Question 1

Given the strict quantity theory of money,if the quantity of money doubled,prices would

Accepted Answer

A) fall by half. 
B) double. 
C) remain constant. 
D) increase somewhat but less than double. 
A) fall by half. 
B) double. 
C) remain constant. 
D) increase somewhat but less than double.

Question 2

An unanticipated increase in the money supply will lead to

Accepted Answer

A) a decline in interest rates,an increase in investment,and an increase in aggregate demand. 
B) a decline in interest rates,a decrease in investment,and an increase in aggregate demand. 
C) a decline in interest rates,an increase in investment,and a decline in aggregate demand. 
D) an increase in interest rates,an increase in investment,and an increase in aggregate demand. 
E) a decline in interest rates,a decline in investment,and a decline in aggregate demand. 
A) a decline in interest rates,an increase in investment,and an increase in aggregate demand. 
B) a decline in interest rates,a decrease in investment,and an increase in aggregate demand. 
C) a decline in interest rates,an increase in investment,and a decline in aggregate demand. 
D) an increase in interest rates,an increase in investment,and an increase in aggregate demand. 
E) a decline in interest rates,a decline in investment,and a decline in aggregate demand.

Question 3

Which of the following is true?

Accepted Answer

A) Monetary policy influences long-term real interest rates more than short-term interest rates. 
B) Short-term interest rates are primarily determined by real factors and the expected inflation. 
C) A shift to a more expansionary monetary policy will tend to raise short-term interest rates. 
D) A shift to expansionary monetary policy that increases the fear of future inflation will tend to increase long-term interest rates. 
A) Monetary policy influences long-term real interest rates more than short-term interest rates. 
B) Short-term interest rates are primarily determined by real factors and the expected inflation. 
C) A shift to a more expansionary monetary policy will tend to raise short-term interest rates. 
D) A shift to expansionary monetary policy that increases the fear of future inflation will tend to increase long-term interest rates.

Question 4

An increase in the money supply

Accepted Answer

A) lowers the interest rate,causing a decrease in investment and an increase in GDP. 
B) lowers the interest rate,causing an increase in investment and a decrease in GDP. 
C) lowers the interest rate,causing an increase in investment and an increase in GDP. 
D) raises the interest rate,causing an increase in investment and an increase in GDP. 
E) raises the interest rate,causing a decrease in investment and a decrease in GDP. 
A) lowers the interest rate,causing a decrease in investment and an increase in GDP. 
B) lowers the interest rate,causing an increase in investment and a decrease in GDP. 
C) lowers the interest rate,causing an increase in investment and an increase in GDP. 
D) raises the interest rate,causing an increase in investment and an increase in GDP. 
E) raises the interest rate,causing a decrease in investment and a decrease in GDP.

Question 5

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 6

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 7

If there is a "long and variable time lag" between when a change in monetary policy is instituted and when it impacts aggregate demand and output,this will

Accepted Answer

A) make it easier for the Fed to properly time changes in monetary policy. 
B) make it more difficult for the Fed to properly time changes in monetary policy. 
C) not affect the Fed's ability to time monetary policy changes correctly. 
D) make it easier for the Fed to control inflation and achieve price stability. 
A) make it easier for the Fed to properly time changes in monetary policy. 
B) make it more difficult for the Fed to properly time changes in monetary policy. 
C) not affect the Fed's ability to time monetary policy changes correctly. 
D) make it easier for the Fed to control inflation and achieve price stability.

Question 8

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 9

The short run sequence of events following an unanticipated shift to a more restrictive 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 10

Beginning from full-employment equilibrium,illustrate graphically how each of the following would impact the economy.
a.the short-run impact of an unanticipated decrease in the money supply
b.the long-run impact of an unanticipated decrease in the money supply

Accepted Answer

a.This is shown by a decrease in aggrega

Question 11

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 12

If the Federal Reserve wanted to expand the money supply in order to increase output,it should

Accepted Answer

A) sell government bonds,which will increase the money supply;this will cause interest rates to fall and aggregate demand to rise. 
B) buy government bonds,which will increase the money supply;this will cause interest rates to fall and aggregate demand to rise. 
C) increase the discount rate,which will raise the market rate of interest;this will cause both costs and prices to rise. 
D) decrease taxes,which will reduce costs and cause prices to fall. 
A) sell government bonds,which will increase the money supply;this will cause interest rates to fall and aggregate demand to rise. 
B) buy government bonds,which will increase the money supply;this will cause interest rates to fall and aggregate demand to rise. 
C) increase the discount rate,which will raise the market rate of interest;this will cause both costs and prices to rise. 
D) decrease taxes,which will reduce costs and cause prices to fall.

Question 13

An analysis of countries experiencing rapid inflation indicates that inflation is generally

Accepted Answer

A) caused by strong labor unions that push wages up rapidly. 
B) caused by rapid growth in the money supply. 
C) the result of restrictive macroeconomic policy,which pushes up interest rates. 
D) the result of bad weather conditions that reduce the supply of agriculture products. 
A) caused by strong labor unions that push wages up rapidly. 
B) caused by rapid growth in the money supply. 
C) the result of restrictive macroeconomic policy,which pushes up interest rates. 
D) the result of bad weather conditions that reduce the supply of agriculture products.

Question 14

An unanticipated shift to a more restrictive monetary policy by the Fed will

Accepted Answer

A) increase real interest rates and,thereby,reduce investment,current consumption,and aggregate demand. 
B) reduce real interest rates,leading to a depreciation of the dollar and an expansion in net exports and aggregate demand. 
C) increase real interest rates,leading to higher asset prices that will stimulate aggregate demand. 
D) reduce real interest rates and,thereby,stimulate investment,current consumption,and aggregate demand. 
A) increase real interest rates and,thereby,reduce investment,current consumption,and aggregate demand. 
B) reduce real interest rates,leading to a depreciation of the dollar and an expansion in net exports and aggregate demand. 
C) increase real interest rates,leading to higher asset prices that will stimulate aggregate demand. 
D) reduce real interest rates and,thereby,stimulate investment,current consumption,and aggregate demand.

Question 15

In the 1960s and 1970s,the primary indicator of monetary policy was

Accepted Answer

A) movement of long-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 long-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 16

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 17

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 18

If the Fed fears inflation,it would be most likely to

Accepted Answer

A) buy additional bonds in order to reduce the federal funds rate. 
B) buy additional bonds in order to increase the federal funds rate. 
C) sell additional bonds in order to increase the federal funds rate. 
D) sell additional bonds in order to reduce the federal funds rate. 
A) buy additional bonds in order to reduce the federal funds rate. 
B) buy additional bonds in order to increase the federal funds rate. 
C) sell additional bonds in order to increase the federal funds rate. 
D) sell additional bonds in order to reduce the federal funds rate.

Question 19

Which of the following will make it difficult for the Fed to institute shifts in monetary policy in a manner that will promote economic stability?

Accepted Answer

A) the inability of the Fed to alter the money supply 
B) the long and variable time lags between shifts in monetary policy and impact on output and employment 
C) a velocity rate of money that is relatively constant 
D) the inability of the Fed to shift monetary policy without the approval of Congress 
A) the inability of the Fed to alter the money supply 
B) the long and variable time lags between shifts in monetary policy and impact on output and employment 
C) a velocity rate of money that is relatively constant 
D) the inability of the Fed to shift monetary policy without the approval of Congress

Question 20

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.

Exam 14: Modern Macroeconomics and Monetary Policy

Given the strict quantity theory of money,if the quantity of money doubled,prices would

An unanticipated increase in the money supply will lead to

Which of the following is true?

An increase in the money supply

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?

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?

If there is a "long and variable time lag" between when a change in monetary policy is instituted and when it impacts aggregate demand and output,this will

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

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

Beginning from full-employment equilibrium,illustrate graphically how each of the following would impact the economy. a.the short-run impact of an unanticipated decrease in the money supply b.the long-run impact of an unanticipated decrease in the money supply

The demand curve for money

If the Federal Reserve wanted to expand the money supply in order to increase output,it should

An analysis of countries experiencing rapid inflation indicates that inflation is generally

An unanticipated shift to a more restrictive monetary policy by the Fed will

In the 1960s and 1970s,the primary indicator of monetary policy was

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?

If the Fed fears inflation,it would be most likely to

Which of the following will make it difficult for the Fed to institute shifts in monetary policy in a manner that will promote economic stability?

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

The Economic Approach

Asome Tools of the Economist

Asupply,demand,and the Market Process

Asupply and Demand: Applications and Extensions

Difficult Cases for the Market and the Role of Government

The Economics of Collective Decision-Making

Ataking the Nations Economic Pulse

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

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

Consumer Choice and Elasticity

Acosts and the Supply of Goods

Aprice Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Aprice-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Government Spending and Taxation

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

Do Labor Unions Increase the Wages of Workers

The Question of Resource Exhaustion

Difficult Environmental Cases and the Role of Government

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