Question 1

In the real world, contractionary monetary policy would be used to

Accepted Answer

A) combat a recession. 
B) reduce the rate of inflation. 
C) increase nominal GDP. 
D) increase long-run aggregate supply. 
A) combat a recession. 
B) reduce the rate of inflation. 
C) increase nominal GDP. 
D) increase long-run aggregate supply.

Question 2

One of the tools of monetary policy is to change the discount rate. Since 2003

Accepted Answer

A) the Fed has not changed the discount rate. 
B) the Fed has pegged the discount rate to the reserve requirement. 
C) the Fed has kept the discount rate a fixed amount above the federal funds rate. 
D) the Fed has kept the federal funds rate one percentage point above the discount rate. 
A) the Fed has not changed the discount rate. 
B) the Fed has pegged the discount rate to the reserve requirement. 
C) the Fed has kept the discount rate a fixed amount above the federal funds rate. 
D) the Fed has kept the federal funds rate one percentage point above the discount rate.

Question 3

As global financial markets become more intertwined, the Fed has

Accepted Answer

A) less control over monetary policy. 
B) more control over monetary policy. 
C) more control over fiscal policy. 
D) less control over fiscal policy. 
A) less control over monetary policy. 
B) more control over monetary policy. 
C) more control over fiscal policy. 
D) less control over fiscal policy.

Question 4

In the market for bank reserves, a reduction in the required reserve ratio will cause

Accepted Answer

A) a reduction in the federal funds rate. 
B) an increase in the equilibrium quantity of reserves. 
C) a reduction in the demand for reserves. 
D) all of the above. 
A) a reduction in the federal funds rate. 
B) an increase in the equilibrium quantity of reserves. 
C) a reduction in the demand for reserves. 
D) all of the above.

Question 5

Which of the following is NOT a reason why people are motivated to hold money?

Accepted Answer

A) asset demand 
B) precautionary demand 
C) liability demand 
D) transactions demand 
A) asset demand 
B) precautionary demand 
C) liability demand 
D) transactions demand

Question 6

Holding money to meet unplanned expenditures and emergencies is known as

Accepted Answer

A) transactions demand. 
B) precautionary demand. 
C) asset demand. 
D) aggregate demand. 
A) transactions demand. 
B) precautionary demand. 
C) asset demand. 
D) aggregate demand.

Question 7

Suppose there is an increase in the money supply, but that people's demand for money balances increases by a greater amount at the same time. The net effect would be

Accepted Answer

A) a lower price level in the long run. 
B) no change in aggregate demand or aggregate supply. 
C) an increase in aggregate demand due to the increase in the money supply, but a decrease in aggregate supply due to the increase in the demand for money. 
D) lower interest rates, greater real GDP, and a higher price level as aggregate demand increases because of the indirect effect of the increase in the money supply. 
A) a lower price level in the long run. 
B) no change in aggregate demand or aggregate supply. 
C) an increase in aggregate demand due to the increase in the money supply, but a decrease in aggregate supply due to the increase in the demand for money. 
D) lower interest rates, greater real GDP, and a higher price level as aggregate demand increases because of the indirect effect of the increase in the money supply.

Question 8

An increase in bond prices will most likely result in

Accepted Answer

A) an increase in interest rates. 
B) a decrease in the quantity demanded of money. 
C) an increase in the quantity demanded of money. 
D) an increase in the opportunity cost of holding money. 
A) an increase in interest rates. 
B) a decrease in the quantity demanded of money. 
C) an increase in the quantity demanded of money. 
D) an increase in the opportunity cost of holding money.

Question 9

If the Fed's credit policies induces banks to hold substantial excess reserves at the Fed, then

Accepted Answer

A) financial markets will become more illiquid. 
B) the money multiplier will fall. 
C) the money supply will rise. 
D) the scope of asymmetric-information problem for banks will improve. 
A) financial markets will become more illiquid. 
B) the money multiplier will fall. 
C) the money supply will rise. 
D) the scope of asymmetric-information problem for banks will improve.

Question 10

A decrease in the supply of money will, according to the quantity theory of money, lead to

Accepted Answer

A) a higher price level. 
B) a higher nominal Gross Domestic Product (GDP). 
C) a lower real Gross Domestic Product (GDP). 
D) a lower price level. 
A) a higher price level. 
B) a higher nominal Gross Domestic Product (GDP). 
C) a lower real Gross Domestic Product (GDP). 
D) a lower price level.

Question 11

If the economy is underutilizing its economic resources, the Fed should

Accepted Answer

A) discourage investment spending. 
B) expand the money supply to increase aggregate demand. 
C) decrease aggregate supply. 
D) contract the money supply to decrease aggregate demand. 
A) discourage investment spending. 
B) expand the money supply to increase aggregate demand. 
C) decrease aggregate supply. 
D) contract the money supply to decrease aggregate demand.

Question 12

If velocity is equal to 4, this means that

Accepted Answer

A) the rate of growth of the money supply is 4. 
B) each dollar of the money supply is spent on the average 4 times per year. 
C) for every 4 dollars of the money supply, nominal GDP will increase by 4. 
D) an increase in the money supply will lead to an increase in aggregate supply of 4. 
A) the rate of growth of the money supply is 4. 
B) each dollar of the money supply is spent on the average 4 times per year. 
C) for every 4 dollars of the money supply, nominal GDP will increase by 4. 
D) an increase in the money supply will lead to an increase in aggregate supply of 4.

Question 13

The demand for money is downward sloping, because at higher interest rates

Accepted Answer

A) the opportunity cost of holding cash is lower. 
B) the opportunity cost of holding money is higher. 
C) the opportunity cost of holding money is decreasing. 
D) the opportunity cost of holding money is constant. 
A) the opportunity cost of holding cash is lower. 
B) the opportunity cost of holding money is higher. 
C) the opportunity cost of holding money is decreasing. 
D) the opportunity cost of holding money is constant.

Question 14

To change the rate of growth of the money supply, the Fed can do all but which one of the following?

Accepted Answer

A) Engage in open market operations. 
B) Change the discount rate. 
C) Shift the demand for money curve by changing the interest rate. 
D) Change the required reserve ratio. 
A) Engage in open market operations. 
B) Change the discount rate. 
C) Shift the demand for money curve by changing the interest rate. 
D) Change the required reserve ratio.

Question 15

According to the interest-rate-based monetary policy transmission mechanism, an increase 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 an increase 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 an increase 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 an increase 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 an increase in real GDP which is greater than the increase in investment spending.

Question 16

Which of the following institutions within the Federal Reserve System determines how many government securities the Fed should buy or sell on a given day?

Accepted Answer

A) the Board of Governors. 
B) Federal Advisory Committee. 
C) the Federal Reserve Bank of Chicago's Board of Trade. 
D) the Federal Reserve Bank of New York's Trading Desk. 
A) the Board of Governors. 
B) Federal Advisory Committee. 
C) the Federal Reserve Bank of Chicago's Board of Trade. 
D) the Federal Reserve Bank of New York's Trading Desk.

Question 17

Which of the following statements is FALSE?

Accepted Answer

A) Both monetary and interest rate targets cannot be pursued simultaneously. 
B) A reduction in the required reserve ratio increases the money supply and pushes down the equilibrium interest rate. 
C) An open market purchase reduces the money supply and pushes down the equilibrium interest rate. 
D) An open market sale decreases the money supply and pushes up the equilibrium interest rate. 
A) Both monetary and interest rate targets cannot be pursued simultaneously. 
B) A reduction in the required reserve ratio increases the money supply and pushes down the equilibrium interest rate. 
C) An open market purchase reduces the money supply and pushes down the equilibrium interest rate. 
D) An open market sale decreases the money supply and pushes up the equilibrium interest rate.

Question 18

If you initially pay $1,000 for a bond with an annual interest rate of 5 percent, but then the market interest rate falls to 4 percent

Accepted Answer

A) the market price of the bond is still $1,000. 
B) the bond's annual interest payment remains equal to $50. 
C) the market price of the bond has increased. 
D) the market price of the bond has decreased. 
A) the market price of the bond is still $1,000. 
B) the bond's annual interest payment remains equal to $50. 
C) the market price of the bond has increased. 
D) the market price of the bond has decreased.

Question 19

If the Fed has announced that it plans on lowering the interest rate it will

Accepted Answer

A) engage in expansionary open market operations, thereby decreasing the money supply. 
B) engage in expansionary open market operations, thereby increasing the money supply. 
C) engage in contractionary open market operations, thereby decreasing the money supply. 
D) engage in contractionary open market operations, thereby increasing the money supply. 
A) engage in expansionary open market operations, thereby decreasing the money supply. 
B) engage in expansionary open market operations, thereby increasing the money supply. 
C) engage in contractionary open market operations, thereby decreasing the money supply. 
D) engage in contractionary open market operations, thereby increasing the money supply.

Question 20

The relationship between the interest rate and the precautionary demand for money is

Accepted Answer

A) positive. 
B) inverse. 
C) positive sometimes and inverse other times. 
D) nonexistent. 
A) positive. 
B) inverse. 
C) positive sometimes and inverse other times. 
D) nonexistent.

In the real world, contractionary monetary policy would be used to

One of the tools of monetary policy is to change the discount rate. Since 2003

As global financial markets become more intertwined, the Fed has

In the market for bank reserves, a reduction in the required reserve ratio will cause

Which of the following is NOT a reason why people are motivated to hold money?

Holding money to meet unplanned expenditures and emergencies is known as

Suppose there is an increase in the money supply, but that people's demand for money balances increases by a greater amount at the same time. The net effect would be

An increase in bond prices will most likely result in

If the Fed's credit policies induces banks to hold substantial excess reserves at the Fed, then

A decrease in the supply of money will, according to the quantity theory of money, lead to

If the economy is underutilizing its economic resources, the Fed should

If velocity is equal to 4, this means that

The demand for money is downward sloping, because at higher interest rates

To change the rate of growth of the money supply, the Fed can do all but which one of the following?

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

Which of the following institutions within the Federal Reserve System determines how many government securities the Fed should buy or sell on a given day?

Which of the following statements is FALSE?

If you initially pay $1,000 for a bond with an annual interest rate of 5 percent, but then the market interest rate falls to 4 percent

If the Fed has announced that it plans on lowering the interest rate it will

The relationship between the interest rate and the precautionary demand for money is

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

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Exam 15: Domestic and International Dimensions of Monetary Policy

In the real world, contractionary monetary policy would be used to

One of the tools of monetary policy is to change the discount rate. Since 2003

As global financial markets become more intertwined, the Fed has

In the market for bank reserves, a reduction in the required reserve ratio will cause

Which of the following is NOT a reason why people are motivated to hold money?

Holding money to meet unplanned expenditures and emergencies is known as

Suppose there is an increase in the money supply, but that people's demand for money balances increases by a greater amount at the same time. The net effect would be

An increase in bond prices will most likely result in

If the Fed's credit policies induces banks to hold substantial excess reserves at the Fed, then

A decrease in the supply of money will, according to the quantity theory of money, lead to

If the economy is underutilizing its economic resources, the Fed should

If velocity is equal to 4, this means that

The demand for money is downward sloping, because at higher interest rates

To change the rate of growth of the money supply, the Fed can do all but which one of the following?

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

Which of the following institutions within the Federal Reserve System determines how many government securities the Fed should buy or sell on a given day?

Which of the following statements is FALSE?

If you initially pay $1,000 for a bond with an annual interest rate of 5 percent, but then the market interest rate falls to 4 percent

If the Fed has announced that it plans on lowering the interest rate it will

The relationship between the interest rate and the precautionary demand for money is

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