Question 1

Keynes called money people hold to make routine day-to-day purchases the:

Accepted Answer

A) transactions demand for holding money. 
B) precautionary demand for holding money. 
C) speculative demand for holding money. 
D) store of value demand for holding money. 
A) transactions demand for holding money. 
B) precautionary demand for holding money. 
C) speculative demand for holding money. 
D) store of value demand for holding money.

Question 2

If the Fed expands the money supply by $1 trillion, what will happen in the money market?

Accepted Answer

A) The equilibrium interest rate will rise, and less money will be exchanged in equilibrium. 
B) The equilibrium interest rate will fall, and more money will exchanged in equilibrium. 
C) The equilibrium interest rate will not change. 
D) None of the above. 
A) The equilibrium interest rate will rise, and less money will be exchanged in equilibrium. 
B) The equilibrium interest rate will fall, and more money will exchanged in equilibrium. 
C) The equilibrium interest rate will not change. 
D) None of the above.

Question 3

If the Fed uses its tools to expand the money supply, bond prices will be bid down and interest rates will rise.

Accepted Answer

A) True 
 B)False

Question 4

According to the Monetarist view, the impact of expansionary monetary policy will be:

Accepted Answer

A) the same in the long run as in the short run. 
B) the same regardless of whether the effects of the policy are anticipated or unanticipated. 
C) a higher price level (inflation). 
D) a decrease in short-run prices and an increase in long-run prices. 
A) the same in the long run as in the short run. 
B) the same regardless of whether the effects of the policy are anticipated or unanticipated. 
C) a higher price level (inflation). 
D) a decrease in short-run prices and an increase in long-run prices.

Question 5

Exhibit 16-3 Money market demand and supply curves   In Exhibit 16-3, assume an equilibrium at E2 with the money supply at $100 billion and the interest rate at 15 percent. The Fed uses its policy tools to move the economy to a new equilibrium at E1 with a money supply of 150 billion and an interest rate of 10 percent. As part of the adjustment to the new equilibrium, we would expect the:

Accepted Answer

A) price of bonds to rise. 
B) price of bonds to remain unchanged. 
C) price of bonds to fall. 
D) none of these. 
A) price of bonds to rise. 
B) price of bonds to remain unchanged. 
C) price of bonds to fall. 
D) none of these.

Question 6

Other things being equal, an increase in the rate of interest causes a(n):

Accepted Answer

A) upward movement along the demand for money curve. 
B) downward movement along the demand for money curve. 
C) rightward shift of the demand for money curve. 
D) leftward shift of the demand for money curve. 
A) upward movement along the demand for money curve. 
B) downward movement along the demand for money curve. 
C) rightward shift of the demand for money curve. 
D) leftward shift of the demand for money curve.

Question 7

The stock of money people hold to take advantage of expected future changes in the price of bonds, stocks, or other nonmoney financial assets is the:

Accepted Answer

A) unit-of-account motive for holding money. 
B) precautionary motive for holding money. 
C) speculative motive for holding money. 
D) transactions motive for holding money. 
A) unit-of-account motive for holding money. 
B) precautionary motive for holding money. 
C) speculative motive for holding money. 
D) transactions motive for holding money.

Question 8

A rightward shift in the money supply curve is likely to produce a rightward shift in the aggregate demand curve.

Accepted Answer

A) True 
 B)False

Question 9

If M = 200, P = 100, and Q = 10, then V is:

Accepted Answer

A) 20. 
B) 2. 
C) 10. 
D) 5. 
E) 2,000. 
A) 20. 
B) 2. 
C) 10. 
D) 5. 
E) 2,000.

Question 10

John Maynard Keynes listed three types of motives for people holding money ¾ transactions, precautionary, and speculative.

Accepted Answer

A) True 
 B)False

Question 11

Keynes called the money people hold in order to buy bonds, stocks, or other nonmoney financial assets the:

Accepted Answer

A) transactions demand for holding money. 
B) precautionary demand for holding money. 
C) speculative demand for holding money. 
D) unit of account demand for holding money. 
A) transactions demand for holding money. 
B) precautionary demand for holding money. 
C) speculative demand for holding money. 
D) unit of account demand for holding money.

Question 12

Which of the following statements is true ?

Accepted Answer

A) The speculative demand for money at possible interest rates gives the demand for money curve its upward slope. 
B) There is an inverse relationship between the quantity of money demanded and the interest rate. 
C) According to the quantity theory of money, any change in the money supply will have no effect on the price level. 
D) All of these are true. 
A) The speculative demand for money at possible interest rates gives the demand for money curve its upward slope. 
B) There is an inverse relationship between the quantity of money demanded and the interest rate. 
C) According to the quantity theory of money, any change in the money supply will have no effect on the price level. 
D) All of these are true.

Question 13

If you hold money in anticipation of household emergency expense, this represents the::

Accepted Answer

A) speculative demand for holding money. 
B) transactions demand for holding money. 
C) opportunity cost motive for holding money. 
D) precautionary demand for holding money. 
E) regressive cost of holding money. 
A) speculative demand for holding money. 
B) transactions demand for holding money. 
C) opportunity cost motive for holding money. 
D) precautionary demand for holding money. 
E) regressive cost of holding money.

Question 14

Contrast the Keynesian and Monetarist views on how a change in the money supply impacts the economy.

Accepted Answer

According to Keynesian economists, an in

Question 15

Which of the following policies would be most likely to reduce the rate of inflation?

Accepted Answer

A) sale of government bonds by the Federal Reserve 
B) a reduction in the discount rate 
C) an increase in the size of the federal budget deficit 
D) a reduction in the required reserves imposed on the banking system 
A) sale of government bonds by the Federal Reserve 
B) a reduction in the discount rate 
C) an increase in the size of the federal budget deficit 
D) a reduction in the required reserves imposed on the banking system

Question 16

The velocity of money is the:

Accepted Answer

A) rate at which the price index for consumer goods rises. 
B) multiple by which an increase in government expenditures will cause output to expand. 
C) average number of times a dollar is used to buy goods and services included in GDP. 
D) number of times a dollar is taken out of the country during a year. 
A) rate at which the price index for consumer goods rises. 
B) multiple by which an increase in government expenditures will cause output to expand. 
C) average number of times a dollar is used to buy goods and services included in GDP. 
D) number of times a dollar is taken out of the country during a year.

Question 17

If the economy is inflationary, the Fed would most likely:

Accepted Answer

A) encourage banks to provide loans by buying government securities. 
B) encourage banks to provide loans by raising the discount rate. 
C) encourage banks to provide loans by selling government securities. 
D) restrict bank lending by selling government securities. 
E) restrict bank lending by lowering the federal funds rate. 
A) encourage banks to provide loans by buying government securities. 
B) encourage banks to provide loans by raising the discount rate. 
C) encourage banks to provide loans by selling government securities. 
D) restrict bank lending by selling government securities. 
E) restrict bank lending by lowering the federal funds rate.

Question 18

The Keynesian mechanism through which monetary policy affects the price level, real GDP, and employment depends on the impact of the:

Accepted Answer

A) interest rate on savings. 
B) inflation on investment. 
C) interest rate on investment. 
D) interest rate on bond prices. 
A) interest rate on savings. 
B) inflation on investment. 
C) interest rate on investment. 
D) interest rate on bond prices.

Question 19

According to the equation of exchange, if M = 200, P = 100, and Q = 10, the V is:

Accepted Answer

A) 20. 
B) 2. 
C) 10. 
D) 5. 
E) 2,000. 
A) 20. 
B) 2. 
C) 10. 
D) 5. 
E) 2,000.

Question 20

If M stand for the money supply, V for the velocity of money, P for the average selling price, and Q for the output of goods and services, the equation of exchange is MV = PQ.

Accepted Answer

A) True 
 B)False

Exam 16: Monetary Policy

Keynes called money people hold to make routine day-to-day purchases the:

If the Fed expands the money supply by $1 trillion, what will happen in the money market?

If the Fed uses its tools to expand the money supply, bond prices will be bid down and interest rates will rise.

According to the Monetarist view, the impact of expansionary monetary policy will be:

Other things being equal, an increase in the rate of interest causes a(n):

The stock of money people hold to take advantage of expected future changes in the price of bonds, stocks, or other nonmoney financial assets is the:

A rightward shift in the money supply curve is likely to produce a rightward shift in the aggregate demand curve.

If M = 200, P = 100, and Q = 10, then V is:

John Maynard Keynes listed three types of motives for people holding money ¾ transactions, precautionary, and speculative.

Keynes called the money people hold in order to buy bonds, stocks, or other nonmoney financial assets the:

Which of the following statements is true ?

If you hold money in anticipation of household emergency expense, this represents the::

Contrast the Keynesian and Monetarist views on how a change in the money supply impacts the economy.

Which of the following policies would be most likely to reduce the rate of inflation?

The velocity of money is the:

If the economy is inflationary, the Fed would most likely:

The Keynesian mechanism through which monetary policy affects the price level, real GDP, and employment depends on the impact of the:

According to the equation of exchange, if M = 200, P = 100, and Q = 10, the V is:

If M stand for the money supply, V for the velocity of money, P for the average selling price, and Q for the output of goods and services, the equation of exchange is MV = PQ.

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Markets in Action

Gross Domestic Product

Business Cycles and Unemployment

Inflation

The Keynesian Model

The Keynesian Model in Action

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits, Surpluses, and the National Debt

Money and the Federal Reserve System

Money Creation

The Phillips Curve and Expectations Theory

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

Applying Graphs to Economics

Consumer Surplus, Producer Surplus, and Market Efficiency

the Self-Correcting Aggregate Demand and Supply Model

Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

Filters