Question 1

The interest rate is the opportunity cost

Accepted Answer

A)  of investing in stocks. 
B)  of investing in Treasury securities. 
C)  of using credit cards. 
D)  of holding money. 
A)  of investing in stocks. 
B)  of investing in Treasury securities. 
C)  of using credit cards. 
D)  of holding money.

Question 2

Which of the following institutions within the Federal Reserve System determines how many government securities the Fed should buy or sell on a given day?

Accepted Answer

A)  the Board of Governors. 
B)  Federal Advisory Committee. 
C)  the Federal Reserve Bank of Chicago's Board of Trade. 
D)  the Federal Reserve Bank of New York's Trading Desk. 
A)  the Board of Governors. 
B)  Federal Advisory Committee. 
C)  the Federal Reserve Bank of Chicago's Board of Trade. 
D)  the Federal Reserve Bank of New York's Trading Desk.

Question 3

A open market purchase of government securities by the Fed will cause which of the following?

Accepted Answer

A)  a reduction in the federal funds rate 
B)  an increase in the amount of excess reserves that banks will wish to hold 
C)  an increase in the equilibrium quantity of reserves 
D)  all of the above 
A)  a reduction in the federal funds rate 
B)  an increase in the amount of excess reserves that banks will wish to hold 
C)  an increase in the equilibrium quantity of reserves 
D)  all of the above

Question 4

-Refer to the above figure. Which panels could represent the situation if the Fed had engaged in open market operations?

Accepted Answer

A)  Panels A and B 
B)  Panels A and C 
C)  Panels B and C 
D)  Panels C and D 
A)  Panels A and B 
B)  Panels A and C 
C)  Panels B and C 
D)  Panels C and D

Question 5

The monetary transmission mechanism that assumes that money supply growth stimulates the economy primarily by encouraging investment is

Accepted Answer

A)  the interest-rate-based transmission mechanism. 
B)  the classical transmission mechanism. 
C)  the post-Keynesian transmission mechanism. 
D)  pre-Keynesian transmission mechanism. 
A)  the interest-rate-based transmission mechanism. 
B)  the classical transmission mechanism. 
C)  the post-Keynesian transmission mechanism. 
D)  pre-Keynesian transmission mechanism.

Question 6

What effect does a contractionary monetary policy in the U.S. have on the foreign trade sector?

Accepted Answer

A)  The lower value of the dollar will decrease exports and increase imports. 
B)  The lower value of the dollar will decrease imports and increase exports. 
C)  The higher value of the dollar will decrease exports and increase imports. 
D)  The higher value of the dollar will decrease imports and increase exports. 
A)  The lower value of the dollar will decrease exports and increase imports. 
B)  The lower value of the dollar will decrease imports and increase exports. 
C)  The higher value of the dollar will decrease exports and increase imports. 
D)  The higher value of the dollar will decrease imports and increase exports.

Question 7

If the Fed's credit policies induces banks to hold substantial excess reserves at the Fed, then

Accepted Answer

A)  financial markets will become more illiquid. 
B)  the money multiplier will fall. 
C)  the money supply will rise. 
D)  the scope of asymmetric-information problem for banks will improve. 
A)  financial markets will become more illiquid. 
B)  the money multiplier will fall. 
C)  the money supply will rise. 
D)  the scope of asymmetric-information problem for banks will improve.

Question 8

An expansionary monetary policy results in lower interest rates, which in turn

Accepted Answer

A)  increases foreign demand for U.S. financial instruments, raising the international price of the dollar and reducing net exports. 
B)  increases the foreign demand for U.S. financial instruments, lowering the international price of the dollar and decreasing net exports. 
C)  reduces the international price of the dollar and increases net exports. 
D)  reduces the foreign demand for U.S. financial instruments and reduce net exports. 
A)  increases foreign demand for U.S. financial instruments, raising the international price of the dollar and reducing net exports. 
B)  increases the foreign demand for U.S. financial instruments, lowering the international price of the dollar and decreasing net exports. 
C)  reduces the international price of the dollar and increases net exports. 
D)  reduces the foreign demand for U.S. financial instruments and reduce net exports.

Question 9

If nominal GDP is $5 trillion and velocity is 20, then

Accepted Answer

A)  actual money balances held by the nonbanking public are $250 billion. 
B)  actual money balances held by the nonbanking public are $100 trillion. 
C)  real GDP equals $100 trillion. 
D)  real GDP equals $400 trillion. 
A)  actual money balances held by the nonbanking public are $250 billion. 
B)  actual money balances held by the nonbanking public are $100 trillion. 
C)  real GDP equals $100 trillion. 
D)  real GDP equals $400 trillion.

Question 10

Suppose the economy currently has some underutilized resources. The Fed engages in expansionary monetary policy. The impact of expansionary monetary policy will be to

Accepted Answer

A)  increase aggregate demand, increase prices and increase real GDP. 
B)  increase aggregate demand, increase prices and decrease real GDP. 
C)  increase short-run aggregate supply, decrease in prices and decrease in real GDP. 
D)  increase short-run aggregate supply, decrease prices and increase real GDP. 
A)  increase aggregate demand, increase prices and increase real GDP. 
B)  increase aggregate demand, increase prices and decrease real GDP. 
C)  increase short-run aggregate supply, decrease in prices and decrease in real GDP. 
D)  increase short-run aggregate supply, decrease prices and increase real GDP.

Question 11

-In the above figure, if we begin at   and the Fed buys bonds,

Accepted Answer

A)  the price of bonds falls, and the interest rate rises. 
B)  the price of bonds falls, and so does the interest rate. 
C)  the price of bonds rises, and so does the interest rate. 
D)  the price of bonds rises, and the interest rate falls. 
A)  the price of bonds falls, and the interest rate rises. 
B)  the price of bonds falls, and so does the interest rate. 
C)  the price of bonds rises, and so does the interest rate. 
D)  the price of bonds rises, and the interest rate falls.

Question 12

-In the above figure, suppose the economy is at a short-run equilibrium at point B and the interest rate is r2. Which of the following policy options for the Fed will help solve the short-run situation?

Accepted Answer

A)  Lowering the differential between the discount rate and the federal funds rate 
B)  Open market purchase of government securities 
C)  Lowering the required reserve ratio 
D)  Open market sale of government securities 
A)  Lowering the differential between the discount rate and the federal funds rate 
B)  Open market purchase of government securities 
C)  Lowering the required reserve ratio 
D)  Open market sale of government securities

Question 13

A bond is selling for $1000 and it pays $150 in interest a year. If the interest rate changes to 20 percent, then

Accepted Answer

A)  the interest payment rises to $200. 
B)  the interest payment falls to $75. 
C)  the price of the bond falls to $750. 
D)  the price of the bond rises to $1500. 
A)  the interest payment rises to $200. 
B)  the interest payment falls to $75. 
C)  the price of the bond falls to $750. 
D)  the price of the bond rises to $1500.

Question 14

The purchase of government bonds by the Fed leads to a(n)

Accepted Answer

A)  increase in the supply of bonds and a decrease in bond prices. 
B)  decrease in the supply of bonds and an increase in bond prices. 
C)  increase in the demand of bonds and a decrease in the price of bonds. 
D)  decrease in the demand of bonds and an increase in the price of bonds. 
A)  increase in the supply of bonds and a decrease in bond prices. 
B)  decrease in the supply of bonds and an increase in bond prices. 
C)  increase in the demand of bonds and a decrease in the price of bonds. 
D)  decrease in the demand of bonds and an increase in the price of bonds.

Question 15

Holding money as a medium of exchange to purchase goods and services and make payments is known as the

Accepted Answer

A)  spending demand for money. 
B)  transactions demand for money. 
C)  precautionary demand for money. 
D)  asset demand for money. 
A)  spending demand for money. 
B)  transactions demand for money. 
C)  precautionary demand for money. 
D)  asset demand for money.

Question 16

What is meant by the demand for money?

Accepted Answer

Money is used to buy goods and services.

Question 17

The incentive of holding excess reserves is equal to

Accepted Answer

A)  the discount rate. 
B)  the federal funds rate. 
C)  the interest rate earned on excess reserves. 
D)  none of the above. 
A)  the discount rate. 
B)  the federal funds rate. 
C)  the interest rate earned on excess reserves. 
D)  none of the above.

Question 18

According to the quantity theory of money, increases in the money supply lead to

Accepted Answer

A)  decreases in nominal Gross Domestic Product (GDP). 
B)  increases in the price level. 
C)  decreases in the price level. 
D)  increases in taxes. 
A)  decreases in nominal Gross Domestic Product (GDP). 
B)  increases in the price level. 
C)  decreases in the price level. 
D)  increases in taxes.

Question 19

According to the interest-rate-based monetary policy transmission mechanism, an increase in the money supply will

Accepted Answer

A)  lead to a decrease in investment spending and an increase in real GDP that is equal to the decrease in investment spending. 
B)  lead to a decrease in investment spending and an increase in real GDP which is greater than the decrease in investment spending. 
C)  lead to an increase in investment spending and a decrease in real GDP that is equal to the increase in investment spending. 
D)  lead to an increase in investment spending and an increase in real GDP which is greater than the increase in investment spending. 
A)  lead to a decrease in investment spending and an increase in real GDP that is equal to the decrease in investment spending. 
B)  lead to a decrease in investment spending and an increase in real GDP which is greater than the decrease in investment spending. 
C)  lead to an increase in investment spending and a decrease in real GDP that is equal to the increase in investment spending. 
D)  lead to an increase in investment spending and an increase in real GDP which is greater than the increase in investment spending.

Question 20

The demand for money curve is drawn

Accepted Answer

A)  holding several things constant, including GDP and interest rates. 
B)  holding several things constant, including the price level and interest rates. 
C)  with interest rates on the horizontal axis, and the curve sloping up since the "price" of holding money varies directly with the interest rate. 
D)  with interest rates on the vertical axis and the curve sloping down since lower interest rates mean the "price" of holding money has fallen. 
A)  holding several things constant, including GDP and interest rates. 
B)  holding several things constant, including the price level and interest rates. 
C)  with interest rates on the horizontal axis, and the curve sloping up since the "price" of holding money varies directly with the interest rate. 
D)  with interest rates on the vertical axis and the curve sloping down since lower interest rates mean the "price" of holding money has fallen.

Exam 16: Domestic and International Dimensions of Monetary Policy

The interest rate is the opportunity cost

Which of the following institutions within the Federal Reserve System determines how many government securities the Fed should buy or sell on a given day?

A open market purchase of government securities by the Fed will cause which of the following?

-Refer to the above figure. Which panels could represent the situation if the Fed had engaged in open market operations?

The monetary transmission mechanism that assumes that money supply growth stimulates the economy primarily by encouraging investment is

What effect does a contractionary monetary policy in the U.S. have on the foreign trade sector?

If the Fed's credit policies induces banks to hold substantial excess reserves at the Fed, then

An expansionary monetary policy results in lower interest rates, which in turn

If nominal GDP is $5 trillion and velocity is 20, then

Suppose the economy currently has some underutilized resources. The Fed engages in expansionary monetary policy. The impact of expansionary monetary policy will be to

-In the above figure, if we begin at and the Fed buys bonds,

-In the above figure, suppose the economy is at a short-run equilibrium at point B and the interest rate is r2. Which of the following policy options for the Fed will help solve the short-run situation?

A bond is selling for $1000 and it pays $150 in interest a year. If the interest rate changes to 20 percent, then

The purchase of government bonds by the Fed leads to a(n)

Holding money as a medium of exchange to purchase goods and services and make payments is known as the

What is meant by the demand for money?

The incentive of holding excess reserves is equal to

According to the quantity theory of money, increases in the money supply lead to

According to the interest-rate-based monetary policy transmission mechanism, an increase in the money supply will

The demand for money curve is drawn

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

Filters

-In the above figure, suppose the economy is at a short-run equilibrium at point B and the interest rate is r₂. Which of the following policy options for the Fed will help solve the short-run situation?