Question 1

The short run sequence of events following an unanticipated shift to a more expansionary monetary policy would be

Accepted Answer

A)  lower interest rates, decrease in aggregate demand, and a reduction in output. 
B)  lower interest rates, increase in aggregate demand, and an expansion in output. 
C)  higher interest rates, decrease in aggregate demand, and a reduction in output. 
D)  higher interest rates, increase in aggregate demand, and an expansion in output. 
A)  lower interest rates, decrease in aggregate demand, and a reduction in output. 
B)  lower interest rates, increase in aggregate demand, and an expansion in output. 
C)  higher interest rates, decrease in aggregate demand, and a reduction in output. 
D)  higher interest rates, increase in aggregate demand, and an expansion in output.

Question 2

A decrease in the required reserve ratio would be

Accepted Answer

A)  a restrictive policy because it lowers the amount of total reserves in the banking system. 
B)  a restrictive policy because it lowers the amount of excess reserves in the banking system. 
C)  an expansionary policy because it raises the amount of required reserves in the banking system. 
D)  an expansionary policy because it raises the amount of total reserves in the banking system 
E)  an expansionary policy because it raises the amount of excess reserves in the banking system. 
A)  a restrictive policy because it lowers the amount of total reserves in the banking system. 
B)  a restrictive policy because it lowers the amount of excess reserves in the banking system. 
C)  an expansionary policy because it raises the amount of required reserves in the banking system. 
D)  an expansionary policy because it raises the amount of total reserves in the banking system 
E)  an expansionary policy because it raises the amount of excess reserves in the banking system.

Question 3

Which of the following reduced the effectiveness of the Fed's low interest rate policy during  the aftermath  of the 2008-2009 recession?

Accepted Answer

A)  The heavy indebtedness of households. 
B)  The reduction in the earnings derived from savings accounts, certificates of deposits, and other forms of savings used by many Americans. 
C)  The increased fear of inflation fueled by the Fed's expansionary monetary policy. 
D)  All of the above. 
A)  The heavy indebtedness of households. 
B)  The reduction in the earnings derived from savings accounts, certificates of deposits, and other forms of savings used by many Americans. 
C)  The increased fear of inflation fueled by the Fed's expansionary monetary policy. 
D)  All of the above.

Question 4

In the aggregate demand-aggregate supply model, the short-run effects of an unanticipated increase in the money supply will be

Accepted Answer

A)  lower real interest rates and an increase in aggregate demand. 
B)  higher real interest rates and an increase in aggregate demand. 
C)  lower real interest rates and a reduction in aggregate demand. 
D)  higher real interest rates and a reduction in aggregate demand. 
A)  lower real interest rates and an increase in aggregate demand. 
B)  higher real interest rates and an increase in aggregate demand. 
C)  lower real interest rates and a reduction in aggregate demand. 
D)  higher real interest rates and a reduction in aggregate demand.

Question 5

According to the monetarists, what is the primary cause of a recession? Explain the steps by which reductions in the money supply lead to reductions in real output.

Accepted Answer

Monetarists consider unanticipated restr

Question 6

Suppose the velocity of money is 6, the amount of money in circulation is $600 billion, the index of prices is 180, and real GDP is $20 billion. According to the strict quantity theory of money, if the money supply decreased to $300 billion,

Accepted Answer

A)  the velocity of money would rise to 12. 
B)  the index of prices would fall to 90. 
C)  real GDP would decrease to $10 billion. 
D)  the velocity of money would decline to 3. 
A)  the velocity of money would rise to 12. 
B)  the index of prices would fall to 90. 
C)  real GDP would decrease to $10 billion. 
D)  the velocity of money would decline to 3.

Question 7

Which of the following correctly indicates a potential path for the transmission of expansionary monetary policy to the goods and services market?

Accepted Answer

A)  Higher real interest rates will lead to a decrease in both business investment and consumer purchases of durable items, causing a decrease in aggregate demand. 
B)  Lower interest rates lead to a depreciation in the foreign exchange value of the dollar, an increase in net exports, and an expansion in aggregate demand. 
C)  Higher interest rates will tend to increase asset prices, leading to a decrease in wealth that will decrease consumer spending and aggregate demand. 
D)  A reduction in the general level of prices will increase the disposable income of households and aggregate demand. 
A)  Higher real interest rates will lead to a decrease in both business investment and consumer purchases of durable items, causing a decrease in aggregate demand. 
B)  Lower interest rates lead to a depreciation in the foreign exchange value of the dollar, an increase in net exports, and an expansion in aggregate demand. 
C)  Higher interest rates will tend to increase asset prices, leading to a decrease in wealth that will decrease consumer spending and aggregate demand. 
D)  A reduction in the general level of prices will increase the disposable income of households and aggregate demand.

Question 8

The demand curve for money

Accepted Answer

A)  shows the amount of money balances that individuals and businesses wish to hold at various interest rates. 
B)  reflects the open market operations policy of the Federal Reserve. 
C)  shows the amount of money that individuals and businesses wish to hold at various price levels. 
D)  reflects the discount rate policy of the Federal Reserve. 
A)  shows the amount of money balances that individuals and businesses wish to hold at various interest rates. 
B)  reflects the open market operations policy of the Federal Reserve. 
C)  shows the amount of money that individuals and businesses wish to hold at various price levels. 
D)  reflects the discount rate policy of the Federal Reserve.

Question 9

Which of the following about monetary policy is true?

Accepted Answer

A)  If the Fed wants to increase the money supply, it should increase the interest rate it pays banks on their excess reserves. 
B)  When the Fed reduces the interest rate paid on excess reserves, it increases the incentive of commercial banks to hold excess reserves. 
C)  If the Fed wants to reduce the future growth rate of the money supply, it could do so by increasing the interest rate it pays banks on excess reserves. 
D)  When the Fed increases the interest rate it pays on excess reserves, this encourages banks to extend more loans and thereby increase the money supply. 
A)  If the Fed wants to increase the money supply, it should increase the interest rate it pays banks on their excess reserves. 
B)  When the Fed reduces the interest rate paid on excess reserves, it increases the incentive of commercial banks to hold excess reserves. 
C)  If the Fed wants to reduce the future growth rate of the money supply, it could do so by increasing the interest rate it pays banks on excess reserves. 
D)  When the Fed increases the interest rate it pays on excess reserves, this encourages banks to extend more loans and thereby increase the money supply.

Question 10

When the Fed unexpectedly increases the money supply, it will cause an increase in aggregate demand because

Accepted Answer

A)  lower interest rates will stimulate business investment and consumer purchases. 
B)  real interest rates will fall, causing the dollar to depreciate and net exports to rise. 
C)  lower interest rates will cause the value of assets (for example, stocks) to rise. 
D)  all of the above are correct. 
A)  lower interest rates will stimulate business investment and consumer purchases. 
B)  real interest rates will fall, causing the dollar to depreciate and net exports to rise. 
C)  lower interest rates will cause the value of assets (for example, stocks) to rise. 
D)  all of the above are correct.

Question 11

According to monetarists, which of the following would be most important for the control of inflation?

Accepted Answer

A)  a steady increase in federal expenditures 
B)  the imposition of price controls 
C)  keeping the growth rate of the money supply low and steady 
D)  a steady increase in the size of the budget deficit 
A)  a steady increase in federal expenditures 
B)  the imposition of price controls 
C)  keeping the growth rate of the money supply low and steady 
D)  a steady increase in the size of the budget deficit

Question 12

In response to a severe recession, the Fed more than doubled the monetary base and pushed short-term interest rates to near zero during 2009-2010.  What happened in 2011?

Accepted Answer

A)  The inflation rate soared to double-digit levels. 
B)  Aggregate demand increased and the economy recovered rapidly. 
C)  The large budget deficit of the earlier years was transformed into a budget surplus. 
D)  The high rate of unemployment continued. 
A)  The inflation rate soared to double-digit levels. 
B)  Aggregate demand increased and the economy recovered rapidly. 
C)  The large budget deficit of the earlier years was transformed into a budget surplus. 
D)  The high rate of unemployment continued.

Question 13

If the amount of money in circulation is $50 billion and the nominal GDP is $200 billion, the velocity of money is

Accepted Answer

A)  0.25 
B)  0.75. 
C)  2. 
D)  4. 
A)  0.25 
B)  0.75. 
C)  2. 
D)  4.

Question 14

If the Fed unexpectedly decreases the money supply, real GDP

Accepted Answer

A)  increases because the resulting increase in the interest rate leads to a decrease in investment. 
B)  increases because the resulting decrease in the interest rate leads to an increase in investment. 
C)  decreases because the resulting increase in the interest rate leads to a decrease in investment. 
D)  decreases because the resulting increase in the interest rate leads to an increase in investment. 
E)  decreases because the resulting decrease in the interest rate leads to an increase in investment. 
A)  increases because the resulting increase in the interest rate leads to a decrease in investment. 
B)  increases because the resulting decrease in the interest rate leads to an increase in investment. 
C)  decreases because the resulting increase in the interest rate leads to a decrease in investment. 
D)  decreases because the resulting increase in the interest rate leads to an increase in investment. 
E)  decreases because the resulting decrease in the interest rate leads to an increase in investment.

Question 15

If the amount of money in circulation is $400 billion and the nominal GDP is $800 billion, the velocity of money is

Accepted Answer

A)  0.5. 
B)  2. 
C)  4. 
D)  8. 
A)  0.5. 
B)  2. 
C)  4. 
D)  8.

Question 16

Figure 14-6   In the situation shown in Figure 14-6, how could the Fed return the economy to potential output?

Accepted Answer

A)  decrease government spending 
B)  increase taxes 
C)  decrease taxes 
D)  shift to a more restrictive monetary policy 
E)  shift to a more expansionary monetary policy 
A)  decrease government spending 
B)  increase taxes 
C)  decrease taxes 
D)  shift to a more restrictive monetary policy 
E)  shift to a more expansionary monetary policy

Question 17

Figure 14-8   Refer to Figure 14-8.  At an interest rate of 4 percent there is excess

Accepted Answer

A)  money demand equal to the distance between a and b. 
B)  money demand equal to the distance between b and c. 
C)  money supply equal to the distance between b and a. 
D)  money supply equal to the distance between c and b. 
A)  money demand equal to the distance between a and b. 
B)  money demand equal to the distance between b and c. 
C)  money supply equal to the distance between b and a. 
D)  money supply equal to the distance between c and b.

Question 18

Which of the following is true of home mortgage loans since the late 1990s?

Accepted Answer

A)  Government regulations required homebuyers to make larger down payments in order to obtain a mortgage. 
B)  Traditional fixed-rate, long-term mortgages grew in popularity. 
C)  There was a substantial increase in the volume of mortgage loans extended with little or no down payment. 
D)  High interest rates made it less attractive to lock in to a fixed-rate, long-term loan. 
A)  Government regulations required homebuyers to make larger down payments in order to obtain a mortgage. 
B)  Traditional fixed-rate, long-term mortgages grew in popularity. 
C)  There was a substantial increase in the volume of mortgage loans extended with little or no down payment. 
D)  High interest rates made it less attractive to lock in to a fixed-rate, long-term loan.

Question 19

Countries that persistently expand the supply of money at a rapid rate can expect to experience

Accepted Answer

A)  high rates of inflation 
B)  rapid economic growth. 
C)  lower interest rates. 
D)  low rates of unemployment. 
A)  high rates of inflation 
B)  rapid economic growth. 
C)  lower interest rates. 
D)  low rates of unemployment.

Question 20

If the Fed wanted to shift to a more restrictive monetary policy, it would

Accepted Answer

A)  expand the reserves available to the banking system, which would drive down short term interest rates. 
B)  reduce the reserves available to the banking system, which would drive down short term interest rates. 
C)  expand the reserves available to the banking system, which would drive up short term interest rates. 
D)  reduce the reserves available to the banking system, which would drive up short term interest rates. 
A)  expand the reserves available to the banking system, which would drive down short term interest rates. 
B)  reduce the reserves available to the banking system, which would drive down short term interest rates. 
C)  expand the reserves available to the banking system, which would drive up short term interest rates. 
D)  reduce the reserves available to the banking system, which would drive up short term interest rates.

The short run sequence of events following an unanticipated shift to a more expansionary monetary policy would be

A decrease in the required reserve ratio would be

Which of the following reduced the effectiveness of the Fed's low interest rate policy during the aftermath of the 2008-2009 recession?

In the aggregate demand-aggregate supply model, the short-run effects of an unanticipated increase in the money supply will be

According to the monetarists, what is the primary cause of a recession? Explain the steps by which reductions in the money supply lead to reductions in real output.

Suppose the velocity of money is 6, the amount of money in circulation is $600 billion, the index of prices is 180, and real GDP is $20 billion. According to the strict quantity theory of money, if the money supply decreased to $300 billion,

Which of the following correctly indicates a potential path for the transmission of expansionary monetary policy to the goods and services market?

The demand curve for money

Which of the following about monetary policy is true?

When the Fed unexpectedly increases the money supply, it will cause an increase in aggregate demand because

According to monetarists, which of the following would be most important for the control of inflation?

In response to a severe recession, the Fed more than doubled the monetary base and pushed short-term interest rates to near zero during 2009-2010. What happened in 2011?

If the amount of money in circulation is $50 billion and the nominal GDP is $200 billion, the velocity of money is

If the Fed unexpectedly decreases the money supply, real GDP

If the amount of money in circulation is $400 billion and the nominal GDP is $800 billion, the velocity of money is

Figure 14-6 In the situation shown in Figure 14-6, how could the Fed return the economy to potential output?

Figure 14-8 Refer to Figure 14-8. At an interest rate of 4 percent there is excess

Which of the following is true of home mortgage loans since the late 1990s?

Countries that persistently expand the supply of money at a rapid rate can expect to experience

If the Fed wanted to shift to a more restrictive monetary policy, it would

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

The short run sequence of events following an unanticipated shift to a more expansionary monetary policy would be

A decrease in the required reserve ratio would be

Which of the following reduced the effectiveness of the Fed's low interest rate policy during the aftermath of the 2008-2009 recession?

In the aggregate demand-aggregate supply model, the short-run effects of an unanticipated increase in the money supply will be

According to the monetarists, what is the primary cause of a recession? Explain the steps by which reductions in the money supply lead to reductions in real output.

Suppose the velocity of money is 6, the amount of money in circulation is $600 billion, the index of prices is 180, and real GDP is $20 billion. According to the strict quantity theory of money, if the money supply decreased to $300 billion,

Which of the following correctly indicates a potential path for the transmission of expansionary monetary policy to the goods and services market?

The demand curve for money

Which of the following about monetary policy is true?

When the Fed unexpectedly increases the money supply, it will cause an increase in aggregate demand because

According to monetarists, which of the following would be most important for the control of inflation?

In response to a severe recession, the Fed more than doubled the monetary base and pushed short-term interest rates to near zero during 2009-2010. What happened in 2011?

If the amount of money in circulation is $50 billion and the nominal GDP is $200 billion, the velocity of money is

If the Fed unexpectedly decreases the money supply, real GDP

If the amount of money in circulation is $400 billion and the nominal GDP is $800 billion, the velocity of money is

Figure 14-6 In the situation shown in Figure 14-6, how could the Fed return the economy to potential output?

Figure 14-8 Refer to Figure 14-8. At an interest rate of 4 percent there is excess

Which of the following is true of home mortgage loans since the late 1990s?

Countries that persistently expand the supply of money at a rapid rate can expect to experience

If the Fed wanted to shift to a more restrictive monetary policy, it would

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