Question 1

The opportunity cost of holding money is properly measured by the rate of interest on financial assets such as bonds.

Accepted Answer

A) True 
 B)False

Question 2

If V = 5,P = 100,and Q = 10,then M is:

Accepted Answer

A)  20. 
B)  10. 
C)  500. 
D)  1,000. 
E)  200. 
A)  20. 
B)  10. 
C)  500. 
D)  1,000. 
E)  200.

Question 3

Exhibit 20-5 Money, Investment and product markets
  
-In Exhibit 20-5,a shift in aggregate demand from AD₂ to AD₃:

Accepted Answer

A)  increases real GDP, and lowers the price level. 
B)  decreases real GDP, and lowers the price level. 
C)  increases real GDP, and raises the price level. 
D)  decreases real GDP, and raises the price level. 
E)  has no effect on real GDP and the price level because the economy can never reach full employment. 
A)  increases real GDP, and lowers the price level. 
B)  decreases real GDP, and lowers the price level. 
C)  increases real GDP, and raises the price level. 
D)  decreases real GDP, and raises the price level. 
E)  has no effect on real GDP and the price level because the economy can never reach full employment.

Question 4

Which economic theory argues that changes in velocity are predictable and the crowding-out effect is substantial?

Accepted Answer

A)  Classical theory. 
B)  Keynesian theory. 
C)  Monetarist theory. 
D)  Marxist theory. 
A)  Classical theory. 
B)  Keynesian theory. 
C)  Monetarist theory. 
D)  Marxist theory.

Question 5

Monetarists believe that an increase in the money supply will lead to:

Accepted Answer

A) both c and d. 
B) all of the following. 
C) an increase in the price level. 
D) an increase in nominal GDP 
E) an increase in real GDP. 
A) both c and d. 
B) all of the following. 
C) an increase in the price level. 
D) an increase in nominal GDP 
E) an increase in real GDP.

Question 6

Monetarists argue that the Federal Reserve should allow the money supply to grow:

Accepted Answer

A)  counter to the business cycles. 
B)  faster than 10 percent annually. 
C)  only during recessions. 
D)  at a constant rate. 
A)  counter to the business cycles. 
B)  faster than 10 percent annually. 
C)  only during recessions. 
D)  at a constant rate.

Question 7

The velocity of money is the:

Accepted Answer

A)  number of times per year each dollar is used to transact an exchange. 
B)  rapidity of price increases during inflation. 
C)  number of times the price level increases during a year. 
D)  time it takes for checks to clear banks. 
E)  number of times per year each product is purchased during the year. 
A)  number of times per year each dollar is used to transact an exchange. 
B)  rapidity of price increases during inflation. 
C)  number of times the price level increases during a year. 
D)  time it takes for checks to clear banks. 
E)  number of times per year each product is purchased during the year.

Question 8

The demand for money that households keep for emergency purposes is known as the:

Accepted Answer

A)  precautionary demand. 
B)  emergency demand. 
C)  speculative demand. 
D)  transactions demand. 
E)  temporary demand. 
A)  precautionary demand. 
B)  emergency demand. 
C)  speculative demand. 
D)  transactions demand. 
E)  temporary demand.

Question 9

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)  Raise the discount rate. 
E)  Buy government securities. 
A)  Lower the legal reserve requirement. 
B)  Lower the discount rate. 
C)  Lower the federal funds rate. 
D)  Raise the discount rate. 
E)  Buy government securities.

Question 10

An increase in the supply of money,other things being equal,will raise the equilibrium interest rate.

Accepted Answer

A) True 
 B)False

Question 11

According to the quantity theory of money:

Accepted Answer

A)  the velocity of money is highly variable. 
B)  the money supply directly affects real GDP. 
C)  the money supply inversely affects velocity. 
D)  real GDP increases as the price level increases. 
E)  P = MV/Q. 
A)  the velocity of money is highly variable. 
B)  the money supply directly affects real GDP. 
C)  the money supply inversely affects velocity. 
D)  real GDP increases as the price level increases. 
E)  P = MV/Q.

Question 12

The precautionary demand for money:

Accepted Answer

A)  varies inversely with the income level. 
B)  varies inversely with the price level. 
C)  is used as an insurance agent against unexpected needs. 
D)  states that nominal income must exceed real income. 
E)  is a classical concept in monetary theory. 
A)  varies inversely with the income level. 
B)  varies inversely with the price level. 
C)  is used as an insurance agent against unexpected needs. 
D)  states that nominal income must exceed real income. 
E)  is a classical concept in monetary theory.

Question 13

If the Fed uses its tools to expand the money supply,bond prices will be bid up and interest rates will fall.

Accepted Answer

A) True 
 B)False

Question 14

Assume a fixed demand for money curve and the Fed increases the money supply.The result is a temporary:

Accepted Answer

A)  excess quantity of money demanded. 
B)  excess quantity of money supplied. 
C)  new equilibrium interest rate. 
D)  decrease in the demand for loans. 
A)  excess quantity of money demanded. 
B)  excess quantity of money supplied. 
C)  new equilibrium interest rate. 
D)  decrease in the demand for loans.

Exam 20: Monetary Policy

The opportunity cost of holding money is properly measured by the rate of interest on financial assets such as bonds.

If V = 5,P = 100,and Q = 10,then M is:

Exhibit 20-5 Money, Investment and product markets -In Exhibit 20-5,a shift in aggregate demand from AD₂ to AD₃:

Which economic theory argues that changes in velocity are predictable and the crowding-out effect is substantial?

Monetarists believe that an increase in the money supply will lead to:

Monetarists argue that the Federal Reserve should allow the money supply to grow:

The velocity of money is the:

The demand for money that households keep for emergency purposes 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?

An increase in the supply of money,other things being equal,will raise the equilibrium interest rate.

According to the quantity theory of money:

The precautionary demand for money:

If the Fed uses its tools to expand the money supply,bond prices will be bid up and interest rates will fall.

Assume a fixed demand for money curve and the Fed increases the money supply.The result is a temporary:

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

Filters