Question 1

Which of the following is a variable in the equation of exchange?

Accepted Answer

A)  the price level. 
B)  the money supply. 
C)  the velocity of money. 
D)  real GDP. 
E)  all of the above. 
A)  the price level. 
B)  the money supply. 
C)  the velocity of money. 
D)  real GDP. 
E)  all of the above. E

Question 2

The transactions demand for money will increase when

Accepted Answer

A)  the rate of interest increases. 
B)  the price level falls. 
C)  nominal Gross Domestic Product (GDP) increases. 
D)  nominal Gross Domestic Product (GDP) decreases. 
A)  the rate of interest increases. 
B)  the price level falls. 
C)  nominal Gross Domestic Product (GDP) increases. 
D)  nominal Gross Domestic Product (GDP) decreases. C

Question 3

The identity stating that the total amount spent on final output equals the amount received for final output is known as the

Accepted Answer

A)  fundamental law of economics. 
B)  circular flow identity. 
C)  equation of exchange. 
D)  identity equation. 
A)  fundamental law of economics. 
B)  circular flow identity. 
C)  equation of exchange. 
D)  identity equation. C

Question 4

When the Fed purchases federal government bonds in the open market,

Accepted Answer

A)  there is no change in the money supply. 
B)  the money supply expands. 
C)  the money supply contracts. 
D)  the demand for money expands. 
A)  there is no change in the money supply. 
B)  the money supply expands. 
C)  the money supply contracts. 
D)  the demand for money expands.

Question 5

If V is constant and Y is fixed, any change in M

Accepted Answer

A)  leads to a smaller change in P. 
B)  leads to a larger change in P. 
C)  leads to a proportionate change in P. 
D)  does not lead to change in P. 
A)  leads to a smaller change in P. 
B)  leads to a larger change in P. 
C)  leads to a proportionate change in P. 
D)  does not lead to change in P.

Question 6

Suppose the economy has a recessionary gap. By using an expansionary monetary policy, the Fed can

Accepted Answer

A)  raise real GDP without increasing the price level. 
B)  raise real GDP and the price level. 
C)  raise real GDP and decrease the price level. 
D)  raise the price level alone, but cannot increase real GDP. 
A)  raise real GDP without increasing the price level. 
B)  raise real GDP and the price level. 
C)  raise real GDP and decrease the price level. 
D)  raise the price level alone, but cannot increase real GDP.

Question 7

A bond that pays a yearly interest rate of $100 is for sale. The interest rate was 10 percent and now is 5 percent. The price of the bond was

Accepted Answer

A)  $1000 and now is $500. 
B)  $1000 and now is $2000. 
C)  $500 and now is $2000. 
D)  $2000 and now is $1000. 
A)  $1000 and now is $500. 
B)  $1000 and now is $2000. 
C)  $500 and now is $2000. 
D)  $2000 and now is $1000.

Question 8

Assume (other things constant) that the Fed increases the money supply. The mechanism through which aggregate demand increases is, according to interest-rate-based transmission mechanism, summarized as follows:

Accepted Answer

A)  the money supply increases → there is a drop in money balances held → interest rates increase → planned investment spending decreases → aggregate demand increases. 
B)  increase in money supply → increase in money balances held → decrease in interest rates → decrease in planned investment spending → increase in aggregate demand. 
C)  increase in money supply → decrease in money balances held → decrease in interest rates → increase in planned investment spending → increase in aggregate demand. 
D)  increase in money supply → decrease in interest rates → increase in planned investment spending → increase in aggregate demand. 
A)  the money supply increases → there is a drop in money balances held → interest rates increase → planned investment spending decreases → aggregate demand increases. 
B)  increase in money supply → increase in money balances held → decrease in interest rates → decrease in planned investment spending → increase in aggregate demand. 
C)  increase in money supply → decrease in money balances held → decrease in interest rates → increase in planned investment spending → increase in aggregate demand. 
D)  increase in money supply → decrease in interest rates → increase in planned investment spending → increase in aggregate demand.

Question 9

The Federal Reserve conducted the policy of quantitative easing primarily when

Accepted Answer

A)  the interest rate was close to zero. 
B)  the interest rate was relatively high. 
C)  the interest rate was too erratic to be controlled. 
D)  the interest rate was very sensitive to the change in the money supply. 
A)  the interest rate was close to zero. 
B)  the interest rate was relatively high. 
C)  the interest rate was too erratic to be controlled. 
D)  the interest rate was very sensitive to the change in the money supply.

Question 10

What is a primary determinant of the asset demand for money? I. the interest rate
II) the opportunity cost of holding money
III) the supply of money

Accepted Answer

A)  I only 
B)  III only 
C)  both I and II 
D)  both II and III 
A)  I only 
B)  III only 
C)  both I and II 
D)  both II and III

Question 11

The interest-rate-based monetary policy transmission mechanism suggests that the changes in the money supply affect aggregate spending

Accepted Answer

A)  indirectly through interest rates and planned investment spending. 
B)  directly through interest rates and planned consumption spending. 
C)  indirectly through tax rates and planned consumption spending. 
D)  directly through interest rates and planned government spending. 
A)  indirectly through interest rates and planned investment spending. 
B)  directly through interest rates and planned consumption spending. 
C)  indirectly through tax rates and planned consumption spending. 
D)  directly through interest rates and planned government spending.

Question 12

Asset demand for money is related to money functioning as a

Accepted Answer

A)  unit of accounting. 
B)  medium of exchange. 
C)  store of value. 
D)  medium of deferred payment. 
A)  unit of accounting. 
B)  medium of exchange. 
C)  store of value. 
D)  medium of deferred payment.

Question 13

If the Fed decides to buy bonds, the result will be

Accepted Answer

A)  lower bond prices and lower interest rates. 
B)  lower bond prices and higher interest rates. 
C)  higher bond prices and lower interest rates. 
D)  higher bond prices and higher interest rates. 
A)  lower bond prices and lower interest rates. 
B)  lower bond prices and higher interest rates. 
C)  higher bond prices and lower interest rates. 
D)  higher bond prices and higher interest rates.

Question 14

Quantitative easing refers to a policy action in which a central bank

Accepted Answer

A)  sells government securities to directly decrease bank reserves. 
B)  buys government securities to directly increase bank reserves. 
C)  increases interest rates directly without altering bank reserves. 
D)  decreases interest rates directly without altering bank reserves. 
A)  sells government securities to directly decrease bank reserves. 
B)  buys government securities to directly increase bank reserves. 
C)  increases interest rates directly without altering bank reserves. 
D)  decreases interest rates directly without altering bank reserves.

Question 15

-Using a graph above, show the short-run and long-run effects of an expansionary monetary policy.

Accepted Answer

In the above figure, @#IMG-DLM& is the original eq

Question 16

Suppose the actual equilibrium federal funds rate is below the rate implied by a particular inflation goal. In this situation, the Taylor rule implies that

Accepted Answer

A)  fiscal policy is contractionary. 
B)  fiscal policy is expansionary. 
C)  monetary policy is expansionary. 
D)  monetary policy is contractionary. 
A)  fiscal policy is contractionary. 
B)  fiscal policy is expansionary. 
C)  monetary policy is expansionary. 
D)  monetary policy is contractionary.

Question 17

The tools of monetary policy are

Accepted Answer

A)  open market operations, differential between the discount rate and the federal funds rate, and tax rates. 
B)  open market operations, government spending, and the required reserve ratio. 
C)  open market operations, differential between the discount rate and the federal funds rate, and the required reserve ratio. 
D)  government spending, tax rates, and the required reserve ratio. 
A)  open market operations, differential between the discount rate and the federal funds rate, and tax rates. 
B)  open market operations, government spending, and the required reserve ratio. 
C)  open market operations, differential between the discount rate and the federal funds rate, and the required reserve ratio. 
D)  government spending, tax rates, and the required reserve ratio.

Question 18

When the rate of interest in the economy increases,

Accepted Answer

A)  the market price of existing bonds will fall. 
B)  the transaction demand for money will increase. 
C)  real Gross Domestic Product (GDP) will increase. 
D)  the asset demand for money will increase. 
A)  the market price of existing bonds will fall. 
B)  the transaction demand for money will increase. 
C)  real Gross Domestic Product (GDP) will increase. 
D)  the asset demand for money will increase.

Question 19

Expansionary monetary policy during periods of underutilized resources can cause

Accepted Answer

A)  real Gross Domestic Product (GDP) to increase without an increase in the price level. 
B)  real Gross Domestic Product (GDP) to increase with a decrease in the price level. 
C)  real Gross Domestic Product (GDP) to increase with an increase in the price level. 
D)  nominal Gross Domestic Product (GDP) to increase but cannot affect real Gross Domestic Product (GDP). 
A)  real Gross Domestic Product (GDP) to increase without an increase in the price level. 
B)  real Gross Domestic Product (GDP) to increase with a decrease in the price level. 
C)  real Gross Domestic Product (GDP) to increase with an increase in the price level. 
D)  nominal Gross Domestic Product (GDP) to increase but cannot affect real Gross Domestic Product (GDP).

Question 20

People demand money for all of the following reasons EXCEPT

Accepted Answer

A)  it is a medium of exchange to make payments. 
B)  it generates a rate of return. 
C)  it can meet unplanned expenditures. 
D)  it is a store of value. 
A)  it is a medium of exchange to make payments. 
B)  it generates a rate of return. 
C)  it can meet unplanned expenditures. 
D)  it is a store of value.

Exam 16: Domestic and International Dimensions of Monetary Policy

Which of the following is a variable in the equation of exchange?

The transactions demand for money will increase when

The identity stating that the total amount spent on final output equals the amount received for final output is known as the

When the Fed purchases federal government bonds in the open market,

If V is constant and Y is fixed, any change in M

Suppose the economy has a recessionary gap. By using an expansionary monetary policy, the Fed can

A bond that pays a yearly interest rate of $100 is for sale. The interest rate was 10 percent and now is 5 percent. The price of the bond was

Assume (other things constant) that the Fed increases the money supply. The mechanism through which aggregate demand increases is, according to interest-rate-based transmission mechanism, summarized as follows:

The Federal Reserve conducted the policy of quantitative easing primarily when

What is a primary determinant of the asset demand for money? I. the interest rate II) the opportunity cost of holding money III) the supply of money

The interest-rate-based monetary policy transmission mechanism suggests that the changes in the money supply affect aggregate spending

Asset demand for money is related to money functioning as a

If the Fed decides to buy bonds, the result will be

Quantitative easing refers to a policy action in which a central bank

-Using a graph above, show the short-run and long-run effects of an expansionary monetary policy.

Suppose the actual equilibrium federal funds rate is below the rate implied by a particular inflation goal. In this situation, the Taylor rule implies that

The tools of monetary policy are

When the rate of interest in the economy increases,

Expansionary monetary policy during periods of underutilized resources can cause

People demand money for all of the following reasons EXCEPT

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money, Banking, and Central Banking

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Demand and Supply Elasticity

Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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