Question 1

If the investment curve is relatively flat,the Keynesian conclusion is that the transmission mechanism has little effect on the economy.

Accepted Answer

A) True 
 B)False

Question 2

The transmission mechanism is the effect of changes in monetary policy on prices,real GDP,and employment.

Accepted Answer

A) True 
 B)False

Question 3

The demand curve for money:

Accepted Answer

A)  shows the amount of money balances that individuals and businesses wish to hold at various levels of private investment. 
B)  reflects the open market operations policy of the Federal Reserve. 
C)  shows the amount of money that households and businesses wish to hold at various rates of interest. 
D)  indicates the amount that consumers wish to borrow at a given interest rate. 
A)  shows the amount of money balances that individuals and businesses wish to hold at various levels of private investment. 
B)  reflects the open market operations policy of the Federal Reserve. 
C)  shows the amount of money that households and businesses wish to hold at various rates of interest. 
D)  indicates the amount that consumers wish to borrow at a given interest rate.

Question 4

Other things being equal,the quantity of money that people wish to hold in currency and their checking accounts can be expected to:

Accepted Answer

A)  increase as the interest rate increases. 
B)  decrease as the interest rate increases. 
C)  decrease as real GDP increases. 
D)  none of the above. 
A)  increase as the interest rate increases. 
B)  decrease as the interest rate increases. 
C)  decrease as real GDP increases. 
D)  none of the above.

Question 5

Using the aggregate supply and demand model,assume the economy is operating along the intermediate portion of the aggregate supply curve.An increase in the money supply will increase the price level and:

Accepted Answer

A)  lower both the interest rate and real GDP. 
B)  raise both the interest rate and real GDP. 
C)  lower the interest rate and raise GDP. 
D)  raise the interest rate and lower real GDP. 
A)  lower both the interest rate and real GDP. 
B)  raise both the interest rate and real GDP. 
C)  lower the interest rate and raise GDP. 
D)  raise the interest rate and lower real GDP.

Question 6

If the investment curve is relatively vertical,the Keynesian conclusion is that the transmission mechanism has little effect on the economy.

Accepted Answer

A) True 
 B)False

Question 7

The V in the equation of exchange represents the:

Accepted Answer

A)  variation in the GDP. 
B)  variation in the CPI. 
C)  variation in real GDP. 
D)  average number of times per year a dollar is spent on final goods and services. 
A)  variation in the GDP. 
B)  variation in the CPI. 
C)  variation in real GDP. 
D)  average number of times per year a dollar is spent on final goods and services.

Question 8

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

Accepted Answer

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

Question 9

The speculative demand curve for money is:

Accepted Answer

A)  downward sloping. 
B)  upward sloping. 
C)  vertical. 
D)  horizontal. 
E)  spiral. 
A)  downward sloping. 
B)  upward sloping. 
C)  vertical. 
D)  horizontal. 
E)  spiral.

Question 10

Assume the demand for money curve is stationary and the Fed increases the money supply.The result is that people:

Accepted Answer

A)  increase the supply of bonds, thus driving up the interest rate. 
B)  increase the supply of bonds, thus driving down the interest rate. 
C)  increase the demand for bonds, thus driving up the interest rate. 
D)  increase the demand for bonds, thus driving down the interest rate. 
A)  increase the supply of bonds, thus driving up the interest rate. 
B)  increase the supply of bonds, thus driving down the interest rate. 
C)  increase the demand for bonds, thus driving up the interest rate. 
D)  increase the demand for bonds, thus driving down the interest rate.

Question 11

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 AD₁ to AD₂?

Accepted Answer

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

Question 12

The stock of money people hold to pay everyday predictable expenses is 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 13

Suppose nominal GDP equaled $10,988 billion while the M2 money supply was $6,063 billion.What was the velocity of the M2 money stock?

Accepted Answer

A)  0.45 
B)  0.55 
C)  1.81 
D)  2.36 
A)  0.45 
B)  0.55 
C)  1.81 
D)  2.36

Question 14

If the economy is inflationary,the Fed would most likely:

Accepted Answer

A)  encourage banks to provide loans by buying government securities. 
B)  encourage banks to provide loans by raising the discount rate. 
C)  encourage banks to provide loans by selling government securities. 
D)  restrict bank lending by selling government securities. 
E)  restrict bank lending by lowering the federal funds rate. 
A)  encourage banks to provide loans by buying government securities. 
B)  encourage banks to provide loans by raising the discount rate. 
C)  encourage banks to provide loans by selling government securities. 
D)  restrict bank lending by selling government securities. 
E)  restrict bank lending by lowering the federal funds rate.

Question 15

The equation of exchange states that:

Accepted Answer

A)  money supply multiplied by real output equals velocity. 
B)  velocity multiplied by money supply equals the selling price times the quantity of actual output. 
C)  money supply divided by velocity equals nominal GDP. 
D)  money supply divided by velocity equals real GDP. 
A)  money supply multiplied by real output equals velocity. 
B)  velocity multiplied by money supply equals the selling price times the quantity of actual output. 
C)  money supply divided by velocity equals nominal GDP. 
D)  money supply divided by velocity equals real GDP.

Question 16

The quantity theory of money assumes that the velocity of money:

Accepted Answer

A)  is constant. 
B)  will rise if the money supply rises and fall if the money supply falls. 
C)  will rise if the money supply rises, but it will not change if the money supply falls. 
D)  will fall if the money supply rises, and it will rise if the money supply falls. 
E)  will fall if the money supply rises, but it will not change if the money supply falls. 
A)  is constant. 
B)  will rise if the money supply rises and fall if the money supply falls. 
C)  will rise if the money supply rises, but it will not change if the money supply falls. 
D)  will fall if the money supply rises, and it will rise if the money supply falls. 
E)  will fall if the money supply rises, but it will not change if the money supply falls.

Question 17

A graph illustrating the relationship between the quantity of money demanded and the interest rate would have a slope that is:

Accepted Answer

A)  positive. 
B)  negative. 
C)  horizontal. 
D)  vertical. 
A)  positive. 
B)  negative. 
C)  horizontal. 
D)  vertical.

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

If the Fed expands the money supply by $1 trillion,what will happen in the money market?

Accepted Answer

A)  The equilibrium interest rate will rise, and less money will be exchanged in equilibrium. 
B)  The equilibrium interest rate will fall, and more money will exchanged in equilibrium. 
C)  The equilibrium interest rate will not change. 
D)  None of the above. 
A)  The equilibrium interest rate will rise, and less money will be exchanged in equilibrium. 
B)  The equilibrium interest rate will fall, and more money will exchanged in equilibrium. 
C)  The equilibrium interest rate will not change. 
D)  None of the above.

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 20: Monetary Policy

If the investment curve is relatively flat,the Keynesian conclusion is that the transmission mechanism has little effect on the economy.

The transmission mechanism is the effect of changes in monetary policy on prices,real GDP,and employment.

The demand curve for money:

Other things being equal,the quantity of money that people wish to hold in currency and their checking accounts can be expected to:

Using the aggregate supply and demand model,assume the economy is operating along the intermediate portion of the aggregate supply curve.An increase in the money supply will increase the price level and:

If the investment curve is relatively vertical,the Keynesian conclusion is that the transmission mechanism has little effect on the economy.

The V in the equation of exchange represents the:

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

The speculative demand curve for money is:

Assume the demand for money curve is stationary and the Fed increases the money supply.The result is that people:

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 AD₁ to AD₂?

The stock of money people hold to pay everyday predictable expenses is the:

Suppose nominal GDP equaled $10,988 billion while the M2 money supply was $6,063 billion.What was the velocity of the M2 money stock?

If the economy is inflationary,the Fed would most likely:

The equation of exchange states that:

The quantity theory of money assumes that the velocity of money:

A graph illustrating the relationship between the quantity of money demanded and the interest rate would have a slope that is:

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

If the Fed expands the money supply by $1 trillion,what will happen in the money market?

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

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