Question 1

Given the strict quantity theory of money,if the quantity of money were decreased by 50 percent,prices would:

Accepted Answer

A)  fall by 50 percent. 
B)  rise by 50 percent. 
C)  increase by 100 percent. 
D)  decrease by 100 percent. 
A)  fall by 50 percent. 
B)  rise by 50 percent. 
C)  increase by 100 percent. 
D)  decrease by 100 percent.

Question 2

The monetarists totally reject the importance of changes in the money stock as determinants of changes in real GDP,the price level,and employment.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements is true?

Accepted Answer

A)  The speculative demand for money at possible interest rates gives the demand for money curve its upward slope. 
B)  There is an inverse relationship between the quantity of money demanded and the interest rate. 
C)  According to the quantity theory of money, any change in the money supply will have no effect on the price level. 
D)  All of the above. 
A)  The speculative demand for money at possible interest rates gives the demand for money curve its upward slope. 
B)  There is an inverse relationship between the quantity of money demanded and the interest rate. 
C)  According to the quantity theory of money, any change in the money supply will have no effect on the price level. 
D)  All of the above.

Question 4

Which of the following statements is true?

Accepted Answer

A)  The speculative demand for money at possible interest rates gives the demand for money curve its upward slope. 
B)  There is an inverse relationship between the quantity of money demanded and the interest rate. 
C)  According to the quantity theory of money, any change in the money supply will have no effect on the price level. 
D)  All of the above are true. 
A)  The speculative demand for money at possible interest rates gives the demand for money curve its upward slope. 
B)  There is an inverse relationship between the quantity of money demanded and the interest rate. 
C)  According to the quantity theory of money, any change in the money supply will have no effect on the price level. 
D)  All of the above are true.

Question 5

A decrease in the money supply:

Accepted Answer

A)  lowers the interest rate, causing a decrease in investment and a decrease in GDP. 
B)  lowers the interest rate, causing a decrease in investment and an increase in GDP. 
C)  raises the interest rate, causing an increase in investment and a decrease in GDP. 
D)  raises the interest rate, causing an increase in investment and an increase in GDP. 
E)  raises the interest rate, causing a decrease in investment and a decrease in GDP. 
A)  lowers the interest rate, causing a decrease in investment and a decrease in GDP. 
B)  lowers the interest rate, causing a decrease in investment and an increase in GDP. 
C)  raises the interest rate, causing an increase in investment and a decrease in GDP. 
D)  raises the interest rate, causing an increase in investment and an increase in GDP. 
E)  raises the interest rate, causing a decrease in investment and a decrease in GDP.

Question 6

Exhibit 20-2 Money market demand and supply curves
  
-Starting from an equilibrium at E₁ in Exhibit 20-2,a rightward shift of the money supply curve from MS₁ to MS₂ would cause an excess:

Accepted Answer

A)  demand for money, leading people to sell bonds. 
B)  supply of money, leading people to buy bonds. 
C)  supply of money, leading people to sell bonds. 
D)  demand for money, leading people to buy bonds. 
A)  demand for money, leading people to sell bonds. 
B)  supply of money, leading people to buy bonds. 
C)  supply of money, leading people to sell bonds. 
D)  demand for money, leading people to buy bonds.

Question 7

According to the quantity theory of money,a 10 percent increase in the money supply leads to a 10 percent increase in:

Accepted Answer

A)  velocity. 
B)  unemployment. 
C)  the price level. 
D)  real GDP. 
A)  velocity. 
B)  unemployment. 
C)  the price level. 
D)  real GDP.

Question 8

If the money supply increases this will cause the interest rate to rise,investment to fall and GDP to fall.

Accepted Answer

A) True 
 B)False

Question 9

If the Fed reduces the discount rate,which of the following are most likely to result?

Accepted Answer

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

Question 10

According to classical economists,

Accepted Answer

A)  prices are rigid. 
B)  both V and Q are variable for an economy in short-run equilibrium. 
C)  changes in M cause changes in V. 
D)  the velocity of money is constant. 
A)  prices are rigid. 
B)  both V and Q are variable for an economy in short-run equilibrium. 
C)  changes in M cause changes in V. 
D)  the velocity of money is constant.

Question 11

If the Federal Reserve increases the money supply,ceteris paribus,the:

Accepted Answer

A)  rate of interest decreases. 
B)  rate of interest increases. 
C)  rate of interest is unaffected. 
D)  Fed sell bonds. 
A)  rate of interest decreases. 
B)  rate of interest increases. 
C)  rate of interest is unaffected. 
D)  Fed sell bonds.

Question 12

Other things being equal,an increase in the rate of interest causes a(n):

Accepted Answer

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

Question 13

Which of the following is true?

Accepted Answer

A)  Keynesians advocate increasing the money supply during economic recessions but decreasing the money supply during economic expansions. 
B)  Monetarists advocate increasing the money supply by a constant rate year after year. 
C)  Keynesians argue that the crowding-out effect is rather insignificant. 
D)  Monetarists argue that the crowding-out effect is rather large. 
E)  All of the above. 
A)  Keynesians advocate increasing the money supply during economic recessions but decreasing the money supply during economic expansions. 
B)  Monetarists advocate increasing the money supply by a constant rate year after year. 
C)  Keynesians argue that the crowding-out effect is rather insignificant. 
D)  Monetarists argue that the crowding-out effect is rather large. 
E)  All of the above.

Question 14

According to Keynesians,for monetary policy to have a stimulative effect on GDP,a(n):

Accepted Answer

A)  increase in the money supply lowers the interest rate in order to stimulate higher levels of investment. 
B)  increase in the money supply lowers the interest rate in order to lower levels of investment. 
C)  decrease in the money supply lowers interest rate in order to stimulate higher levels of investment 
D)  decrease in the money supply causes the interest rate to rise in order to stimulate higher levels of investment. 
E)  increase in the money supply causes the interest rate to rise in order to stimulate higher levels of investment. 
A)  increase in the money supply lowers the interest rate in order to stimulate higher levels of investment. 
B)  increase in the money supply lowers the interest rate in order to lower levels of investment. 
C)  decrease in the money supply lowers interest rate in order to stimulate higher levels of investment 
D)  decrease in the money supply causes the interest rate to rise in order to stimulate higher levels of investment. 
E)  increase in the money supply causes the interest rate to rise in order to stimulate higher levels of investment.

Question 15

The speculative demand for money is the stock of money that people hold to:

Accepted Answer

A)  pay their predictable, everyday expenses. 
B)  pay for any unexpected expenses that may occur. 
C)  buy stocks, bonds, and other financial assets. 
D)  buy the foreign currencies needed to purchase imports. 
A)  pay their predictable, everyday expenses. 
B)  pay for any unexpected expenses that may occur. 
C)  buy stocks, bonds, and other financial assets. 
D)  buy the foreign currencies needed to purchase imports.

Question 16

If the nominal GDP is $500 billion and the money supply is $100 billion,the velocity of money is:

Accepted Answer

A)  500. 
B)  5.00 
C)  2.50. 
D)  0.40. 
A)  500. 
B)  5.00 
C)  2.50. 
D)  0.40.

Question 17

The quantity of money held in response to interest rates is the:

Accepted Answer

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

Question 18

When there is an excess demand for money,individuals and businesses will attempt to purchase bonds.

Accepted Answer

A) True 
 B)False

Question 19

Contrast the Keynesian and Monetarist views on the effectiveness of fiscal policy?

Accepted Answer

Keynesians believe the aggregate supply

Question 20

Most monetarists favor:

Accepted Answer

A)  frequent changes in the growth rate of the money supply to avoid inflation. 
B)  placing the Federal Reserve under the Treasury. 
C)  a steady, gradual shrinkage of the money supply. 
D)  a constant increase in the money supply year after year equal to the potential annual growth rate in real GDP. 
A)  frequent changes in the growth rate of the money supply to avoid inflation. 
B)  placing the Federal Reserve under the Treasury. 
C)  a steady, gradual shrinkage of the money supply. 
D)  a constant increase in the money supply year after year equal to the potential annual growth rate in real GDP.

Exam 20: Monetary Policy

Given the strict quantity theory of money,if the quantity of money were decreased by 50 percent,prices would:

The monetarists totally reject the importance of changes in the money stock as determinants of changes in real GDP,the price level,and employment.

Which of the following statements is true?

Which of the following statements is true?

A decrease in the money supply:

Exhibit 20-2 Money market demand and supply curves -Starting from an equilibrium at E₁ in Exhibit 20-2,a rightward shift of the money supply curve from MS₁ to MS₂ would cause an excess:

According to the quantity theory of money,a 10 percent increase in the money supply leads to a 10 percent increase in:

If the money supply increases this will cause the interest rate to rise,investment to fall and GDP to fall.

If the Fed reduces the discount rate,which of the following are most likely to result?

According to classical economists,

If the Federal Reserve increases the money supply,ceteris paribus,the:

Other things being equal,an increase in the rate of interest causes a(n):

Which of the following is true?

According to Keynesians,for monetary policy to have a stimulative effect on GDP,a(n):

The speculative demand for money is the stock of money that people hold to:

If the nominal GDP is $500 billion and the money supply is $100 billion,the velocity of money is:

The quantity of money held in response to interest rates is the:

When there is an excess demand for money,individuals and businesses will attempt to purchase bonds.

Contrast the Keynesian and Monetarist views on the effectiveness of fiscal policy?

Most monetarists favor:

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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