Question 1

When the Fed unexpectedly decreases the money supply,

Accepted Answer

A) real interest rates will rise and the foreign exchange value of the dollar will appreciate. 
B) real interest rates will rise and the foreign exchange value of the dollar will depreciate. 
C) real interest rates will fall and the foreign exchange value of the dollar will appreciate. 
D) real interest rates will fall and the foreign exchange value of the dollar will depreciate. 
A) real interest rates will rise and the foreign exchange value of the dollar will appreciate. 
B) real interest rates will rise and the foreign exchange value of the dollar will depreciate. 
C) real interest rates will fall and the foreign exchange value of the dollar will appreciate. 
D) real interest rates will fall and the foreign exchange value of the dollar will depreciate.

Question 2

The short run sequence of events following an unanticipated shift to a more expansionary monetary policy would be lower interest rates followed by dollar

Accepted Answer

A) depreciation,and an increase in the current account deficit. 
B) depreciation,and a decrease in the current account deficit. 
C) appreciation,and an increase in the current account deficit. 
D) appreciation,and a decrease in the current account deficit. 
A) depreciation,and an increase in the current account deficit. 
B) depreciation,and a decrease in the current account deficit. 
C) appreciation,and an increase in the current account deficit. 
D) appreciation,and a decrease in the current account deficit.

Question 3

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 4

The coefficient that represents the average number of times a dollar is used to buy goods and services is called

Accepted Answer

A) the demand for money. 
B) the quantity theory of money. 
C) the price level. 
D) the velocity of money. 
A) the demand for money. 
B) the quantity theory of money. 
C) the price level. 
D) the velocity of money.

Question 5

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

Question 6

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 7

Classical economists,who adhered to the quantity theory of money,believed that an increase in the money supply would cause

Accepted Answer

A) a proportional change in velocity. 
B) a proportional change in real GDP. 
C) a proportional change in prices. 
D) no effect on velocity,prices,or real GDP. 
A) a proportional change in velocity. 
B) a proportional change in real GDP. 
C) a proportional change in prices. 
D) no effect on velocity,prices,or real GDP.

Question 8

As the Fed shifted to a highly expansionary monetary policy during the second half of 2008,why were banks reluctant to extend loans and make investments?

Accepted Answer

A) Banks did not have enough excess reserves to extend loans and make investments. 
B) The demand for loans was weak and the business climate was uncertain. 
C) The rate of return on short-term investments was high,so banks were reluctant to make long-term investments. 
D) The interest rate that the Fed pays on excess reserves was maintained at a high rate. 
A) Banks did not have enough excess reserves to extend loans and make investments. 
B) The demand for loans was weak and the business climate was uncertain. 
C) The rate of return on short-term investments was high,so banks were reluctant to make long-term investments. 
D) The interest rate that the Fed pays on excess reserves was maintained at a high rate.

Question 9

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 10

Use the figure below to answer the following question(s).
Figure 14-2
  
-If the Fed anticipates that the conditions illustrated by AD₂ and SRAS in Figure 14-2 will be present in the near future,it should

Accepted Answer

A) decrease the discount rate. 
B) reduce reserve requirements. 
C) sell U.S.treasury bonds on the open market. 
D) buy U.S.treasury bonds on the open market. 
A) decrease the discount rate. 
B) reduce reserve requirements. 
C) sell U.S.treasury bonds on the open market. 
D) buy U.S.treasury bonds on the open market.

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

A shift to a more expansionary monetary policy will

Accepted Answer

A) help bring inflation under control. 
B) exert a stabilizing impact on the economy if the effects of the policy are felt during an economic downturn. 
C) exert a stabilizing impact if the effects of the policy are felt when the economy is operating at its full-employment capacity. 
D) reduce the natural rate of unemployment. 
A) help bring inflation under control. 
B) exert a stabilizing impact on the economy if the effects of the policy are felt during an economic downturn. 
C) exert a stabilizing impact if the effects of the policy are felt when the economy is operating at its full-employment capacity. 
D) reduce the natural rate of unemployment.

Question 13

An expansionary monetary policy is most likely to increase real output

Accepted Answer

A) when the economy is operating at less than full-employment capacity. 
B) when the economy is at full employment. 
C) when actual output is beyond the economy's long-run capacity. 
D) when the inflationary side effects are fully anticipated by decision makers. 
A) when the economy is operating at less than full-employment capacity. 
B) when the economy is at full employment. 
C) when actual output is beyond the economy's long-run capacity. 
D) when the inflationary side effects are fully anticipated by decision makers.

Question 14

An expansionary monetary policy is most likely to produce an inflationary effect with little impact on output when the economy

Accepted Answer

A) is near full employment and the short-run aggregate supply curve is flat. 
B) is near full employment and the short-run aggregate supply curve is steep. 
C) has substantial unemployment and the short-run aggregate supply curve is steep. 
D) has substantial unemployment and the short-run aggregate supply curve is flat. 
A) is near full employment and the short-run aggregate supply curve is flat. 
B) is near full employment and the short-run aggregate supply curve is steep. 
C) has substantial unemployment and the short-run aggregate supply curve is steep. 
D) has substantial unemployment and the short-run aggregate supply curve is flat.

Question 15

Which of the following contributed to the dramatic rise in housing prices between 2002 and mid-year 2006?

Accepted Answer

A) the low interest rate policy of the Federal Reserve 
B) the Fed's restrictive monetary policy,which led to high interest rates 
C) the tightening of loan standards by commercial lenders 
D) the substantial excess reserves of commercial banks 
A) the low interest rate policy of the Federal Reserve 
B) the Fed's restrictive monetary policy,which led to high interest rates 
C) the tightening of loan standards by commercial lenders 
D) the substantial excess reserves of commercial banks

Question 16

Unanticipated restrictive monetary policy would tend to cause

Accepted Answer

A) real interest rates to rise. 
B) the exchange rate value of the dollar to fall (the dollar to depreciate). 
C) loans to become more available for small businesses. 
D) asset prices to rise. 
A) real interest rates to rise. 
B) the exchange rate value of the dollar to fall (the dollar to depreciate). 
C) loans to become more available for small businesses. 
D) asset prices to rise.

Question 17

If the Fed fears an economic downturn,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 18

The highest interest rates in the world are found in countries

Accepted Answer

A) that have followed a monetary policy that is highly restrictive. 
B) with governments that have run large budget surpluses. 
C) with governments that have run sizable budget deficits. 
D) that have followed an expansionary monetary policy that resulted in high rates of inflation. 
A) that have followed a monetary policy that is highly restrictive. 
B) with governments that have run large budget surpluses. 
C) with governments that have run sizable budget deficits. 
D) that have followed an expansionary monetary policy that resulted in high rates of inflation.

Question 19

Which of the following contributed to the dramatic rise in housing prices between 2002 and mid-year 2006?

Accepted Answer

A) government policy made credit for housing abundant and easily available 
B) the Fed's restrictive monetary policy,which led to high interest rates 
C) the tightening of loan standards by commercial lenders 
D) the large amounts of reserves and equity capital being held by financial institutions in order to back new mortgages 
A) government policy made credit for housing abundant and easily available 
B) the Fed's restrictive monetary policy,which led to high interest rates 
C) the tightening of loan standards by commercial lenders 
D) the large amounts of reserves and equity capital being held by financial institutions in order to back new mortgages

Question 20

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.

Exam 14: Modern Macroeconomics and Monetary Policy

When the Fed unexpectedly decreases the money supply,

The short run sequence of events following an unanticipated shift to a more expansionary monetary policy would be lower interest rates followed by dollar

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

The coefficient that represents the average number of times a dollar is used to buy goods and services is called

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

A decrease in the required reserve ratio would be

Classical economists,who adhered to the quantity theory of money,believed that an increase in the money supply would cause

As the Fed shifted to a highly expansionary monetary policy during the second half of 2008,why were banks reluctant to extend loans and make investments?

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

Use the figure below to answer the following question(s). Figure 14-2 -If the Fed anticipates that the conditions illustrated by AD₂ and SRAS in Figure 14-2 will be present in the near future,it should

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

A shift to a more expansionary monetary policy will

An expansionary monetary policy is most likely to increase real output

An expansionary monetary policy is most likely to produce an inflationary effect with little impact on output when the economy

Which of the following contributed to the dramatic rise in housing prices between 2002 and mid-year 2006?

Unanticipated restrictive monetary policy would tend to cause

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

The highest interest rates in the world are found in countries

Which of the following contributed to the dramatic rise in housing prices between 2002 and mid-year 2006?

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

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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