Question 1

Which of the following correctly gives us the equation of exchange?

Accepted Answer

A) TR = PQ. 
B) MV = VM. 
C) MV = PQ. 
D) TR = VM. 
A) TR = PQ. 
B) MV = VM. 
C) MV = PQ. 
D) TR = VM.

Question 2

Assume the demand for money curve is stationary and the Fed increases the money supply. The result is that people:

Accepted Answer

A) increase the supply of bonds, thus driving up the interest rate. 
B) increase the supply of bonds, thus driving down the interest rate. 
C) increase the demand for bonds, thus driving up the interest rate. 
D) increase the demand for bonds, thus driving down the interest rate. 
A) increase the supply of bonds, thus driving up the interest rate. 
B) increase the supply of bonds, thus driving down the interest rate. 
C) increase the demand for bonds, thus driving up the interest rate. 
D) increase the demand for bonds, thus driving down the interest rate.

Question 3

In Keynes's view, an excess quantity of money supplied causes people to:

Accepted Answer

A) sell bonds and the interest rate rises. 
B) buy bonds and the interest rate falls. 
C) buy bonds and the interest rate rises. 
D) increase speculative balances. 
A) sell bonds and the interest rate rises. 
B) buy bonds and the interest rate falls. 
C) buy bonds and the interest rate rises. 
D) increase speculative balances.

Question 4

Which of the following characterizes the Monetarist viewpoint?

Accepted Answer

A) They believe that money can never affect investment. 
B) They believe that monetary policy is transmitted to the economy only through its effects on the interest rate and investment. 
C) Both a and b are part of the debate. 
D) Neither a nor b are part of the debate. 
A) They believe that money can never affect investment. 
B) They believe that monetary policy is transmitted to the economy only through its effects on the interest rate and investment. 
C) Both a and b are part of the debate. 
D) Neither a nor b are part of the debate.

Question 5

Starting from equilibrium in the money market, suppose the money supply increases. Other things being equal, this will cause an excess demand for money, leading people to sell bonds.

Accepted Answer

A) True 
 B)False

Question 6

The quantity of money held in response to interest rates is the:

Accepted Answer

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

Question 7

Exhibit 16-5 Money, investment and product markets   In Exhibit 16-5, a shift in aggregate demand from AD1 to AD2:

Accepted Answer

A) cannot raise real GDP because the economy is at full employment. 
B) cannot raise real GDP because the aggregate supply curve is upward sloping at GDP2. 
C) will raise real GDP because the economy is operating below the full-employment level. 
D) will cause the interest rate to increase from i2 to i1. 
E) will raise real GDP but will also significantly raise the price level. 
A) cannot raise real GDP because the economy is at full employment. 
B) cannot raise real GDP because the aggregate supply curve is upward sloping at GDP2. 
C) will raise real GDP because the economy is operating below the full-employment level. 
D) will cause the interest rate to increase from i2 to i1. 
E) will raise real GDP but will also significantly raise the price level.

Question 8

If the money supply increases this will cause the interest rate to rise, investment to fall and GDP to fall.

Accepted Answer

A) True 
 B)False

Question 9

If the nominal GDP is $500 billion and the money supply is $100 billion, the velocity of money is:

Accepted Answer

A) 500. 
B) 5.00 
C) 2.50. 
D) 0.40. 
A) 500. 
B) 5.00 
C) 2.50. 
D) 0.40.

Question 10

Which of the following is an important issue in the Keynesian-Monetarist debate?

Accepted Answer

A) The relative importance of monetary and fiscal policy. 
B) The nature of the transmission mechanism through which a change in the money supply affects the economy. 
C) The shape of the investment-demand curve. 
D) All of these. 
A) The relative importance of monetary and fiscal policy. 
B) The nature of the transmission mechanism through which a change in the money supply affects the economy. 
C) The shape of the investment-demand curve. 
D) All of these.

Question 11

An increase in the money supply is represented by a(n):

Accepted Answer

A) rightward shift of the downward-sloping money supply curve. 
B) upward shift of the money supply curve. 
C) rightward shift of the money supply curve. 
D) increase in the rate of interest. 
A) rightward shift of the downward-sloping money supply curve. 
B) upward shift of the money supply curve. 
C) rightward shift of the money supply curve. 
D) increase in the rate of interest.

Question 12

"Monetary instability has been the major cause of economic instability in this country. Expansion in the money supply has been the source of every major inflation. Every major recession has been either caused or perpetuated by monetary contraction." Who among the following would most likely adhere to this view?

Accepted Answer

A) Monetarists. 
B) Keynesians. 
C) Demand-side economists. 
D) Quantity theorists. 
A) Monetarists. 
B) Keynesians. 
C) Demand-side economists. 
D) Quantity theorists.

Question 13

When there is an excess demand for money, individuals and businesses will attempt to purchase bonds.

Accepted Answer

A) True 
 B)False

Question 14

If M stands 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:

Accepted Answer

A) MP = VQ. 
B) MV = PQ. 
C) MQ = VP. 
D) MP = PQ. 
A) MP = VQ. 
B) MV = PQ. 
C) MQ = VP. 
D) MP = PQ.

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

The monetary rule is the view of the:

Accepted Answer

A) Keynesians that monetary policy is most important. 
B) Monetarists that monetary policy is most important. 
C) Classical economists that monetary policy is most important. 
D) Monetarists that the Fed should expand the money supply at a constant rate. 
A) Keynesians that monetary policy is most important. 
B) Monetarists that monetary policy is most important. 
C) Classical economists that monetary policy is most important. 
D) Monetarists that the Fed should expand the money supply at a constant rate.

Question 17

When the interest rate falls,

Accepted Answer

A) the opportunity cost of holding money rises. 
B) people shift out of holding interest-yielding bonds into holding money. 
C) the quantity of money people will hold decreases. 
D) investment spending decreases. 
E) real GDP will decrease. 
A) the opportunity cost of holding money rises. 
B) people shift out of holding interest-yielding bonds into holding money. 
C) the quantity of money people will hold decreases. 
D) investment spending decreases. 
E) real GDP will decrease.

Question 18

Monetarists argue that the Fed should frequently adjust the money supply in response to ever-changing economic conditions.

Accepted Answer

A) True 
 B)False

Question 19

Monetarists reject using discretionary monetary policy as an effective stabilization tool because they believe:

Accepted Answer

A) if the money supply grows at a rate equal to the economy's long-run rate of economic growth, then the economy will be unstable. 
B) that changes in the money stock do not affect output or prices. 
C) the Fed will miss its money supply targets and make the economy worse. 
D) monetary policy can stimulate aggregate demand, but it cannot affect inflation. 
A) if the money supply grows at a rate equal to the economy's long-run rate of economic growth, then the economy will be unstable. 
B) that changes in the money stock do not affect output or prices. 
C) the Fed will miss its money supply targets and make the economy worse. 
D) monetary policy can stimulate aggregate demand, but it cannot affect inflation.

Question 20

Monetarists believe that:

Accepted Answer

A) velocity is constant. 
B) velocity is highly predictable. 
C) there are three motives for demanding money. 
D) changes in the money supply cause changes in velocity. 
E) a change in the money supply can affect real GDP. 
A) velocity is constant. 
B) velocity is highly predictable. 
C) there are three motives for demanding money. 
D) changes in the money supply cause changes in velocity. 
E) a change in the money supply can affect real GDP.

Exam 16: Monetary Policy

Which of the following correctly gives us the equation of exchange?

Assume the demand for money curve is stationary and the Fed increases the money supply. The result is that people:

In Keynes's view, an excess quantity of money supplied causes people to:

Which of the following characterizes the Monetarist viewpoint?

Starting from equilibrium in the money market, suppose the money supply increases. Other things being equal, this will cause an excess demand for money, leading people to sell bonds.

The quantity of money held in response to interest rates is the:

Exhibit 16-5 Money, investment and product markets In Exhibit 16-5, a shift in aggregate demand from AD1 to AD2:

If the money supply increases this will cause the interest rate to rise, investment to fall and GDP to fall.

If the nominal GDP is $500 billion and the money supply is $100 billion, the velocity of money is:

Which of the following is an important issue in the Keynesian-Monetarist debate?

An increase in the money supply is represented by a(n):

When there is an excess demand for money, individuals and businesses will attempt to purchase bonds.

If M stands 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:

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

The monetary rule is the view of the:

When the interest rate falls,

Monetarists argue that the Fed should frequently adjust the money supply in response to ever-changing economic conditions.

Monetarists reject using discretionary monetary policy as an effective stabilization tool because they believe:

Monetarists believe that:

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

Exhibit 16-5 Money, investment and product markets In Exhibit 16-5, a shift in aggregate demand from AD₁ to AD₂: