Question 1

When a household takes extra (unbudgeted)money on a trip,economists would classify this money as held for a(n):

Accepted Answer

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

Question 2

Classical economists traditionally believed that:

Accepted Answer

A)  there are three motives for demanding money. 
B)  a change in the money supply can affect real GDP. 
C)  the transactions demand for money influences the velocity of money. 
D)  the velocity of money is constant. 
E)  the economy does not always operate at full employment. 
A)  there are three motives for demanding money. 
B)  a change in the money supply can affect real GDP. 
C)  the transactions demand for money influences the velocity of money. 
D)  the velocity of money is constant. 
E)  the economy does not always operate at full employment.

Question 3

Since classical economists believe that both V and Q are constants for an economy in short-run equilibrium,the equation of exchange becomes a theory in which:

Accepted Answer

A)  the quantity of money explains prices. 
B)  the quantity of money explains velocity. 
C)  the quantity of money explains real GDP. 
D)  changes in M cause changes in V. 
E)  prices are never flexible 
A)  the quantity of money explains prices. 
B)  the quantity of money explains velocity. 
C)  the quantity of money explains real GDP. 
D)  changes in M cause changes in V. 
E)  prices are never flexible

Question 4

The impact of an increase in the money supply is a(n):

Accepted Answer

A)  increase in the interest rate, which in turn stimulates investment and GDP. 
B)  decrease in the interest rate, which in turn stimulates investment and GDP. 
C)  a reduction in the general level of prices, which will increase the disposable income of households. 
D)  improvement in technology, which will stimulate both output and employment. 
A)  increase in the interest rate, which in turn stimulates investment and GDP. 
B)  decrease in the interest rate, which in turn stimulates investment and GDP. 
C)  a reduction in the general level of prices, which will increase the disposable income of households. 
D)  improvement in technology, which will stimulate both output and employment.

Question 5

The money that households might hold either as money or in interest-bearing assets,depending on the interest rate,is called the:

Accepted Answer

A)  precautionary demand. 
B)  transactions demand. 
C)  speculative demand. 
D)  liquidity motive. 
E)  investment motive. 
A)  precautionary demand. 
B)  transactions demand. 
C)  speculative demand. 
D)  liquidity motive. 
E)  investment motive.

Question 6

Which of the following correctly gives us the equation of exchange?

Accepted Answer

A)  TR = PQ. 
B)  MV = VM. 
C)  MV = PQ. 
D)  TR = VM. 
A)  TR = PQ. 
B)  MV = VM. 
C)  MV = PQ. 
D)  TR = VM.

Question 7

Monetarists believe that:

Accepted Answer

A)  velocity is constant. 
B)  velocity is highly predictable. 
C)  there are three motives for demanding money. 
D)  changes in the money supply cause changes in velocity. 
E)  a change in the money supply can affect real GDP. 
A)  velocity is constant. 
B)  velocity is highly predictable. 
C)  there are three motives for demanding money. 
D)  changes in the money supply cause changes in velocity. 
E)  a change in the money supply can affect real GDP.

Question 8

Exhibit 20-5 Money, Investment and product markets
  
-In Exhibit 20-5,when the money supply increases from MS₁ to MS₂,the equilibrium interest rate:

Accepted Answer

A)  remains unchanged. 
B)  increases from i₂ to i₁, increasing investment spending from i₁ to i₂. 
C)  increases from i₂ to i₁, decreasing investment spending from i₂ to i₁. 
D)  decreases from i₁ to i₂, increasing investment spending from i₁ to i₂. 
E)  decreases from i₁ to i₂, decreasing investment spending from i₂ to i₁. 
A)  remains unchanged. 
B)  increases from i₂ to i₁, increasing investment spending from i₁ to i₂. 
C)  increases from i₂ to i₁, decreasing investment spending from i₂ to i₁. 
D)  decreases from i₁ to i₂, increasing investment spending from i₁ to i₂. 
E)  decreases from i₁ to i₂, decreasing investment spending from i₂ to i₁.

Question 9

Suppose that the Fed makes a $100 billion open-market sale of Treasury bonds,and the money multiplier is 6.Which of the following impacts are most likely to result?

Accepted Answer

A) The money supply shifts inward,and the equilibrium interest rate rises in the money market. 
B) The money supply shifts outward,and the equilibrium interest rate falls in the money market. 
C) Investment declines,causing the aggregate demand curve to shift leftward,reducing equilibrium real GDP and thus slowing the economy. 
D) Both a.and c.are correct. 
E) Both b.and c.above are correct. 
A) The money supply shifts inward,and the equilibrium interest rate rises in the money market. 
B) The money supply shifts outward,and the equilibrium interest rate falls in the money market. 
C) Investment declines,causing the aggregate demand curve to shift leftward,reducing equilibrium real GDP and thus slowing the economy. 
D) Both a.and c.are correct. 
E) Both b.and c.above are correct.

Question 10

If the velocity of the M1 money supply is 4 and nominal GDP is $200 billion,the stock of money in circulation must be:

Accepted Answer

A)  $25 billion. 
B)  $50 billion. 
C)  $100 billion. 
D)  $800 billion. 
A)  $25 billion. 
B)  $50 billion. 
C)  $100 billion. 
D)  $800 billion.

Question 11

Adam Smith listed three types of motives for people holding money--transaction,precautionary,and speculative.

Accepted Answer

A) True 
 B)False

Question 12

The stock of money people hold to take advantage of expected future changes in the price of bonds,stocks,or other nonmoney financial assets is the:

Accepted Answer

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

Question 13

Classical economists believe that:

Accepted Answer

A)  velocity is not constant. 
B)  changes in the money supply affect real GDP. 
C)  the quantity of money explains prices.. 
D)  the money supply affects velocity. 
A)  velocity is not constant. 
B)  changes in the money supply affect real GDP. 
C)  the quantity of money explains prices.. 
D)  the money supply affects velocity.

Question 14

The opportunity cost of holding money balances increases when:

Accepted Answer

A)  the inflation rate decreases. 
B)  the interest rate increases. 
C)  the interest rate decreases. 
D)  GDP is far from full employment. 
A)  the inflation rate decreases. 
B)  the interest rate increases. 
C)  the interest rate decreases. 
D)  GDP is far from full employment.

Question 15

According to Keynesian theory,changes in the money supply have a direct and immediate impact on aggregate demand.

Accepted Answer

A) True 
 B)False

Question 16

According to Keynesians,an increase in the money supply will have its greatest impact on GDP when the aggregate demand curve intersects:

Accepted Answer

A)  the vertical portion of the aggregate supply curve. 
B)  the upward sloping portion of the aggregate supply curve. 
C)  the horizontal portion of the aggregate supply curve. 
D)  either the upward sloping or the vertical portions of the aggregate supply curve. 
E)  either the horizontal or vertical portions of the aggregate supply curve. 
A)  the vertical portion of the aggregate supply curve. 
B)  the upward sloping portion of the aggregate supply curve. 
C)  the horizontal portion of the aggregate supply curve. 
D)  either the upward sloping or the vertical portions of the aggregate supply curve. 
E)  either the horizontal or vertical portions of the aggregate supply curve.

Question 17

According to Keynesians,an increase in the money supply will have its least impact on GDP when the aggregate demand curve intersects:

Accepted Answer

A)  the horizontal portion of the aggregate supply curve. 
B)  the vertical portion of the aggregate supply curve 
C)  the upward sloping portion of the aggregate supply curve.. 
D)  either the horizontal or upward sloping portion of the aggregate supply curve., 
E)  either the horizontal or upward sloping portion of the aggregate supply curve. 
A)  the horizontal portion of the aggregate supply curve. 
B)  the vertical portion of the aggregate supply curve 
C)  the upward sloping portion of the aggregate supply curve.. 
D)  either the horizontal or upward sloping portion of the aggregate supply curve., 
E)  either the horizontal or upward sloping portion of the aggregate supply curve.

Question 18

Which of the following is a reason for the Keynesian view that monetary policy plays a minor role in affecting the economy?

Accepted Answer

A)  The money demand curve is vertical. 
B)  The investment curve is very steep. 
C)  The money demand curve is horizontal at any interest rate. 
D)  The monetary rule. 
A)  The money demand curve is vertical. 
B)  The investment curve is very steep. 
C)  The money demand curve is horizontal at any interest rate. 
D)  The monetary rule.

Question 19

If M stand for the money supply,V for the velocity of money,P for the average selling price,and Q for the output of goods and services,the equation of exchange is MV = PQ.

Accepted Answer

A) True 
 B)False

Question 20

A decrease in the interest rate,other things being equal,causes a(n):

Accepted Answer

A)  upward movement along the demand curve for money. 
B)  downward movement along the demand curve for money. 
C)  rightward shift of the demand curve for money. 
D)  leftward shift of the demand curve for money. 
A)  upward movement along the demand curve for money. 
B)  downward movement along the demand curve for money. 
C)  rightward shift of the demand curve for money. 
D)  leftward shift of the demand curve for money.

Exam 20: Monetary Policy

When a household takes extra (unbudgeted)money on a trip,economists would classify this money as held for a(n):

Classical economists traditionally believed that:

Since classical economists believe that both V and Q are constants for an economy in short-run equilibrium,the equation of exchange becomes a theory in which:

The impact of an increase in the money supply is a(n):

The money that households might hold either as money or in interest-bearing assets,depending on the interest rate,is called the:

Which of the following correctly gives us the equation of exchange?

Monetarists believe that:

Exhibit 20-5 Money, Investment and product markets -In Exhibit 20-5,when the money supply increases from MS₁ to MS₂,the equilibrium interest rate:

Suppose that the Fed makes a $100 billion open-market sale of Treasury bonds,and the money multiplier is 6.Which of the following impacts are most likely to result?

If the velocity of the M1 money supply is 4 and nominal GDP is $200 billion,the stock of money in circulation must be:

Adam Smith listed three types of motives for people holding money--transaction,precautionary,and speculative.

The stock of money people hold to take advantage of expected future changes in the price of bonds,stocks,or other nonmoney financial assets is the:

Classical economists believe that:

The opportunity cost of holding money balances increases when:

According to Keynesian theory,changes in the money supply have a direct and immediate impact on aggregate demand.

According to Keynesians,an increase in the money supply will have its greatest impact on GDP when the aggregate demand curve intersects:

According to Keynesians,an increase in the money supply will have its least impact on GDP when the aggregate demand curve intersects:

Which of the following is a reason for the Keynesian view that monetary policy plays a minor role in affecting the economy?

If M stand for the money supply,V for the velocity of money,P for the average selling price,and Q for the output of goods and services,the equation of exchange is MV = PQ.

A decrease in the interest rate,other things being equal,causes a(n):

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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