Question 1

Keynesian economists argue that the velocity of money is unstable and has unpredictable variations.

Accepted Answer

A) True 
 B)False

Question 2

Monetarists argue that fiscal policy is ineffective because:

Accepted Answer

A)  the velocity of money is predictable. 
B)  the crowding-out effect reduces investment. 
C)  prices and wages are sticky in the short run. 
D)  it causes the value of the dollar to depreciate. 
A)  the velocity of money is predictable. 
B)  the crowding-out effect reduces investment. 
C)  prices and wages are sticky in the short run. 
D)  it causes the value of the dollar to depreciate.

Question 3

Monetarists accept the idea that velocity is not constant; nonetheless,they believe that it is still highly:

Accepted Answer

A)  constant. 
B)  unpredictable, ill-behaved, and independent of money supply. 
C)  unpredictable, well-behaved, and dependent of money supply. 
D)  predictable. 
E)  variable. 
A)  constant. 
B)  unpredictable, ill-behaved, and independent of money supply. 
C)  unpredictable, well-behaved, and dependent of money supply. 
D)  predictable. 
E)  variable.

Question 4

According to the Monetarist view,the impact of expansionary monetary policy will be:

Accepted Answer

A)  the same in the long run as in the short run. 
B)  the same regardless of whether the effects of the policy are anticipated or unanticipated. 
C)  a higher price level (inflation). 
D)  a decrease in short-run prices and an increase in long-run prices. 
A)  the same in the long run as in the short run. 
B)  the same regardless of whether the effects of the policy are anticipated or unanticipated. 
C)  a higher price level (inflation). 
D)  a decrease in short-run prices and an increase in long-run prices.

Question 5

Keynes called the money people hold in order to buy bonds,stocks,or other nonmoney financial assets the:

Accepted Answer

A)  transactions demand for holding money. 
B)  precautionary demand for holding money. 
C)  speculative demand for holding money. 
D)  unit of account demand for holding money. 
A)  transactions demand for holding money. 
B)  precautionary demand for holding money. 
C)  speculative demand for holding money. 
D)  unit of account demand for holding money.

Question 6

The assumption that the velocity of money and the quantity being produced is constant is held by the:

Accepted Answer

A)  Keynesian school. 
B)  supply-side school. 
C)  neo-Keynesian school. 
D)  rational expectations school. 
E)  classical school. 
A)  Keynesian school. 
B)  supply-side school. 
C)  neo-Keynesian school. 
D)  rational expectations school. 
E)  classical school.

Question 7

Assume the Fed decreases the money supply and the demand for money curve is fixed.In response,people will:

Accepted Answer

A)  sell bonds, thus driving up the interest rate. 
B)  buy bonds, thus driving down the interest rate. 
C)  buy bonds, thus driving up the interest rate. 
D)  sell bonds, thus driving down the interest rate. 
A)  sell bonds, thus driving up the interest rate. 
B)  buy bonds, thus driving down the interest rate. 
C)  buy bonds, thus driving up the interest rate. 
D)  sell bonds, thus driving down the interest rate.

Question 8

When people hold money to transact purchases they expect to make,this is known as the:

Accepted Answer

A)  precautionary demand for money. 
B)  liquidity demand for money. 
C)  spending demand for money. 
D)  speculative demand for money. 
E)  transactions demand for money. 
A)  precautionary demand for money. 
B)  liquidity demand for money. 
C)  spending demand for money. 
D)  speculative demand for money. 
E)  transactions demand for money.

Question 9

If nominal GDP is $7 trillion,and the money supply is $2 trillion,then what is the velocity of money?

Accepted Answer

A)  14. 
B)  7. 
C)  3.5. 
D)  2. 
A)  14. 
B)  7. 
C)  3.5. 
D)  2.

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

A rightward shift in the money supply curve is likely to produce a rightward shift in the money demand curve.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A)  quantity theory of money. 
B)  velocity of money. 
C)  equation of exchange. 
D)  turnover rate. 
E)  expenditure rate. 
A)  quantity theory of money. 
B)  velocity of money. 
C)  equation of exchange. 
D)  turnover rate. 
E)  expenditure rate.

Question 13

The downward slope of the demand for money curve is created by the:

Accepted Answer

A)  transactions demand for money. 
B)  precautionary demand for money. 
C)  speculative demand for money. 
D)  all of the above. 
A)  transactions demand for money. 
B)  precautionary demand for money. 
C)  speculative demand for money. 
D)  all of the above.

Question 14

Keynesian economists argue that monetary policy works through its effects on:

Accepted Answer

A)  interest rates and investment. 
B)  price- and wage-flexibility. 
C)  budget deficits and trade deficits. 
D)  the spending and money multipliers. 
A)  interest rates and investment. 
B)  price- and wage-flexibility. 
C)  budget deficits and trade deficits. 
D)  the spending and money multipliers.

Question 15

People react to an excess supply of money by:

Accepted Answer

A)  selling bonds, thus driving up the interest rate. 
B)  selling bonds, thus driving down the interest rate. 
C)  buying bonds, thus driving up the interest rate. 
D)  buying bonds, thus driving down the interest rate. 
A)  selling bonds, thus driving up the interest rate. 
B)  selling bonds, thus driving down the interest rate. 
C)  buying bonds, thus driving up the interest rate. 
D)  buying bonds, thus driving down the interest rate.

Question 16

If the Fed wants to raise interest rates,then it can use its open market operations to:

Accepted Answer

A)  increase the money supply. 
B)  decrease the money supply. 
C)  increase money demand. 
D)  decrease money demand. 
A)  increase the money supply. 
B)  decrease the money supply. 
C)  increase money demand. 
D)  decrease money demand.

Question 17

"Monetary instability has been the major cause of economic instability in this country.Expansion in the money supply has been the source of every major inflation.Every major recession has been either caused or perpetuated by monetary contraction." Who among the following would most likely adhere to this view?

Accepted Answer

A)  Monetarists. 
B)  Keynesians. 
C)  Demand-side economists. 
D)  Quantity theorists. 
A)  Monetarists. 
B)  Keynesians. 
C)  Demand-side economists. 
D)  Quantity theorists.

Question 18

The precautionary demand for money is the demand for money:

Accepted Answer

A)  for normal transactions purposes. 
B)  for normal investment purposes. 
C)  for special stock purchases. 
D)  to protect against inflation. 
E)  to cover unexpected events. 
A)  for normal transactions purposes. 
B)  for normal investment purposes. 
C)  for special stock purchases. 
D)  to protect against inflation. 
E)  to cover unexpected events.

Question 19

An increase in the supply of money will:

Accepted Answer

A)  reduce the rate of interest and, thereby, trigger an increase in current spending by households and businesses. 
B)  reduce aggregate demand and real output. 
C)  increase only the general level of prices. 
D)  lead to a higher rate of unemployment. 
A)  reduce the rate of interest and, thereby, trigger an increase in current spending by households and businesses. 
B)  reduce aggregate demand and real output. 
C)  increase only the general level of prices. 
D)  lead to a higher rate of unemployment.

Question 20

If M = 200,P = 100,and Q = 10,then V is:

Accepted Answer

A)  20. 
B)  2. 
C)  10. 
D)  5. 
E)  2,000. 
A)  20. 
B)  2. 
C)  10. 
D)  5. 
E)  2,000.

Exam 20: Monetary Policy

Keynesian economists argue that the velocity of money is unstable and has unpredictable variations.

Monetarists argue that fiscal policy is ineffective because:

Monetarists accept the idea that velocity is not constant; nonetheless,they believe that it is still highly:

According to the Monetarist view,the impact of expansionary monetary policy will be:

Keynes called the money people hold in order to buy bonds,stocks,or other nonmoney financial assets the:

The assumption that the velocity of money and the quantity being produced is constant is held by the:

Assume the Fed decreases the money supply and the demand for money curve is fixed.In response,people will:

When people hold money to transact purchases they expect to make,this is known as the:

If nominal GDP is $7 trillion,and the money supply is $2 trillion,then what is the velocity of money?

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

A rightward shift in the money supply curve is likely to produce a rightward shift in the money demand curve.

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

The downward slope of the demand for money curve is created by the:

Keynesian economists argue that monetary policy works through its effects on:

People react to an excess supply of money by:

If the Fed wants to raise interest rates,then it can use its open market operations to:

The precautionary demand for money is the demand for money:

An increase in the supply of money will:

If M = 200,P = 100,and Q = 10,then V is:

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