Question 1

A shift to a more expansionary monetary policy will

Accepted Answer

A) increase the long-term growth rate of the economy. 
B) reduce the future rate of inflation. 
C) Stimulate output and employment almost immediately. 
D) Stimulate output and employment,but only after a time lag that is generally long and variable. 
A) increase the long-term growth rate of the economy. 
B) reduce the future rate of inflation. 
C) Stimulate output and employment almost immediately. 
D) Stimulate output and employment,but only after a time lag that is generally long and variable.

Question 2

If the Fed fears an economic downturn,it would be most likely to

Accepted Answer

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

Question 3

A decrease in the nominal (or money)interest rate would

Accepted Answer

A) encourage people to hold smaller money balances. 
B) encourage people to hold larger money balances. 
C) force the Fed to increase the money supply. 
D) cause the real interest rate to rise. 
A) encourage people to hold smaller money balances. 
B) encourage people to hold larger money balances. 
C) force the Fed to increase the money supply. 
D) cause the real interest rate to rise.

Question 4

Suppose the velocity of money is 8,the amount of money in circulation is $200 billion,the index of prices is 150,and real GDP is $10 billion.According to the strict quantity theory of money,if the money supply doubled to $400 billion,

Accepted Answer

A) the velocity of money would fall to 4. 
B) the index of prices would increase to 300. 
C) real GDP would increase to $20 billion. 
D) the velocity of money would rise to 16. 
A) the velocity of money would fall to 4. 
B) the index of prices would increase to 300. 
C) real GDP would increase to $20 billion. 
D) the velocity of money would rise to 16.

Question 5

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 6

When the Fed sells bonds and drains reserves from the banking system,thereby reducing the supply of money,this policy will

Accepted Answer

A) decrease short-term interest rates to a greater degree than long-term interest rates. 
B) decrease long-term interest rates to a greater degree than short-term interest rates. 
C) increase short-term interest rates to a greater degree than long-term interest rates. 
D) increase long-term interest rates to a greater degree than short-term interest rates. 
A) decrease short-term interest rates to a greater degree than long-term interest rates. 
B) decrease long-term interest rates to a greater degree than short-term interest rates. 
C) increase short-term interest rates to a greater degree than long-term interest rates. 
D) increase long-term interest rates to a greater degree than short-term interest rates.

Question 7

If the Fed wanted to institute a more expansionary monetary policy,which of the following would it be most likely to do?

Accepted Answer

A) reduce taxes 
B) increase government expenditures 
C) buy government bonds from the public 
D) raise the discount rate 
A) reduce taxes 
B) increase government expenditures 
C) buy government bonds from the public 
D) raise the discount rate

Question 8

If the Fed unexpectedly shifts to a more restrictive monetary policy,which of the following will most likely occur in the short run?

Accepted Answer

A) a decrease in the real interest rate 
B) an increase in unemployment 
C) an increase in real GDP 
D) an increase in inflation 
A) a decrease in the real interest rate 
B) an increase in unemployment 
C) an increase in real GDP 
D) an increase in inflation

Question 9

If the Federal Reserve unexpectedly decides to sell bonds,which of the following will most likely happen in the short run?

Accepted Answer

A) The demand for loanable funds will increase,which will exert upward pressure on the interest rate. 
B) The supply of loanable funds will decrease,which will exert upward pressure on the interest rate. 
C) The supply of loanable funds will increase,which will exert downward pressure on the interest rate. 
D) The natural rate of unemployment will increase. 
A) The demand for loanable funds will increase,which will exert upward pressure on the interest rate. 
B) The supply of loanable funds will decrease,which will exert upward pressure on the interest rate. 
C) The supply of loanable funds will increase,which will exert downward pressure on the interest rate. 
D) The natural rate of unemployment will increase.

Question 10

When continued for several years,rapid growth in the money supply relative to the growth of real output will likely lead to an extended period of

Accepted Answer

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

Question 11

If the amount of money in circulation is $200 million and nominal GDP is $400 million,the velocity of money is

Accepted Answer

A) 0.5. 
B) 2. 
C) 200. 
D) 400. 
A) 0.5. 
B) 2. 
C) 200. 
D) 400.

Question 12

The Fed pushed interest rates to artificially low levels during 2002-2004.The Austrian view predicts that this policy will lead to

Accepted Answer

A) excessive investment in long-lasting assets like housing that will eventually prove to be unprofitable and result in recession. 
B) an increase in sound investments that will propel future economic growth. 
C) a reduction in the general level of prices that will throw the economy into a recession. 
D) an increase in aggregate demand that will generate sustainable expansion in both real output and employment. 
A) excessive investment in long-lasting assets like housing that will eventually prove to be unprofitable and result in recession. 
B) an increase in sound investments that will propel future economic growth. 
C) a reduction in the general level of prices that will throw the economy into a recession. 
D) an increase in aggregate demand that will generate sustainable expansion in both real output and employment.

Question 13

Expansionary monetary policy will

Accepted Answer

A) often raise real interest rates in the short run. 
B) generally reduce aggregate demand in the short run. 
C) lead to higher nominal interest rates if the expansionary policy persists over a lengthy time period. 
D) lead to a rapid growth of real GDP if the expansionary policy persists over a lengthy time period. 
A) often raise real interest rates in the short run. 
B) generally reduce aggregate demand in the short run. 
C) lead to higher nominal interest rates if the expansionary policy persists over a lengthy time period. 
D) lead to a rapid growth of real GDP if the expansionary policy persists over a lengthy time period.

Question 14

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) decrease taxes 
C) sell U.S.government bonds to banks 
D) lower the discount rate 
E) lower the required reserve ratio 
A) decrease government spending 
B) decrease taxes 
C) sell U.S.government bonds to banks 
D) lower the discount rate 
E) lower the required reserve ratio

Question 15

An increase in the nominal interest rate would

Accepted Answer

A) encourage people to hold smaller money balances. 
B) encourage people to hold larger money balances. 
C) force the Fed to reduce the money supply. 
D) cause the real interest rate to decline. 
A) encourage people to hold smaller money balances. 
B) encourage people to hold larger money balances. 
C) force the Fed to reduce the money supply. 
D) cause the real interest rate to decline.

Question 16

Since the mid-1980s,the primary indicator of monetary policy has been

Accepted Answer

A) movement of short-term interest rates. 
B) the growth rate of real government expenditures. 
C) the growth of the M1 money supply. 
D) changes in the nominal (dollar)size of budget deficits or surpluses. 
A) movement of short-term interest rates. 
B) the growth rate of real government expenditures. 
C) the growth of the M1 money supply. 
D) changes in the nominal (dollar)size of budget deficits or surpluses.

Question 17

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 18

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 19

If the Fed decreases the money supply,

Accepted Answer

A) aggregate demand and aggregate supply both increase. 
B) aggregate demand increases,which leads to movement along the short-run aggregate supply curve. 
C) aggregate demand decreases,which leads to movement along the short-run aggregate supply curve. 
D) aggregate supply increases,which leads to movement along the aggregate demand curve. 
E) aggregate supply decreases,which leads to movement along the aggregate demand curve. 
A) aggregate demand and aggregate supply both increase. 
B) aggregate demand increases,which leads to movement along the short-run aggregate supply curve. 
C) aggregate demand decreases,which leads to movement along the short-run aggregate supply curve. 
D) aggregate supply increases,which leads to movement along the aggregate demand curve. 
E) aggregate supply decreases,which leads to movement along the aggregate demand curve.

Question 20

The short-run impact of an unanticipated shift to a more restrictive monetary policy is most likely to be a reduction in

Accepted Answer

A) prices,while real output is unaffected. 
B) the rate of unemployment. 
C) real output. 
D) the size of the budget deficit. 
A) prices,while real output is unaffected. 
B) the rate of unemployment. 
C) real output. 
D) the size of the budget deficit.

Exam 14: Modern Macroeconomics and Monetary Policy

A shift to a more expansionary monetary policy will

If the Fed fears an economic downturn,it would be most likely to

A decrease in the nominal (or money)interest rate would

Suppose the velocity of money is 8,the amount of money in circulation is $200 billion,the index of prices is 150,and real GDP is $10 billion.According to the strict quantity theory of money,if the money supply doubled to $400 billion,

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

When the Fed sells bonds and drains reserves from the banking system,thereby reducing the supply of money,this policy will

If the Fed wanted to institute a more expansionary monetary policy,which of the following would it be most likely to do?

If the Fed unexpectedly shifts to a more restrictive monetary policy,which of the following will most likely occur in the short run?

If the Federal Reserve unexpectedly decides to sell bonds,which of the following will most likely happen in the short run?

When continued for several years,rapid growth in the money supply relative to the growth of real output will likely lead to an extended period of

If the amount of money in circulation is $200 million and nominal GDP is $400 million,the velocity of money is

The Fed pushed interest rates to artificially low levels during 2002-2004.The Austrian view predicts that this policy will lead to

Expansionary monetary policy will

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

An increase in the nominal interest rate would

Since the mid-1980s,the primary indicator of monetary policy has been

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

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,

If the Fed decreases the money supply,

The short-run impact of an unanticipated shift to a more restrictive monetary policy is most likely to be a reduction in

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The Economics of Collective Decision-Making

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Economic Fluctuations, unemployment, and Inflation

Aan Introduction to Basic Macroeconomic Markets

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

Fiscal Policy: the Keynesian View and Historical Perspective

Fiscal Policy, incentives, and Secondary Effects

Amoney and the Banking System

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Consumer Choice and Elasticity

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Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

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The Economics of Social Security

The Stock Market: Its Function, Performance, and Potential As an Investment Opportunity

Great Debates in Economics: Keynes Versus Hayek

The Crisis of 2008: Causes and Lessons for the Future

Lessons From the Great Depression

Lessons From Japan and Canada

The Federal Budget and the National Debt

The Economics of Healthcare

Education: Problems and Performance

Earnings Differences Between Men and Women

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