Question 1

According to classical economists,

Accepted Answer

A)  prices are rigid. 
B)  both V and Q are variable for an economy in short-run equilibrium. 
C)  changes in M cause changes in V. 
D)  the velocity of money is constant. 
A)  prices are rigid. 
B)  both V and Q are variable for an economy in short-run equilibrium. 
C)  changes in M cause changes in V. 
D)  the velocity of money is constant.

Question 2

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 3

The demand for money curve shows that there is an inverse relationship between the quantity of money demanded and the:

Accepted Answer

A)  quantity of money supplied. 
B)  gross domestic product (GDP). 
C)  price level. 
D)  interest rate. 
A)  quantity of money supplied. 
B)  gross domestic product (GDP). 
C)  price level. 
D)  interest rate.

Question 4

According to the Monetarists, the primary cause of inflation is:

Accepted Answer

A)  large budget deficits. 
B)  high taxes. 
C)  rapid expansion of the money supply. 
D)  government expenditures that are large relative to the size of the economy. 
A)  large budget deficits. 
B)  high taxes. 
C)  rapid expansion of the money supply. 
D)  government expenditures that are large relative to the size of the economy.

Question 5

The quantity theory of money of the Classical economists says that a change in the money supply will produce a:

Accepted Answer

A)  proportional change in the price level. 
B)  greater than proportional change in the price level. 
C)  less than proportional change in the price level. 
D)  wide variation in the velocity of money. 
A)  proportional change in the price level. 
B)  greater than proportional change in the price level. 
C)  less than proportional change in the price level. 
D)  wide variation in the velocity of money.

Question 6

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. 
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.

Question 7

According to the quantity theory of money, which one of the following economic variables would change in response to an increase in the money supply?

Accepted Answer

A)  prices 
B)  real income 
C)  velocity 
D)  employment 
A)  prices 
B)  real income 
C)  velocity 
D)  employment

Question 8

Contrast the Keynesian and Monetarist views on the effectiveness of fiscal policy.

Accepted Answer

Keynesians believe the aggregate supply

Question 9

If the money supply is $250 billion and nominal GDP is $1 trillion, the velocity of money is:

Accepted Answer

A)  0.25. 
B)  0.40. 
C)  2.50. 
D)  4.00. 
A)  0.25. 
B)  0.40. 
C)  2.50. 
D)  4.00.

Question 10

Which of the following is a reason for the Keynesian view that monetary policy plays a minor role in affecting the economy?

Accepted Answer

A)  The money demand curve is vertical. 
B)  The investment curve is very steep. 
C)  The money demand curve is horizontal at any interest rate. 
D)  the monetary rule 
A)  The money demand curve is vertical. 
B)  The investment curve is very steep. 
C)  The money demand curve is horizontal at any interest rate. 
D)  the monetary rule

Question 11

Which of the following is a belief of the monetarists?

Accepted Answer

A)  They think the Great Depression was made worse by poor conduct of monetary policy. 
B)  They believe monetary policy is transmitted to the economy only through its effect on interest rates and planned investment. 
C)  They believe that the interest-investment curve is horizontal. 
D)  They believe the crowding-out effect is insignificant. 
A)  They think the Great Depression was made worse by poor conduct of monetary policy. 
B)  They believe monetary policy is transmitted to the economy only through its effect on interest rates and planned investment. 
C)  They believe that the interest-investment curve is horizontal. 
D)  They believe the crowding-out effect is insignificant.

Question 12

Exhibit 16-1 Money market demand and supply curves
 
As shown in Exhibit 16-1, assume the money supply curve shifts leftward from MS1 to MS2 and the economy is operating along the intermediate segment of the aggregate supply curve. The result will be a:

Accepted Answer

A)  higher investment, lower real GDP, and lower price level. 
B)  lower investment, lower real GDP, and lower price level. 
C)  higher investment, higher real GDP, and higher price level. 
D)  higher interest rate and no effect on real GDP or the price level. 
A)  higher investment, lower real GDP, and lower price level. 
B)  lower investment, lower real GDP, and lower price level. 
C)  higher investment, higher real GDP, and higher price level. 
D)  higher interest rate and no effect on real GDP or the price level.

Question 13

Which of the following is true ?

Accepted Answer

A)  Keynesians advocate decreasing the money supply during economic recessions but increasing the money supply during economic expansions. 
B)  Monetarists advocate increasing the money supply by a constant rate year after year. 
C)  Keynesians argue that the crowding-out effect is rather large. 
D)  Monetarists argue that the crowding-out effect is rather insignificant. 
A)  Keynesians advocate decreasing the money supply during economic recessions but increasing the money supply during economic expansions. 
B)  Monetarists advocate increasing the money supply by a constant rate year after year. 
C)  Keynesians argue that the crowding-out effect is rather large. 
D)  Monetarists argue that the crowding-out effect is rather insignificant.

Question 14

The quantity of money demanded to satisfy transactions needs:

Accepted Answer

A)  is intended for unexpected expenditures. 
B)  increases with the level of real GDP. 
C)  decreases with the level of real GDP. 
D)  is unrelated to either national income or the interest rate. 
A)  is intended for unexpected expenditures. 
B)  increases with the level of real GDP. 
C)  decreases with the level of real GDP. 
D)  is unrelated to either national income or the interest rate.

Question 15

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 16

If the velocity of the M1 money supply is 4 and nominal GDP is $200 billion, the stock of money in circulation must be:

Accepted Answer

A)  $25 billion. 
B)  $50 billion. 
C)  $100 billion. 
D)  $800 billion. 
A)  $25 billion. 
B)  $50 billion. 
C)  $100 billion. 
D)  $800 billion.

Question 17

Exhibit 16-6 Money, investment and product markets
 
In Exhibit 16-6, if the interest rate falls from i1 to i2, then:

Accepted Answer

A)  the quantity demanded of investment increases from I1 to I2 and investment spending shifts the aggregate demand curve from AD2 to AD1, decreasing the level of real GDP. 
B)  the quantity demanded of investment increases from I1 to I2 and investment spending shifts the aggregate demand curve from AD1 to AD2, increasing the level of real GDP. 
C)  the quantity demanded of investment decreases from I2 to I1 and investment spending shifts the aggregate demand curve from AD1 to AD2, decreasing the level of real GDP. 
D)  the quantity demanded of investment decreases from I2 to I1 and investment spending shifts the aggregate demand curve from AD2 to AD1, increasing the level of real GDP. 
A)  the quantity demanded of investment increases from I1 to I2 and investment spending shifts the aggregate demand curve from AD2 to AD1, decreasing the level of real GDP. 
B)  the quantity demanded of investment increases from I1 to I2 and investment spending shifts the aggregate demand curve from AD1 to AD2, increasing the level of real GDP. 
C)  the quantity demanded of investment decreases from I2 to I1 and investment spending shifts the aggregate demand curve from AD1 to AD2, decreasing the level of real GDP. 
D)  the quantity demanded of investment decreases from I2 to I1 and investment spending shifts the aggregate demand curve from AD2 to AD1, increasing the level of real GDP.

Question 18

Exhibit 16-5 Money, investment and product markets
 
In Exhibit 16-5, if the interest rate falls from i1 to i2, investment spending will:

Accepted Answer

A)  increase, and aggregate demand will shift from AD1 to AD2. 
B)  decrease, and aggregate demand will shift from AD2 to AD1. 
C)  remain the same, and aggregate demand will shift from AD2 to AD3. 
D)  increase, and aggregate demand will shift from AD2 to AD1. 
A)  increase, and aggregate demand will shift from AD1 to AD2. 
B)  decrease, and aggregate demand will shift from AD2 to AD1. 
C)  remain the same, and aggregate demand will shift from AD2 to AD3. 
D)  increase, and aggregate demand will shift from AD2 to AD1.

Question 19

Starting from a position of macroeconomic equilibrium at below the full-employment level of real GDP, an increase in the money supply will:

Accepted Answer

A)  raise interest rates, prices, and reduce real GDP. 
B)  raise interest rates, lower prices, and leave real GDP unchanged. 
C)  Raise interest rates, lower prices, and leave real GDP unchanged. 
D)  lower interest rates, raise prices, and increase real GDP. 
A)  raise interest rates, prices, and reduce real GDP. 
B)  raise interest rates, lower prices, and leave real GDP unchanged. 
C)  Raise interest rates, lower prices, and leave real GDP unchanged. 
D)  lower interest rates, raise prices, and increase real GDP.

Question 20

Given the strict quantity theory of money, if the quantity of money were decreased by 50 percent, prices would:

Accepted Answer

A)  fall by 50 percent. 
B)  rise by 50 percent. 
C)  increase by 100 percent. 
D)  decrease by 100 percent. 
A)  fall by 50 percent. 
B)  rise by 50 percent. 
C)  increase by 100 percent. 
D)  decrease by 100 percent.

Exam 26: Monetary Policy

According to classical economists,

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

The demand for money curve shows that there is an inverse relationship between the quantity of money demanded and the:

According to the Monetarists, the primary cause of inflation is:

The quantity theory of money of the Classical economists says that a change in the money supply will produce a:

When the interest rate falls,

According to the quantity theory of money, which one of the following economic variables would change in response to an increase in the money supply?

Contrast the Keynesian and Monetarist views on the effectiveness of fiscal policy.

If the money supply is $250 billion and nominal GDP is $1 trillion, the velocity of money is:

Which of the following is a reason for the Keynesian view that monetary policy plays a minor role in affecting the economy?

Which of the following is a belief of the monetarists?

Exhibit 16-1 Money market demand and supply curves As shown in Exhibit 16-1, assume the money supply curve shifts leftward from MS1 to MS2 and the economy is operating along the intermediate segment of the aggregate supply curve. The result will be a:

Which of the following is true ?

The quantity of money demanded to satisfy transactions needs:

The velocity of money is the:

If the velocity of the M1 money supply is 4 and nominal GDP is $200 billion, the stock of money in circulation must be:

Exhibit 16-6 Money, investment and product markets In Exhibit 16-6, if the interest rate falls from i1 to i2, then:

Exhibit 16-5 Money, investment and product markets In Exhibit 16-5, if the interest rate falls from i1 to i2, investment spending will:

Starting from a position of macroeconomic equilibrium at below the full-employment level of real GDP, an increase in the money supply will:

Given the strict quantity theory of money, if the quantity of money were decreased by 50 percent, prices would:

Introducing the Economic Way of Thinking

Production Possibilities Opportunity Cost and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand and Supply

Consumer Choice Theory

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets

Income Distribution Poverty and Discrimination

Antitrust and Regulation

Environmental Economics

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

Understanding Direct and Inverse Relationships between Variables

Filters

Exhibit 16-1 Money market demand and supply curves As shown in Exhibit 16-1, assume the money supply curve shifts leftward from MS₁ to MS₂ and the economy is operating along the intermediate segment of the aggregate supply curve. The result will be a:

Exhibit 16-6 Money, investment and product markets In Exhibit 16-6, if the interest rate falls from i₁ to i₂, then:

Exhibit 16-5 Money, investment and product markets In Exhibit 16-5, if the interest rate falls from i₁ to i₂, investment spending will: