT shift the demand curve for money?

The opportunity cost of holding money is

If a bond was to pay off one year from now for $321 and the interest rate is 7 percent, what is the price of the bond?

What is the motivation for individuals to hold money?

Typically bond prices fall as interest rates rise.

If the monthly unemployment rate increase mentioned in the Application was a temporary aberration, the best economic decision by the committee would be to

An open market sale by the Fed causes the value of the dollar to

An outside lag is

How can the Federal Reserve actually increase the money supply?

An increase in the level of real GDP in the economy leads to

The demand for money that arises so that individuals or firms can make purchases on quick notice is called the

Increased investment spending in the economy would be a possible result of

We use interest rates to measure the opportunity cost of holding money.

The depreciation of the dollar will make U.S. goods to foreigners and make imports for U.S. residents.

Introduction: What Is Economics?

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nation's Production and Income

Unemployment and Inflation

The Economy at Full Employment

Why Do Economies Grow?

Aggregate Demand and Aggregate Supply

Fiscal Policy

The Income-Expenditure Model

Investment and Financial Markets

Money and the Banking System

Modern Macroeconomics: From the Short Run to the Long Run

The Dynamics of Inflation and Unemployment

Macroeconomic Policy Debates

International Trade and Public Policy

The World of International Finance

Filters

Exam 14: The Federal Reserve and Monetary Policy

Spending on consumer durables decreases as the interest rate increases.

Based on the model of the money market, if prices in the economy decrease, the equilibrium interest rate should

What impact does the Fed's raising the interest rate have on the money supply and on the price level?

If the Fed wished to decrease inflation, it could

When the Federal Reserve decreases the money supply, it generally does so by purchasing bonds.

At lower interest rates the

Which of the following factors does NOT shift the demand curve for money?

The opportunity cost of holding money is

If a bond was to pay off one year from now for $321 and the interest rate is 7 percent, what is the price of the bond?

What is the motivation for individuals to hold money?

Typically bond prices fall as interest rates rise.

If the monthly unemployment rate increase mentioned in the Application was a temporary aberration, the best economic decision by the committee would be to

An open market sale by the Fed causes the value of the dollar to

An outside lag is

How can the Federal Reserve actually increase the money supply?

An increase in the level of real GDP in the economy leads to

The demand for money that arises so that individuals or firms can make purchases on quick notice is called the

Increased investment spending in the economy would be a possible result of

We use interest rates to measure the opportunity cost of holding money.

The depreciation of the dollar will make U.S. goods ________ to foreigners and make imports ________ for U.S. residents.

Introduction: What Is Economics?

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nation's Production and Income

Unemployment and Inflation

The Economy at Full Employment

Why Do Economies Grow?

Aggregate Demand and Aggregate Supply

Fiscal Policy

The Income-Expenditure Model

Investment and Financial Markets

Money and the Banking System

Modern Macroeconomics: From the Short Run to the Long Run

The Dynamics of Inflation and Unemployment

Macroeconomic Policy Debates

International Trade and Public Policy

The World of International Finance

Filters

The depreciation of the dollar will make U.S. goods to foreigners and make imports for U.S. residents.