Question 1

What is the equation of exchange?
 How can the equation of exchange be converted into the quantity theory of money?

Accepted Answer

The equation of exchange is MSV = PY, wh

Question 2

The linkages of the interest-rate-based transmission mechanism of monetary policy are summarized as follows:

Accepted Answer

A) change in the money supply → change in speculative balances → change in transactions balances → change in planned investment → change in aggregate demand. 
B) change in the money supply → change in planned investment → change in government spending → change in aggregate demand. 
C) change in the money supply → change in interest rates → change in planned investment → change in aggregate demand. 
D) change in the money supply → change in interest rates → change in transactions balances → change in government spending → change in aggregate demand. 
A) change in the money supply → change in speculative balances → change in transactions balances → change in planned investment → change in aggregate demand. 
B) change in the money supply → change in planned investment → change in government spending → change in aggregate demand. 
C) change in the money supply → change in interest rates → change in planned investment → change in aggregate demand. 
D) change in the money supply → change in interest rates → change in transactions balances → change in government spending → change in aggregate demand.

Question 3

The asset demand for money is

Accepted Answer

A) greater at high interest rates as investors can earn more on their investments. 
B) greater at low interest rates, because the opportunity cost of holding money is low. 
C) greater at low interest rates, because the opportunity cost of holding money is high. 
D) lower at low interest rates, because the opportunity cost of holding money is high. 
A) greater at high interest rates as investors can earn more on their investments. 
B) greater at low interest rates, because the opportunity cost of holding money is low. 
C) greater at low interest rates, because the opportunity cost of holding money is high. 
D) lower at low interest rates, because the opportunity cost of holding money is high.

Question 4

According to the interest-rate-based 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 5

If nominal GDP is $5 trillion and velocity is 20, then

Accepted Answer

A) actual money balances held by the nonbanking public are $250 billion. 
B) actual money balances held by the nonbanking public are $100 trillion. 
C) real GDP equals $100 trillion. 
D) real GDP equals $400 trillion. 
A) actual money balances held by the nonbanking public are $250 billion. 
B) actual money balances held by the nonbanking public are $100 trillion. 
C) real GDP equals $100 trillion. 
D) real GDP equals $400 trillion.

Question 6

Which of the following is NOT part of the FOMC directive?

Accepted Answer

A) It lays out the FOMC's general economic objectives. 
B) It establishes short-term federal funds rate objectives. 
C) It specifies target ranges for money supply growth. 
D) It specifies who the chair of the Fed is. 
A) It lays out the FOMC's general economic objectives. 
B) It establishes short-term federal funds rate objectives. 
C) It specifies target ranges for money supply growth. 
D) It specifies who the chair of the Fed is.

Question 7

Which of the following will cause a reduction in the amount of money individuals wish to hold?

Accepted Answer

A) an increase in the interest rate 
B) an increase in income 
C) an increase in the price level 
D) all of the above 
A) an increase in the interest rate 
B) an increase in income 
C) an increase in the price level 
D) all of the above

Question 8

Since 2008, the Fed has conducted a policy that involves direct lending to private firms. Those actions of the Fed are called

Accepted Answer

A) open market operations. 
B) federal funds rate targeting. 
C) quantitative easing. 
D) credit policies. 
A) open market operations. 
B) federal funds rate targeting. 
C) quantitative easing. 
D) credit policies.

Question 9

Suppose the actual federal funds rate is above the rate implied by a particular inflation goal. In this situation, the Taylor rule implies that

Accepted Answer

A) monetary policy is expansionary. 
B) monetary policy is contractionary. 
C) monetary policy is neither expansionary or contractionary. 
D) fiscal policy is expansionary. 
A) monetary policy is expansionary. 
B) monetary policy is contractionary. 
C) monetary policy is neither expansionary or contractionary. 
D) fiscal policy is expansionary.

Question 10

The interest rate is the opportunity cost

Accepted Answer

A) of investing in stocks. 
B) of investing in Treasury securities. 
C) of using credit cards. 
D) of holding money. 
A) of investing in stocks. 
B) of investing in Treasury securities. 
C) of using credit cards. 
D) of holding money.

Question 11

An open market sale of government securities by the Fed will cause which of the following?

Accepted Answer

A) an increase in the federal funds rate 
B) an increase in the equilibrium quantity of reserves 
C) all of the above 
D) none of the above 
A) an increase in the federal funds rate 
B) an increase in the equilibrium quantity of reserves 
C) all of the above 
D) none of the above

Question 12

In the market for bank reserves, the supply of reserves is

Accepted Answer

A) an upward sloping curve. 
B) a downward sloping curve. 
C) a vertical curve. 
D) none of the above. 
A) an upward sloping curve. 
B) a downward sloping curve. 
C) a vertical curve. 
D) none of the above.

Question 13

Which of the following is NOT a reason the Fed alters the rate of growth of the money supply?

Accepted Answer

A) to influence aggregate demand 
B) to shift the demand for money curve 
C) to influence the amount of consumption 
D) to influence the amount of investment 
A) to influence aggregate demand 
B) to shift the demand for money curve 
C) to influence the amount of consumption 
D) to influence the amount of investment

Question 14

Precautionary demand for money will fall when

Accepted Answer

A) the interest rate rises. 
B) the interest rate falls. 
C) the money supply increases. 
D) government spending falls. 
A) the interest rate rises. 
B) the interest rate falls. 
C) the money supply increases. 
D) government spending falls.

Question 15

The opportunity cost of holding money refers to

Accepted Answer

A) the service fees associated with checking accounts. 
B) the service fees associated with checking accounts plus the costs undertaken to prevent theft. 
C) the interest that could have been earned if the money balances had been transferred to an interest-bearing asset. 
D) the pleasure that would have been received if the money balances had been used to buy a good or service. 
A) the service fees associated with checking accounts. 
B) the service fees associated with checking accounts plus the costs undertaken to prevent theft. 
C) the interest that could have been earned if the money balances had been transferred to an interest-bearing asset. 
D) the pleasure that would have been received if the money balances had been used to buy a good or service.

Question 16

An increase in the interest rate will

Accepted Answer

A) decrease the price of bonds. 
B) increase the price of bonds. 
C) increase or decrease the price of bonds depending upon whether the money supply has increased or decreased. 
D) leave the price of bonds unchanged. 
A) decrease the price of bonds. 
B) increase the price of bonds. 
C) increase or decrease the price of bonds depending upon whether the money supply has increased or decreased. 
D) leave the price of bonds unchanged.

Question 17

The asset demand for money is

Accepted Answer

A) greater at high interest rates as investors can earn more on their investments. 
B) greater at low interest rates, because the opportunity cost of holding money is low. 
C) greater at low interest rates, because the opportunity cost of holding money is high. 
D) lower at low interest rates, because the opportunity cost of holding money is high. 
A) greater at high interest rates as investors can earn more on their investments. 
B) greater at low interest rates, because the opportunity cost of holding money is low. 
C) greater at low interest rates, because the opportunity cost of holding money is high. 
D) lower at low interest rates, because the opportunity cost of holding money is high.

Question 18

If the Fed sells U.S. government securities, the

Accepted Answer

A) money supply increases, and the money supply curve shifts to the right. 
B) money supply increases, and the money supply curve shifts to the left. 
C) money supply decreases, and the money supply curve shifts to the right. 
D) money supply decreases, and the money supply curve shifts to the left. 
A) money supply increases, and the money supply curve shifts to the right. 
B) money supply increases, and the money supply curve shifts to the left. 
C) money supply decreases, and the money supply curve shifts to the right. 
D) money supply decreases, and the money supply curve shifts to the left.

Question 19

If the Fed raises the interest rate paid on excess reserves while holding the federal funds rate unchanged, then banks will

Accepted Answer

A) lend more reserves in the federal funds market and keep more excess reserves. 
B) lend fewer reserves in the federal funds market and keep more excess reserves. 
C) not keep excess reserves or lend reserves in the federal funds market. 
D) not react to it. 
A) lend more reserves in the federal funds market and keep more excess reserves. 
B) lend fewer reserves in the federal funds market and keep more excess reserves. 
C) not keep excess reserves or lend reserves in the federal funds market. 
D) not react to it.

Question 20

The office of the Federal Reserve Bank of New York charged with implementing Federal Reserve open market policy actions is known as the

Accepted Answer

A) Open Market Coordination Office. 
B) Open Market Cooperation Office. 
C) Response Desk. 
D) Trading Desk. 
A) Open Market Coordination Office. 
B) Open Market Cooperation Office. 
C) Response Desk. 
D) Trading Desk.

What is the equation of exchange? How can the equation of exchange be converted into the quantity theory of money?

The linkages of the interest-rate-based transmission mechanism of monetary policy are summarized as follows:

The asset demand for money is

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

If nominal GDP is $5 trillion and velocity is 20, then

Which of the following is NOT part of the FOMC directive?

Which of the following will cause a reduction in the amount of money individuals wish to hold?

Since 2008, the Fed has conducted a policy that involves direct lending to private firms. Those actions of the Fed are called

Suppose the actual federal funds rate is above the rate implied by a particular inflation goal. In this situation, the Taylor rule implies that

The interest rate is the opportunity cost

An open market sale of government securities by the Fed will cause which of the following?

In the market for bank reserves, the supply of reserves is

Which of the following is NOT a reason the Fed alters the rate of growth of the money supply?

Precautionary demand for money will fall when

The opportunity cost of holding money refers to

An increase in the interest rate will

The asset demand for money is

If the Fed sells U.S. government securities, the

If the Fed raises the interest rate paid on excess reserves while holding the federal funds rate unchanged, then banks will

The office of the Federal Reserve Bank of New York charged with implementing Federal Reserve open market policy actions is known as the

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

What is the equation of exchange? How can the equation of exchange be converted into the quantity theory of money?

The linkages of the interest-rate-based transmission mechanism of monetary policy are summarized as follows:

The asset demand for money is

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

If nominal GDP is $5 trillion and velocity is 20, then

Which of the following is NOT part of the FOMC directive?

Which of the following will cause a reduction in the amount of money individuals wish to hold?

Since 2008, the Fed has conducted a policy that involves direct lending to private firms. Those actions of the Fed are called

Suppose the actual federal funds rate is above the rate implied by a particular inflation goal. In this situation, the Taylor rule implies that

The interest rate is the opportunity cost

An open market sale of government securities by the Fed will cause which of the following?

In the market for bank reserves, the supply of reserves is

Which of the following is NOT a reason the Fed alters the rate of growth of the money supply?

Precautionary demand for money will fall when

The opportunity cost of holding money refers to

An increase in the interest rate will

The asset demand for money is

If the Fed sells U.S. government securities, the

If the Fed raises the interest rate paid on excess reserves while holding the federal funds rate unchanged, then banks will

The office of the Federal Reserve Bank of New York charged with implementing Federal Reserve open market policy actions is known as the

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