Question 1

In the equation of exchange, if the money supply is $3 billion, the price level is 2, and the real GDP is $6 billion, the velocity is

Accepted Answer

A) 1. 
B) 2. 
C) 4. 
D) 36. 
A) 1. 
B) 2. 
C) 4. 
D) 36.

Question 2

-In the above figure, suppose the economy is in short-run equilibrium at point D. Which of the following is the best policy option for the Fed?

Accepted Answer

A) Increase the required reserve ratio. 
B) Increase government spending. 
C) Increase taxes. 
D) open market purchase of government securities 
A) Increase the required reserve ratio. 
B) Increase government spending. 
C) Increase taxes. 
D) open market purchase of government securities

Question 3

The opportunity cost of holding money is

Accepted Answer

A) the interest income foregone. 
B) the transactions demand for money. 
C) contractionary monetary policy. 
D) the monetary rule. 
A) the interest income foregone. 
B) the transactions demand for money. 
C) contractionary monetary policy. 
D) the monetary rule.

Question 4

The equation of exchange can be written as

Accepted Answer

A) MsP = VY. 
B) MsV = PY. 
C) MsY = VP. 
D) None of the above are correct. 
A) MsP = VY. 
B) MsV = PY. 
C) MsY = VP. 
D) None of the above are correct.

Question 5

A major difference between the transactions demand for money and the precautionary demand is that the

Accepted Answer

A) transactions demand means that people are foregoing interest but they are not foregoing interest in the precautionary demand. 
B) transactions demand leads to the purchase of assets while the precautionary demand does not. 
C) transactions demand involves expected expenditures while the precautionary demand involves unexpected expenditures. 
D) transactions demand is for emergencies while the precautionary demand is for every day expenditures. 
A) transactions demand means that people are foregoing interest but they are not foregoing interest in the precautionary demand. 
B) transactions demand leads to the purchase of assets while the precautionary demand does not. 
C) transactions demand involves expected expenditures while the precautionary demand involves unexpected expenditures. 
D) transactions demand is for emergencies while the precautionary demand is for every day expenditures.

Question 6

The income velocity of money is

Accepted Answer

A) the time it takes to produce money. 
B) the time lag from when the Fed decides to increase the money supply until the effect takes place. 
C) the number of times per year a dollar is spent on final goods and services. 
D) the time it takes for monetary policy to have an effect on world financial markets. 
A) the time it takes to produce money. 
B) the time lag from when the Fed decides to increase the money supply until the effect takes place. 
C) the number of times per year a dollar is spent on final goods and services. 
D) the time it takes for monetary policy to have an effect on world financial markets.

Question 7

According to the interest-rate-based monetary policy transmission mechanism

Accepted Answer

A) an increase in money supply will increase interest rates. 
B) an increase in money supply will decrease interest rates. 
C) a decrease in money supply will decrease interest rates. 
D) a decrease in money supply will not change interest rates. 
A) an increase in money supply will increase interest rates. 
B) an increase in money supply will decrease interest rates. 
C) a decrease in money supply will decrease interest rates. 
D) a decrease in money supply will not change interest rates.

Question 8

-In the above figure, assume the economy starts out in equilibrium at point d. If the Fed increases the money supply so that the new aggregate demand curve is AD₃, then the new short-run equilibrium will be at point

Accepted Answer

A) a. 
B) b. 
C) c. 
D) i. 
A) a. 
B) b. 
C) c. 
D) i.

Question 9

According to proponents of the interest-rate-based monetary policy transmission mechanism, any increase in the money supply

Accepted Answer

A) is effective in increasing Gross Domestic Product (GDP)only if it causes an outward shift of the aggregate supply curve. 
B) will increase Gross Domestic Product (GDP)only if interest rates fall and investment is sensitive to decreasing interest rates. 
C) causes velocity to increase, and so in the short run nominal Gross Domestic Product (GDP)must increase. 
D) will move the economy from the "liquidity trap" during times of recession if interest rates fall enough to stimulate private investment. 
A) is effective in increasing Gross Domestic Product (GDP)only if it causes an outward shift of the aggregate supply curve. 
B) will increase Gross Domestic Product (GDP)only if interest rates fall and investment is sensitive to decreasing interest rates. 
C) causes velocity to increase, and so in the short run nominal Gross Domestic Product (GDP)must increase. 
D) will move the economy from the "liquidity trap" during times of recession if interest rates fall enough to stimulate private investment.

Question 10

To close a recessionary gap, the Fed would

Accepted Answer

A) decrease the money supply. 
B) increase interest rates. 
C) sell bonds. 
D) increase the money supply. 
A) decrease the money supply. 
B) increase interest rates. 
C) sell bonds. 
D) increase the money supply.

Question 11

According to the interest-rate-based monetary policy transmission mechanism, a decrease in the money supply will

Accepted Answer

A) lead to a decrease in investment spending and an increase in real GDP that is equal to the decrease in investment spending. 
B) lead to a decrease in investment spending and a decrease in real GDP which is greater than the decrease in investment spending. 
C) lead to an increase in investment spending and a decrease in real GDP that is equal to the increase in investment spending. 
D) lead to an increase in investment spending and a decrease in real GDP which is greater than the increase in investment spending. 
A) lead to a decrease in investment spending and an increase in real GDP that is equal to the decrease in investment spending. 
B) lead to a decrease in investment spending and a decrease in real GDP which is greater than the decrease in investment spending. 
C) lead to an increase in investment spending and a decrease in real GDP that is equal to the increase in investment spending. 
D) lead to an increase in investment spending and a decrease in real GDP which is greater than the increase in investment spending.

Question 12

The rate at which banks can borrow excess reserves from other banks is equal to

Accepted Answer

A) the discount rate. 
B) the required reserve ratio. 
C) the interest rate paid on reserves held with the Fed. 
D) none of the above. 
A) the discount rate. 
B) the required reserve ratio. 
C) the interest rate paid on reserves held with the Fed. 
D) none of the above.

Question 13

The tools of monetary policy are

Accepted Answer

A) open market operations, differential between the discount rate and the federal funds rate, and tax rates. 
B) open market operations, government spending, and the required reserve ratio. 
C) open market operations, differential between the discount rate and the federal funds rate, and the required reserve ratio. 
D) government spending, tax rates, and the required reserve ratio. 
A) open market operations, differential between the discount rate and the federal funds rate, and tax rates. 
B) open market operations, government spending, and the required reserve ratio. 
C) open market operations, differential between the discount rate and the federal funds rate, and the required reserve ratio. 
D) government spending, tax rates, and the required reserve ratio.

Question 14

Suppose the economy has a recessionary gap. By using an expansionary monetary policy, the Fed can

Accepted Answer

A) raise real GDP without increasing the price level. 
B) raise real GDP and the price level. 
C) raise real GDP and decrease the price level. 
D) raise the price level alone, but cannot increase real GDP. 
A) raise real GDP without increasing the price level. 
B) raise real GDP and the price level. 
C) raise real GDP and decrease the price level. 
D) raise the price level alone, but cannot increase real GDP.

Question 15

In words, the equation of exchange says that

Accepted Answer

A) the total amount spent on final output equals the amount received for final output. 
B) the amount of money in circulation equals the velocity of the price level. 
C) changes in the money supply will have no impact on the amount spent on final output. 
D) when velocity equals 1, nominal GDP equals the price level. 
A) the total amount spent on final output equals the amount received for final output. 
B) the amount of money in circulation equals the velocity of the price level. 
C) changes in the money supply will have no impact on the amount spent on final output. 
D) when velocity equals 1, nominal GDP equals the price level.

Question 16

Expansionary monetary policy during periods of underutilized resources can cause

Accepted Answer

A) real Gross Domestic Product (GDP)to increase without an increase in the price level. 
B) real Gross Domestic Product (GDP)to increase with a decrease in the price level. 
C) real Gross Domestic Product (GDP)to increase with an increase in the price level. 
D) nominal Gross Domestic Product (GDP)to increase but cannot affect real Gross Domestic Product (GDP). 
A) real Gross Domestic Product (GDP)to increase without an increase in the price level. 
B) real Gross Domestic Product (GDP)to increase with a decrease in the price level. 
C) real Gross Domestic Product (GDP)to increase with an increase in the price level. 
D) nominal Gross Domestic Product (GDP)to increase but cannot affect real Gross Domestic Product (GDP).

Question 17

-In the above figure, if the economy is in equilibrium at E₁, then

Accepted Answer

A) the economy is producing below its potential long-run equilibrium at full employment. 
B) the economy is producing above its potential long-run equilibrium at full employment. 
C) there is an inflationary gap in the economy. 
D) the economy is in a period of high inflation. 
A) the economy is producing below its potential long-run equilibrium at full employment. 
B) the economy is producing above its potential long-run equilibrium at full employment. 
C) there is an inflationary gap in the economy. 
D) the economy is in a period of high inflation.

Question 18

When a person holds money, they give up

Accepted Answer

A) the pleasure associated with spending money. 
B) the pleasure associated with saving money. 
C) the interest that could have been earned if the money had been changed into an interest-bearing asset. 
D) nothing, since the person can always use the money to buy goods or services or interest-bearing assets. 
A) the pleasure associated with spending money. 
B) the pleasure associated with saving money. 
C) the interest that could have been earned if the money had been changed into an interest-bearing asset. 
D) nothing, since the person can always use the money to buy goods or services or interest-bearing assets.

Question 19

Suppose the Fed increases the money supply. As a result of this, people deposit excess funds into their bank accounts, causing banks to have excess reserves. As a result, the banks lower the interest rates that they charge on loans, and investment rises, causing an increase in aggregate spending. This is known as a(n)

Accepted Answer

A) direct effect of monetary policy. 
B) indirect effect of monetary policy. 
C) direct effect of fiscal policy. 
D) indirect effect of fiscal policy. 
A) direct effect of monetary policy. 
B) indirect effect of monetary policy. 
C) direct effect of fiscal policy. 
D) indirect effect of fiscal policy.

Question 20

Which of the following has been the most likely effect of the Fed's credit policy?

Accepted Answer

A) Banks and other financial institutions have taken more time to recover from the 2008-2009 financial meltdown. 
B) The federal funds rate and the discount rate have dropped to negative levels. 
C) The money multiplier and the link between the money supply and the economy have become unstable. 
D) The scope of asymmetric information problems in the banking industry has reduced. 
A) Banks and other financial institutions have taken more time to recover from the 2008-2009 financial meltdown. 
B) The federal funds rate and the discount rate have dropped to negative levels. 
C) The money multiplier and the link between the money supply and the economy have become unstable. 
D) The scope of asymmetric information problems in the banking industry has reduced.

In the equation of exchange, if the money supply is $3 billion, the price level is 2, and the real GDP is $6 billion, the velocity is

-In the above figure, suppose the economy is in short-run equilibrium at point D. Which of the following is the best policy option for the Fed?

The opportunity cost of holding money is

The equation of exchange can be written as

A major difference between the transactions demand for money and the precautionary demand is that the

The income velocity of money is

According to the interest-rate-based monetary policy transmission mechanism

-In the above figure, assume the economy starts out in equilibrium at point d. If the Fed increases the money supply so that the new aggregate demand curve is AD₃, then the new short-run equilibrium will be at point

According to proponents of the interest-rate-based monetary policy transmission mechanism, any increase in the money supply

To close a recessionary gap, the Fed would

According to the interest-rate-based monetary policy transmission mechanism, a decrease in the money supply will

The rate at which banks can borrow excess reserves from other banks is equal to

The tools of monetary policy are

Suppose the economy has a recessionary gap. By using an expansionary monetary policy, the Fed can

In words, the equation of exchange says that

Expansionary monetary policy during periods of underutilized resources can cause

-In the above figure, if the economy is in equilibrium at E₁, then

When a person holds money, they give up

Which of the following has been the most likely effect of the Fed's credit policy?

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money Banking and Central Banking

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

Filters

Exam 15: Domestic and International Dimensions of Monetary Policy

In the equation of exchange, if the money supply is $3 billion, the price level is 2, and the real GDP is $6 billion, the velocity is

-In the above figure, suppose the economy is in short-run equilibrium at point D. Which of the following is the best policy option for the Fed?

The opportunity cost of holding money is

The equation of exchange can be written as

A major difference between the transactions demand for money and the precautionary demand is that the

The income velocity of money is

According to the interest-rate-based monetary policy transmission mechanism

-In the above figure, assume the economy starts out in equilibrium at point d. If the Fed increases the money supply so that the new aggregate demand curve is AD₃, then the new short-run equilibrium will be at point

According to proponents of the interest-rate-based monetary policy transmission mechanism, any increase in the money supply

To close a recessionary gap, the Fed would

According to the interest-rate-based monetary policy transmission mechanism, a decrease in the money supply will

The rate at which banks can borrow excess reserves from other banks is equal to

The tools of monetary policy are

Suppose the economy has a recessionary gap. By using an expansionary monetary policy, the Fed can

In words, the equation of exchange says that

Expansionary monetary policy during periods of underutilized resources can cause

-In the above figure, if the economy is in equilibrium at E₁, then

When a person holds money, they give up

Which of the following has been the most likely effect of the Fed's credit policy?

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money Banking and Central Banking

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

Filters