Question 1

Which of the following makes it more difficult for monetary policy makers to time policy changes correctly?

Accepted Answer

A)  Monetary policy makers cannot act without congressional approval. 
B)  The primary effects of the policy change will not be felt for 6 to 15 months into the future. 
C)  The Board of Governors of the Federal Reserve System does not meet very often. 
D)  Monetary policy affects only the general level of prices; it exerts no impact on real variables such as output and employment. 
A)  Monetary policy makers cannot act without congressional approval. 
B)  The primary effects of the policy change will not be felt for 6 to 15 months into the future. 
C)  The Board of Governors of the Federal Reserve System does not meet very often. 
D)  Monetary policy affects only the general level of prices; it exerts no impact on real variables such as output and employment.

Question 2

Continuous rapid growth of the money supply relative to the growth of real output will most likely lead to

Accepted Answer

A)  persistent inflation. 
B)  low nominal interest rates. 
C)  high rates of real economic growth. 
D)  low unemployment. 
A)  persistent inflation. 
B)  low nominal interest rates. 
C)  high rates of real economic growth. 
D)  low unemployment.

Question 3

Use the figure below to answer the following question(s). Figure 14-5
  In Figure 14-5, AD1 and SRAS1 indicate an economy initially operating at full-employment output level, Y1. The long-run impact of the Fed unexpectedly shifting to a more restrictive monetary policy will be

Accepted Answer

A)  a decrease in aggregate demand to AD2 and a decrease in real output to Y2. 
B)  a decrease in the full-employment level of output to Y2. 
C)  a decrease in aggregate demand to AD2 and an increase in short-run aggregate supply to SRAS2, causing the price level to fall to P3 and real output to remain unchanged at Y1. 
D)  no change; AD and SRAS will stay at AD1 and SRAS1. 
A)  a decrease in aggregate demand to AD2 and a decrease in real output to Y2. 
B)  a decrease in the full-employment level of output to Y2. 
C)  a decrease in aggregate demand to AD2 and an increase in short-run aggregate supply to SRAS2, causing the price level to fall to P3 and real output to remain unchanged at Y1. 
D)  no change; AD and SRAS will stay at AD1 and SRAS1.

Question 4

During 2001-2004, the Fed injected additional reserves into the banking system, which reduced the federal funds rate and other short-term interest rates. Other things constant, what is the most likely short-run impact of this policy?

Accepted Answer

A)  an increase in the rate of unemployment 
B)  a reduction in the growth of employment 
C)  an increase in aggregate demand and real GDP 
D)  a reduction in the long-run rate of inflation 
A)  an increase in the rate of unemployment 
B)  a reduction in the growth of employment 
C)  an increase in aggregate demand and real GDP 
D)  a reduction in the long-run rate of inflation

Question 5

If the Fed shifts to a more restrictive monetary policy in order to help control inflation, the policy shift will generally

Accepted Answer

A)  stimulate aggregate demand and real output as soon as the policy is instituted. 
B)  reduce aggregate demand immediately and quickly bring the inflation under control. 
C)  reduce aggregate demand and help bring the inflation under control, but the primary effects may not be felt for several months (or quarters). 
D)  lower real interest rates in the short run, but in the long run, real interest rates will rise. 
A)  stimulate aggregate demand and real output as soon as the policy is instituted. 
B)  reduce aggregate demand immediately and quickly bring the inflation under control. 
C)  reduce aggregate demand and help bring the inflation under control, but the primary effects may not be felt for several months (or quarters). 
D)  lower real interest rates in the short run, but in the long run, real interest rates will rise.

Question 6

The cost of holding money balances increases when

Accepted Answer

A)  the inflation rate decreases. 
B)  the nominal interest rate increases. 
C)  the nominal interest rate decreases. 
D)  nominal GDP is far from full employment. 
A)  the inflation rate decreases. 
B)  the nominal interest rate increases. 
C)  the nominal interest rate decreases. 
D)  nominal GDP is far from full employment.

Question 7

During 2008-2013, the Fed initiated several rounds of "quantitative easing."  Under this policy, the Fed

Accepted Answer

A)  increased its purchases of financial assets and thereby injected additional reserves into the banking system. 
B)  increased its purchases of financial assets, which reduced the reserves available to the banking system. 
C)  reduced its purchases of financial assets and thereby injected additional reserves into the banking system. 
D)  reduced its purchases of financial assets and thereby reduced the quantity of reserves available to the banking system. 
A)  increased its purchases of financial assets and thereby injected additional reserves into the banking system. 
B)  increased its purchases of financial assets, which reduced the reserves available to the banking system. 
C)  reduced its purchases of financial assets and thereby injected additional reserves into the banking system. 
D)  reduced its purchases of financial assets and thereby reduced the quantity of reserves available to the banking system.

Question 8

Which of the following would be most indicative of a shift to a more expansionary monetary policy?

Accepted Answer

A)  Rapid expansion in the monetary base, higher  short-term interest rates, and  a decline in the growth rate of the M1 money supply 
B)  Rapid expansion in the monetary base, declining  short-term  interest rates, and  an increase in the growth rate of the M2 money supply 
C)  A reduction in the monetary   base, higher  short-term  interest rates, and a decline in the growth rate of the M1 money supply 
D)  A reduction in the monetary base, lower short-term interest rates, and a decline in the growth rate of the M2 money supply 
A)  Rapid expansion in the monetary base, higher  short-term interest rates, and  a decline in the growth rate of the M1 money supply 
B)  Rapid expansion in the monetary base, declining  short-term  interest rates, and  an increase in the growth rate of the M2 money supply 
C)  A reduction in the monetary   base, higher  short-term  interest rates, and a decline in the growth rate of the M1 money supply 
D)  A reduction in the monetary base, lower short-term interest rates, and a decline in the growth rate of the M2 money supply

Question 9

In 2008, nominal GDP was equal to $14,265 billion while the M1 money supply was $1,423 billion. What was the velocity of the M1 money stock?

Accepted Answer

A)  1.0 
B)  10.0 
C)  1.8 
D)  0.1 
A)  1.0 
B)  10.0 
C)  1.8 
D)  0.1

Question 10

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 11

The short run sequence of events following an unanticipated shift to restrictive monetary policy would be higher interest rates followed by dollar

Accepted Answer

A)  depreciation, higher exports, and lower imports. 
B)  depreciation, lower exports, and higher imports. 
C)  appreciation, lower exports, and higher imports. 
D)  appreciation, higher exports, and lower imports. 
A)  depreciation, higher exports, and lower imports. 
B)  depreciation, lower exports, and higher imports. 
C)  appreciation, lower exports, and higher imports. 
D)  appreciation, higher exports, and lower imports.

Question 12

Persistently expansionary monetary policy that stimulates aggregate demand and leads to inflation will

Accepted Answer

A)  lead to higher rates of real output in the long run. 
B)  fail to increase real output once decision makers fully anticipate the inflation. 
C)  lead to lower nominal interest rates once decision makers fully anticipate the inflation. 
D)  permanently reduce the rate of unemployment below its natural rate. 
A)  lead to higher rates of real output in the long run. 
B)  fail to increase real output once decision makers fully anticipate the inflation. 
C)  lead to lower nominal interest rates once decision makers fully anticipate the inflation. 
D)  permanently reduce the rate of unemployment below its natural rate.

Question 13

Which of the following interest rates will be least affected by a shift in monetary policy that alters the money supply?

Accepted Answer

A)  a three-month certificate of deposit 
B)  interest on checking accounts 
C)  a one-year bank loan 
D)  a thirty-year home mortgage 
A)  a three-month certificate of deposit 
B)  interest on checking accounts 
C)  a one-year bank loan 
D)  a thirty-year home mortgage

Question 14

Answer the following questions:
a.What is the equation of exchange? Explain each component.
b.What assumptions are placed on the equation of exchange to generate the quantity theory of money?
c.Explain the quantity theory of money and what it implies about the impact of changes in the money supply on real output and prices.

Accepted Answer

a.The equation of exchange is MV = PY. M

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

Discuss the following views concerning the impact of monetary policy:
a.classicals
b.Keynesians
c.monetarists
d."modern view"

Accepted Answer

a.The classicals believe in the quantity

Question 17

Which of the following was true of the actions of the Federal Reserve in response to the recession of 2008?

Accepted Answer

A)  The Fed shifted toward a highly restrictive monetary policy in 2008, which was a major cause of the recession. 
B)  The Fed continued to focus only on price stability and therefore it expanded the money supply at a slow and steady rate throughout the recession. 
C)  The Fed introduced several new procedures for the conduct of monetary policy and substantially increased bank reserves as the recession worsened. 
D)  The Fed continued to purchase and sell only U.S. Treasury bonds when conducting open market operations to control the money supply. 
A)  The Fed shifted toward a highly restrictive monetary policy in 2008, which was a major cause of the recession. 
B)  The Fed continued to focus only on price stability and therefore it expanded the money supply at a slow and steady rate throughout the recession. 
C)  The Fed introduced several new procedures for the conduct of monetary policy and substantially increased bank reserves as the recession worsened. 
D)  The Fed continued to purchase and sell only U.S. Treasury bonds when conducting open market operations to control the money supply.

Question 18

If expansionary monetary policy reduces real interest rates in the United States, which of the following is most likely to occur?

Accepted Answer

A)  Net foreign investment will decline, causing the dollar to depreciate and net exports to increase. 
B)  Net foreign investment will decline, causing the dollar to appreciate and net exports to decrease. 
C)  Net foreign investment will increase, causing the dollar to appreciate and net exports to decline. 
D)  Net foreign investment will increase, causing the dollar to depreciate and net exports to increase. 
A)  Net foreign investment will decline, causing the dollar to depreciate and net exports to increase. 
B)  Net foreign investment will decline, causing the dollar to appreciate and net exports to decrease. 
C)  Net foreign investment will increase, causing the dollar to appreciate and net exports to decline. 
D)  Net foreign investment will increase, causing the dollar to depreciate and net exports to increase.

Question 19

When the Fed decreases the money supply, interest rates

Accepted Answer

A)  rise. 
B)  fall. 
C)  are unaffected. 
D)  rise and then fall. 
E)  fall and then rise. 
A)  rise. 
B)  fall. 
C)  are unaffected. 
D)  rise and then fall. 
E)  fall and then rise.

Question 20

According to modern analysis, what is the link between the long-run growth rate of the money supply and inflation?

Accepted Answer

A)  there is little correlation between money growth and inflation 
B)  there is a positive link between money growth and inflation, contrary to the quantity theory of money 
C)  there is a strong, positive link between rapid money growth and inflation 
D)  there is an inverse relationship between rapid money growth and inflation 
A)  there is little correlation between money growth and inflation 
B)  there is a positive link between money growth and inflation, contrary to the quantity theory of money 
C)  there is a strong, positive link between rapid money growth and inflation 
D)  there is an inverse relationship between rapid money growth and inflation

Which of the following makes it more difficult for monetary policy makers to time policy changes correctly?

Continuous rapid growth of the money supply relative to the growth of real output will most likely lead to

Use the figure below to answer the following question(s). Figure 14-5 In Figure 14-5, AD₁ and SRAS₁ indicate an economy initially operating at full-employment output level, Y₁. The long-run impact of the Fed unexpectedly shifting to a more restrictive monetary policy will be

During 2001-2004, the Fed injected additional reserves into the banking system, which reduced the federal funds rate and other short-term interest rates. Other things constant, what is the most likely short-run impact of this policy?

If the Fed shifts to a more restrictive monetary policy in order to help control inflation, the policy shift will generally

The cost of holding money balances increases when

During 2008-2013, the Fed initiated several rounds of "quantitative easing." Under this policy, the Fed

Which of the following would be most indicative of a shift to a more expansionary monetary policy?

In 2008, nominal GDP was equal to $14,265 billion while the M1 money supply was $1,423 billion. What was the velocity of the M1 money stock?

The primary cause of inflation is

The short run sequence of events following an unanticipated shift to restrictive monetary policy would be higher interest rates followed by dollar

Persistently expansionary monetary policy that stimulates aggregate demand and leads to inflation will

Which of the following interest rates will be least affected by a shift in monetary policy that alters the money supply?

The velocity of money is the

Discuss the following views concerning the impact of monetary policy: a.classicals b.Keynesians c.monetarists d."modern view"

Which of the following was true of the actions of the Federal Reserve in response to the recession of 2008?

If expansionary monetary policy reduces real interest rates in the United States, which of the following is most likely to occur?

When the Fed decreases the money supply, interest rates

According to modern analysis, what is the link between the long-run growth rate of the money supply and inflation?

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad--As Model

Fiscal Policy: The Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy: Incentives, and Secondary Effects

Money and the Banking System

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Special Topics

Filters

Exam 14: Modern Macroeconomics and Monetary Policy

Which of the following makes it more difficult for monetary policy makers to time policy changes correctly?

Continuous rapid growth of the money supply relative to the growth of real output will most likely lead to

Use the figure below to answer the following question(s). Figure 14-5 In Figure 14-5, AD1 and SRAS1 indicate an economy initially operating at full-employment output level, Y1. The long-run impact of the Fed unexpectedly shifting to a more restrictive monetary policy will be

During 2001-2004, the Fed injected additional reserves into the banking system, which reduced the federal funds rate and other short-term interest rates. Other things constant, what is the most likely short-run impact of this policy?

If the Fed shifts to a more restrictive monetary policy in order to help control inflation, the policy shift will generally

The cost of holding money balances increases when

During 2008-2013, the Fed initiated several rounds of "quantitative easing." Under this policy, the Fed

Which of the following would be most indicative of a shift to a more expansionary monetary policy?

In 2008, nominal GDP was equal to $14,265 billion while the M1 money supply was $1,423 billion. What was the velocity of the M1 money stock?

The primary cause of inflation is

The short run sequence of events following an unanticipated shift to restrictive monetary policy would be higher interest rates followed by dollar

Persistently expansionary monetary policy that stimulates aggregate demand and leads to inflation will

Which of the following interest rates will be least affected by a shift in monetary policy that alters the money supply?

The velocity of money is the

Discuss the following views concerning the impact of monetary policy: a.classicals b.Keynesians c.monetarists d."modern view"

Which of the following was true of the actions of the Federal Reserve in response to the recession of 2008?

If expansionary monetary policy reduces real interest rates in the United States, which of the following is most likely to occur?

When the Fed decreases the money supply, interest rates

According to modern analysis, what is the link between the long-run growth rate of the money supply and inflation?

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad--As Model

Fiscal Policy: The Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy: Incentives, and Secondary Effects

Money and the Banking System

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Special Topics

Filters

Use the figure below to answer the following question(s). Figure 14-5 In Figure 14-5, AD₁ and SRAS₁ indicate an economy initially operating at full-employment output level, Y₁. The long-run impact of the Fed unexpectedly shifting to a more restrictive monetary policy will be