Question 1

The prices of all fixed-income assets (bonds)

Accepted Answer

A) vary directly with the interest rate. 
B) are independent of the interest rate. 
C) vary inversely with the interest rate. 
D) are determined by the U.S. Treasury. 
A) vary directly with the interest rate. 
B) are independent of the interest rate. 
C) vary inversely with the interest rate. 
D) are determined by the U.S. Treasury.

Question 2

The federal funds rate is

Accepted Answer

A) the interest rate paid on reserves held with the Fed. 
B) the interest rate at which banks can borrow excess reserves from other banks. 
C) the interest rate on bonds issued by the federal government. 
D) none of the above. 
A) the interest rate paid on reserves held with the Fed. 
B) the interest rate at which banks can borrow excess reserves from other banks. 
C) the interest rate on bonds issued by the federal government. 
D) none of the above.

Question 3

The short-run effect of an increase in the supply of money is

Accepted Answer

A) an increase in both real Gross Domestic Product (GDP)and the price level. 
B) an increase in the price level but not in real Gross Domestic Product (GDP). 
C) an increase in real Gross Domestic Product (GDP)but not in the price level. 
D) an increase in the price level, a decrease in real Gross Domestic Product (GDP), but an increase in nominal national income. 
A) an increase in both real Gross Domestic Product (GDP)and the price level. 
B) an increase in the price level but not in real Gross Domestic Product (GDP). 
C) an increase in real Gross Domestic Product (GDP)but not in the price level. 
D) an increase in the price level, a decrease in real Gross Domestic Product (GDP), but an increase in nominal national income.

Question 4

-Look at the above figure. Suppose the economy was initially in equilibrium at point A. What point would represent the short-run equilibrium if the Fed makes an open market purchase of bonds?

Accepted Answer

A) A 
B) B 
C) C 
D) D 
A) A 
B) B 
C) C 
D) D

Question 5

The Federal Reserve finances its credit policy with

Accepted Answer

A) reserve deposits that private banks hold with the Fed. 
B) borrowing from the federal government. 
C) the insurance premiums collected by the FDIC. 
D) funding from the U.S. Treasury Department. 
A) reserve deposits that private banks hold with the Fed. 
B) borrowing from the federal government. 
C) the insurance premiums collected by the FDIC. 
D) funding from the U.S. Treasury Department.

Question 6

The income velocity of money is the absolute number of times, on average, that

Accepted Answer

A) people purchase goods and services during a year. 
B) each monetary unit is spent on final goods and services. 
C) each unit of real GDP is produced by business firms. 
D) each one-unit increase in the price level occurs. 
A) people purchase goods and services during a year. 
B) each monetary unit is spent on final goods and services. 
C) each unit of real GDP is produced by business firms. 
D) each one-unit increase in the price level occurs.

Question 7

Which of the following is NOT a basis for the Taylor-rule guideline for how the Federal Reserve should set its target value for the federal funds rate?

Accepted Answer

A) an estimated long-run real interest rate 
B) the current deviation of the actual inflation rate from the Fed's inflation objective 
C) the present deviation of the actual unemployment rate from the Fed's unemployment objective 
D) the gap between actual real GDP and a measure of potential real GDP 
A) an estimated long-run real interest rate 
B) the current deviation of the actual inflation rate from the Fed's inflation objective 
C) the present deviation of the actual unemployment rate from the Fed's unemployment objective 
D) the gap between actual real GDP and a measure of potential real GDP

Question 8

What is the most common reason people demand money?

Accepted Answer

A) Each bill and coin is a reflection of important people and events in a nation's history. 
B) People desire to use money as a medium of exchange when they buy goods and services. 
C) Since very few of us engage in a flow of transactions, money is our financial safety net. 
D) They demand money to ensure that the nation's government will not spend too much. 
A) Each bill and coin is a reflection of important people and events in a nation's history. 
B) People desire to use money as a medium of exchange when they buy goods and services. 
C) Since very few of us engage in a flow of transactions, money is our financial safety net. 
D) They demand money to ensure that the nation's government will not spend too much.

Question 9

According to the quantity theory of money, increases in the money supply lead to

Accepted Answer

A) decreases in nominal Gross Domestic Product (GDP). 
B) increases in the price level. 
C) decreases in the price level. 
D) increases in taxes. 
A) decreases in nominal Gross Domestic Product (GDP). 
B) increases in the price level. 
C) decreases in the price level. 
D) increases in taxes.

Question 10

The interest rate that the Fed charges banks to borrow funds from the Fed is the

Accepted Answer

A) discount rate. 
B) federal funds rate. 
C) money market rate. 
D) nominal interest rate. 
A) discount rate. 
B) federal funds rate. 
C) money market rate. 
D) nominal interest rate.

Question 11

An excess quantity of money demanded will lead to a rise in

Accepted Answer

A) the interest rate. 
B) investment. 
C) income. 
D) bond prices. 
A) the interest rate. 
B) investment. 
C) income. 
D) bond prices.

Question 12

What effect does an expansionary monetary policy in the U.S. have on the foreign trade sector?

Accepted Answer

A) The lower value of the dollar will decrease exports and increase imports. 
B) The lower value of the dollar will decrease imports and increase exports. 
C) The higher value of the dollar will decrease exports and increase imports. 
D) The higher value of the dollar will decrease imports and increase exports. 
A) The lower value of the dollar will decrease exports and increase imports. 
B) The lower value of the dollar will decrease imports and increase exports. 
C) The higher value of the dollar will decrease exports and increase imports. 
D) The higher value of the dollar will decrease imports and increase exports.

Question 13

According to Keynes, the impact of an increase in the money supply is

Accepted Answer

A) a lower interest rate and a larger growth in real GDP. 
B) a lower interest rate and a smaller growth in real GDP. 
C) a higher interest rate and a larger growth in real GDP. 
D) a higher interest rate and a smaller growth in real GDP. 
A) a lower interest rate and a larger growth in real GDP. 
B) a lower interest rate and a smaller growth in real GDP. 
C) a higher interest rate and a larger growth in real GDP. 
D) a higher interest rate and a smaller growth in real GDP.

Question 14

What is the maximum number of voting members of the FOMC?

Accepted Answer

A) 4 
B) 7 
C) 11 
D) 12 
A) 4 
B) 7 
C) 11 
D) 12

Question 15

The transactions demand for money

Accepted Answer

A) varies inversely with the precautionary demand for money. 
B) varies directly with the rate of interest. 
C) is a function of nominal Gross Domestic Product (GDP). 
D) is determined by the Federal Reserve System. 
A) varies inversely with the precautionary demand for money. 
B) varies directly with the rate of interest. 
C) is a function of nominal Gross Domestic Product (GDP). 
D) is determined by the Federal Reserve System.

Question 16

Suppose the economy is initially in long-run and short-run equilibrium. If the Fed decides to pursue a contractionary monetary policy, we will see

Accepted Answer

A) bond prices fall, interest rates fall, aggregate demand remains unchanged as consumption spending decreases, but investment spending increases. GDP remains constant in both the short run and the long run, but the price level falls in both. 
B) bond prices fall, interest rates rise, aggregate demand falls as investment and consumption spending decrease, and real GDP and the price level decreasing in the short-run, but only the price level decreasing in the long run. 
C) bond prices fall, interest rates rise, aggregate demand falls as investment spending decreases and consumption spending remains unchanged, and real GDP and the price level decrease in the short run, but only the price level falls in the short run. 
D) interest rates rise but no change in bond prices. Aggregate demand falls as consumption spending and investment spending decrease, and the price level and real GDP fall in both the short run and the long run. 
A) bond prices fall, interest rates fall, aggregate demand remains unchanged as consumption spending decreases, but investment spending increases. GDP remains constant in both the short run and the long run, but the price level falls in both. 
B) bond prices fall, interest rates rise, aggregate demand falls as investment and consumption spending decrease, and real GDP and the price level decreasing in the short-run, but only the price level decreasing in the long run. 
C) bond prices fall, interest rates rise, aggregate demand falls as investment spending decreases and consumption spending remains unchanged, and real GDP and the price level decrease in the short run, but only the price level falls in the short run. 
D) interest rates rise but no change in bond prices. Aggregate demand falls as consumption spending and investment spending decrease, and the price level and real GDP fall in both the short run and the long run.

Question 17

Empirical evidence across numerous countries indicates that changes in the ________ are associated with nearly equiproportional changes in ________.

Accepted Answer

A) money supply, real GDP per year 
B) money supply, price level 
C) price level, money supply 
D) real GDP per year, income velocity of money 
A) money supply, real GDP per year 
B) money supply, price level 
C) price level, money supply 
D) real GDP per year, income velocity of money

Question 18

The interest-rate-based monetary policy transmission mechanism argues that an increase in the money supply

Accepted Answer

A) has no effect on aggregate demand but reduces long-run aggregate supply. 
B) has no effect on aggregate demand but increases short-run aggregate supply. 
C) causes interest rates to fall, which causes an increase in planned investment, and an increase in aggregate demand. 
D) causes the inflation rate to decline, which causes an increase in household consumption spending and an increase in aggregate demand. 
A) has no effect on aggregate demand but reduces long-run aggregate supply. 
B) has no effect on aggregate demand but increases short-run aggregate supply. 
C) causes interest rates to fall, which causes an increase in planned investment, and an increase in aggregate demand. 
D) causes the inflation rate to decline, which causes an increase in household consumption spending and an increase in aggregate demand.

Question 19

The appropriate monetary policy in the event of a recessionary gap would be to

Accepted Answer

A) increase the difference between the discount rate and the federal funds rate. 
B) engage in an open market purchase of U.S. government securities. 
C) increase the difference between the federal funds rate and the required reserve ratio. 
D) raise the required reserve ratio. 
A) increase the difference between the discount rate and the federal funds rate. 
B) engage in an open market purchase of U.S. government securities. 
C) increase the difference between the federal funds rate and the required reserve ratio. 
D) raise the required reserve ratio.

Question 20

-Refer to the above figure. Suppose point A is the original equilibrium. If there is an increase in the money supply, the new long-run equilibrium is given by point

Accepted Answer

A) A. 
B) B. 
C) C. 
D) D. 
A) A. 
B) B. 
C) C. 
D) D.

The prices of all fixed-income assets (bonds)

The federal funds rate is

The short-run effect of an increase in the supply of money is

-Look at the above figure. Suppose the economy was initially in equilibrium at point A. What point would represent the short-run equilibrium if the Fed makes an open market purchase of bonds?

The Federal Reserve finances its credit policy with

The income velocity of money is the absolute number of times, on average, that

Which of the following is NOT a basis for the Taylor-rule guideline for how the Federal Reserve should set its target value for the federal funds rate?

What is the most common reason people demand money?

According to the quantity theory of money, increases in the money supply lead to

The interest rate that the Fed charges banks to borrow funds from the Fed is the

An excess quantity of money demanded will lead to a rise in

What effect does an expansionary monetary policy in the U.S. have on the foreign trade sector?

According to Keynes, the impact of an increase in the money supply is

What is the maximum number of voting members of the FOMC?

The transactions demand for money

Suppose the economy is initially in long-run and short-run equilibrium. If the Fed decides to pursue a contractionary monetary policy, we will see

Empirical evidence across numerous countries indicates that changes in the are associated with nearly equiproportional changes in .

The interest-rate-based monetary policy transmission mechanism argues that an increase in the money supply

The appropriate monetary policy in the event of a recessionary gap would be to

-Refer to the above figure. Suppose point A is the original equilibrium. If there is an increase in the money supply, the new long-run equilibrium is given by point

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

The prices of all fixed-income assets (bonds)

The federal funds rate is

The short-run effect of an increase in the supply of money is

-Look at the above figure. Suppose the economy was initially in equilibrium at point A. What point would represent the short-run equilibrium if the Fed makes an open market purchase of bonds?

The Federal Reserve finances its credit policy with

The income velocity of money is the absolute number of times, on average, that

Which of the following is NOT a basis for the Taylor-rule guideline for how the Federal Reserve should set its target value for the federal funds rate?

What is the most common reason people demand money?

According to the quantity theory of money, increases in the money supply lead to

The interest rate that the Fed charges banks to borrow funds from the Fed is the

An excess quantity of money demanded will lead to a rise in

What effect does an expansionary monetary policy in the U.S. have on the foreign trade sector?

According to Keynes, the impact of an increase in the money supply is

What is the maximum number of voting members of the FOMC?

The transactions demand for money

Suppose the economy is initially in long-run and short-run equilibrium. If the Fed decides to pursue a contractionary monetary policy, we will see

Empirical evidence across numerous countries indicates that changes in the ________ are associated with nearly equiproportional changes in ________.

The interest-rate-based monetary policy transmission mechanism argues that an increase in the money supply

The appropriate monetary policy in the event of a recessionary gap would be to

-Refer to the above figure. Suppose point A is the original equilibrium. If there is an increase in the money supply, the new long-run equilibrium is given by point

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

Empirical evidence across numerous countries indicates that changes in the are associated with nearly equiproportional changes in .