Question 1

An increase in the money supply is represented by a(n):

Accepted Answer

A)  rightward shift of the downward-sloping money supply curve. 
B)  upward shift of the money supply curve. 
C)  rightward shift of the money supply curve. 
D)  increase in the rate of interest. 
A)  rightward shift of the downward-sloping money supply curve. 
B)  upward shift of the money supply curve. 
C)  rightward shift of the money supply curve. 
D)  increase in the rate of interest. C

Question 2

Starting from equilibrium in the money market,suppose the money supply increases.Other things being equal,this will cause an excess demand for money,leading people to buy bonds.

Accepted Answer

A) True 
 B)False  True

Question 3

Exhibit 20-6 Money, investment and product markets
  
-In Exhibit 20-6,if the interest rate falls from i₁ to i₂,then:

Accepted Answer

A)  the quantity demanded of investment increases from i₁ to i₂ and investment spending shifts the aggregate demand curve from AD₂ to AD₁, decreasing the level of real GDP. 
B)  the quantity demanded of investment increases from i₁ to i₂ and investment spending shifts the aggregate demand curve from AD₁ to AD₂, increasing the level of real GDP. 
C)  the quantity demanded of investment decreases from i₂ to i₁ and investment spending shifts the aggregate demand curve from AD₁ to AD₂, decreasing the level of real GDP. 
D)  the quantity demanded of investment decreases from i₂ to i₁ and investment spending shifts the aggregate demand curve from AD₂ to AD₁, increasing the level of real GDP. 
E)  the quantity demanded of investment stays the same causing the aggregate demand curve to shift from AD₂ to AD₁ decreasing the level of real GDP. 
A)  the quantity demanded of investment increases from i₁ to i₂ and investment spending shifts the aggregate demand curve from AD₂ to AD₁, decreasing the level of real GDP. 
B)  the quantity demanded of investment increases from i₁ to i₂ and investment spending shifts the aggregate demand curve from AD₁ to AD₂, increasing the level of real GDP. 
C)  the quantity demanded of investment decreases from i₂ to i₁ and investment spending shifts the aggregate demand curve from AD₁ to AD₂, decreasing the level of real GDP. 
D)  the quantity demanded of investment decreases from i₂ to i₁ and investment spending shifts the aggregate demand curve from AD₂ to AD₁, increasing the level of real GDP. 
E)  the quantity demanded of investment stays the same causing the aggregate demand curve to shift from AD₂ to AD₁ decreasing the level of real GDP. B

Question 4

The speculative demand for money:

Accepted Answer

A)  varies inversely with income. 
B)  is only concerned with active money. 
C)  involves holding money for unexpected problems. 
D)  varies directly with the transactions demand for money. 
E)  varies inversely with the interest rate. 
A)  varies inversely with income. 
B)  is only concerned with active money. 
C)  involves holding money for unexpected problems. 
D)  varies directly with the transactions demand for money. 
E)  varies inversely with the interest rate.

Question 5

Keynes called the money people hold in order to pay unforeseen or unexpected expenses the:

Accepted Answer

A)  transactions demand for holding money. 
B)  precautionary demand for holding money. 
C)  speculative demand for holding money. 
D)  store of value demand for holding money. 
A)  transactions demand for holding money. 
B)  precautionary demand for holding money. 
C)  speculative demand for holding money. 
D)  store of value demand for holding money.

Question 6

The speculative demand for holding money is when people hold money:

Accepted Answer

A)  instead of near money. 
B)  to transact purchases they expect to make. 
C)  as insurance against unexpected needs. 
D)  to speculate in the stock market. 
E)  to take advantage of changes in interest rates. 
A)  instead of near money. 
B)  to transact purchases they expect to make. 
C)  as insurance against unexpected needs. 
D)  to speculate in the stock market. 
E)  to take advantage of changes in interest rates.

Question 7

The average number of times per year each dollar is used to transact an exchange is known as the:

Accepted Answer

A)  liquidity of money. 
B)  velocity of money. 
C)  quantity theory of money. 
D)  equation of exchange 
E)  rapidity index 
A)  liquidity of money. 
B)  velocity of money. 
C)  quantity theory of money. 
D)  equation of exchange 
E)  rapidity index

Question 8

Exhibit 20-4 Aggregate demand and supply model
  
-In Exhibit 20-4,which one of the following actions could the Fed use to shift the AD curve from AD₃ to AD₂?

Accepted Answer

A)  Lower the legal reserve requirement. 
B)  Lower the discount rate. 
C)  Lower the federal funds rate. 
D)  Sell government securities. 
E)  Print currency. 
A)  Lower the legal reserve requirement. 
B)  Lower the discount rate. 
C)  Lower the federal funds rate. 
D)  Sell government securities. 
E)  Print currency.

Question 9

One reason that people hold money is to pay for unexpected car repairs and other unpredictable expenses.This motive for holding money is called:

Accepted Answer

A)  transactions demand. 
B)  precautionary demand. 
C)  speculative demand. 
D)  noncyclical demand. 
A)  transactions demand. 
B)  precautionary demand. 
C)  speculative demand. 
D)  noncyclical demand.

Question 10

The three functions of money are medium of exchange,

Accepted Answer

A)  measure of value, and standard of value. 
B)  measure of value, and store of value. 
C)  standard of value, and store of value 
D)  medium of value, and store of value. 
E)  measure of value, and deferred value. 
A)  measure of value, and standard of value. 
B)  measure of value, and store of value. 
C)  standard of value, and store of value 
D)  medium of value, and store of value. 
E)  measure of value, and deferred value.

Question 11

The speculative demand for money shows the relationship between money demand and :

Accepted Answer

A)  income levels. 
B)  interest rates. 
C)  prices 
D)  investment. 
E)  consumption. 
A)  income levels. 
B)  interest rates. 
C)  prices 
D)  investment. 
E)  consumption.

Question 12

Starting from equilibrium in the money market,suppose the money supply increases.Other things being equal,this will cause an excess demand for money,leading people to sell bonds.

Accepted Answer

A) True 
 B)False

Question 13

Monetarists believe:

Accepted Answer

A)  the cause-and-effect relationship hypothesized by the Keynesians understates the impact of stimulative monetary policy. 
B)  the cause-and-effect relationship hypothesized by the Keynesians is an accurate description of how monetary policy works. 
C)  since the economy is operating at full employment, any stimulative monetary policy will cause the inflation rate to rise. 
D)  the cause-and-effect relationship hypothesized by the Keynesians is backwards, and decreases in the money supply actually stimulate economic activity. 
E)  the cause-and-effect relationship hypothesized by Keynesians will not work because investment does not respond to changes in interest rates. 
A)  the cause-and-effect relationship hypothesized by the Keynesians understates the impact of stimulative monetary policy. 
B)  the cause-and-effect relationship hypothesized by the Keynesians is an accurate description of how monetary policy works. 
C)  since the economy is operating at full employment, any stimulative monetary policy will cause the inflation rate to rise. 
D)  the cause-and-effect relationship hypothesized by the Keynesians is backwards, and decreases in the money supply actually stimulate economic activity. 
E)  the cause-and-effect relationship hypothesized by Keynesians will not work because investment does not respond to changes in interest rates.

Question 14

Discuss the determinants of the equilibrium interest rate and how it may change.What can the Fed do to change the interest rate?

Accepted Answer

The interest rate is determined through

Question 15

The Monetarists advocate the monetary rule in order to stabilize the business cycle which states that the money supply should be increased by a constant rate year after year.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is the velocity of money?

Accepted Answer

A)  How quickly the average worker gets paid after his or her work is done. 
B)  The average speed of ATM machines. 
C)  The average number of times per year that a given dollar of the money supply is spent. 
D)  None of the above. 
A)  How quickly the average worker gets paid after his or her work is done. 
B)  The average speed of ATM machines. 
C)  The average number of times per year that a given dollar of the money supply is spent. 
D)  None of the above.

Question 17

Exhibit 20-2 Money market demand and supply curves
  
-As shown in Exhibit 20-2,assume the money supply curve shifts rightward from MS₁ to MS₂ and the economy is operating along the intermediate segment of the aggregate supply curve.The result will be a:

Accepted Answer

A)  higher interest rate and no effect on real GDP or the price level. 
B)  lower investment, lower real GDP, and lower price level. 
C)  higher investment, higher real GDP, and higher price level. 
D)  higher investment, lower real GDP, and lower price level. 
A)  higher interest rate and no effect on real GDP or the price level. 
B)  lower investment, lower real GDP, and lower price level. 
C)  higher investment, higher real GDP, and higher price level. 
D)  higher investment, lower real GDP, and lower price level.

Question 18

Exhibit 20-1 Money market demand and supply curves
  
-As shown in Exhibit 20-1,assume the money supply curve shifts leftward from MS₁ to MS₂ and the economy is operating along the intermediate segment of the aggregate supply curve.The result will be a:

Accepted Answer

A)  higher investment, lower real GDP, and lower price level. 
B)  lower investment, lower real GDP, and lower price level. 
C)  higher investment, higher real GDP, and higher price level. 
D)  higher interest rate and no effect on real GDP or the price level. 
A)  higher investment, lower real GDP, and lower price level. 
B)  lower investment, lower real GDP, and lower price level. 
C)  higher investment, higher real GDP, and higher price level. 
D)  higher interest rate and no effect on real GDP or the price level.

Question 19

Since classical economists and monetarists believe that the economy operates at full employment,real GDP,that is,along the vertical segment of aggregate supply:

Accepted Answer

A)  any increase in the money supply can only end up raising the price level. 
B)  any increase in the money supply can only end up lowering the price level. 
C)  any decrease in the money supply can only end up raising the price level. 
D)  changes in the money supply will not affect the price level. 
E)  any increase in the money supply will cause both nominal and real GDP to increase. 
A)  any increase in the money supply can only end up raising the price level. 
B)  any increase in the money supply can only end up lowering the price level. 
C)  any decrease in the money supply can only end up raising the price level. 
D)  changes in the money supply will not affect the price level. 
E)  any increase in the money supply will cause both nominal and real GDP to increase.

Question 20

Keynesians reject the influence of monetary policy on the economy.One argument supporting this Keynesian view is that the:

Accepted Answer

A)  money demand curve is horizontal at any interest rate. 
B)  aggregate demand curve is nearly flat. 
C)  investment demand curve is nearly vertical. 
D)  money demand curve is vertical. 
A)  money demand curve is horizontal at any interest rate. 
B)  aggregate demand curve is nearly flat. 
C)  investment demand curve is nearly vertical. 
D)  money demand curve is vertical.

Exam 20: Monetary Policy

An increase in the money supply is represented by a(n):

Starting from equilibrium in the money market,suppose the money supply increases.Other things being equal,this will cause an excess demand for money,leading people to buy bonds.

Exhibit 20-6 Money, investment and product markets -In Exhibit 20-6,if the interest rate falls from i₁ to i₂,then:

The speculative demand for money:

Keynes called the money people hold in order to pay unforeseen or unexpected expenses the:

The speculative demand for holding money is when people hold money:

The average number of times per year each dollar is used to transact an exchange is known as the:

Exhibit 20-4 Aggregate demand and supply model -In Exhibit 20-4,which one of the following actions could the Fed use to shift the AD curve from AD₃ to AD₂?

One reason that people hold money is to pay for unexpected car repairs and other unpredictable expenses.This motive for holding money is called:

The three functions of money are medium of exchange,

The speculative demand for money shows the relationship between money demand and :

Starting from equilibrium in the money market,suppose the money supply increases.Other things being equal,this will cause an excess demand for money,leading people to sell bonds.

Monetarists believe:

Discuss the determinants of the equilibrium interest rate and how it may change.What can the Fed do to change the interest rate?

The Monetarists advocate the monetary rule in order to stabilize the business cycle which states that the money supply should be increased by a constant rate year after year.

Which of the following is the velocity of money?

Exhibit 20-2 Money market demand and supply curves -As shown in Exhibit 20-2,assume the money supply curve shifts rightward from MS₁ to MS₂ and the economy is operating along the intermediate segment of the aggregate supply curve.The result will be a:

Exhibit 20-1 Money market demand and supply curves -As shown in Exhibit 20-1,assume the money supply curve shifts leftward from MS₁ to MS₂ and the economy is operating along the intermediate segment of the aggregate supply curve.The result will be a:

Since classical economists and monetarists believe that the economy operates at full employment,real GDP,that is,along the vertical segment of aggregate supply:

Keynesians reject the influence of monetary policy on the economy.One argument supporting this Keynesian view is that the:

Introducing the Economic Way of Thinking

A: Appendix: Applying Graphs to Economics

Production Possibilities,Opportunity Cost,and Economic Growth

Part 1: Market Demand and Supply

Part 2: Market Demand and Supply

Markets in Action

Price Elasticity of Demand

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets and Income Distribution

Gross Domestic Product

Business Cycles and Unemployment

Inflation

Aggregate Demand and Supply

A: Appendix: The Self-Correcting Aggregate Demand and Supply Model

Fiscal Policy

The Public Sector

Federal Deficits,Surpluses,and the National Debt

Money and the Federal Reserve System

Money Creation

A: Appendix: Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

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