Question 1

According to Keynes, the impact of an increase in the money supply is

Accepted Answer

A)  a lower interest rate and a larger growth in real GDP. 
B)  a lower interest rate and a smaller growth in real GDP. 
C)  a higher interest rate and a larger growth in real GDP. 
D)  a higher interest rate and a smaller growth in real GDP. 
A)  a lower interest rate and a larger growth in real GDP. 
B)  a lower interest rate and a smaller growth in real GDP. 
C)  a higher interest rate and a larger growth in real GDP. 
D)  a higher interest rate and a smaller growth in real GDP.

Question 2

People hold money as an asset rather than other assets because

Accepted Answer

A)  it is highly liquid. 
B)  it holds its value. 
C)  it grows in value. 
D)  there is no cost to holding money as an asset. 
A)  it is highly liquid. 
B)  it holds its value. 
C)  it grows in value. 
D)  there is no cost to holding money as an asset.

Question 3

As a result of an increase in the money supply, some banks may end up with excess reserves. What is the likely result?

Accepted Answer

A)  Banks will make more loans, thereby contributing to an increase in aggregate demand. 
B)  Banks will make more loans, thereby contributing to a decrease in aggregate demand. 
C)  Banks will raise interest rates. 
D)  Banks will spend the excess reserves by paying their employees more. 
A)  Banks will make more loans, thereby contributing to an increase in aggregate demand. 
B)  Banks will make more loans, thereby contributing to a decrease in aggregate demand. 
C)  Banks will raise interest rates. 
D)  Banks will spend the excess reserves by paying their employees more.

Question 4

An increase in the money supply typically leads to

Accepted Answer

A)  a reduction in the rate of interest. 
B)  a decrease in the price level. 
C)  a reduction in the velocity of money. 
D)  an inward shift in money demand. 
A)  a reduction in the rate of interest. 
B)  a decrease in the price level. 
C)  a reduction in the velocity of money. 
D)  an inward shift in money demand.

Question 5

Which of the following best describes the income velocity of money?

Accepted Answer

A)  V = P   
B)  V = Y 
C)  V = PY/   
D)  V =   /PY 
A)  V = P   
B)  V = Y 
C)  V = PY/   
D)  V =   /PY

Question 6

The Fed engages in open market operations and sells government securities. The result is

Accepted Answer

A)  lower interest rates. 
B)  higher interest rates. 
C)  interest rates remain unchanged since there is no reason to think bond prices changed. 
D)  uncertain since more information is needed. 
A)  lower interest rates. 
B)  higher interest rates. 
C)  interest rates remain unchanged since there is no reason to think bond prices changed. 
D)  uncertain since more information is needed.

Question 7

In the market for bank reserves, the supply of reserves is

Accepted Answer

A)  an upward sloping curve. 
B)  a downward sloping curve. 
C)  a horizontal curve. 
D)  none of the above. 
A)  an upward sloping curve. 
B)  a downward sloping curve. 
C)  a horizontal curve. 
D)  none of the above.

Question 8

If the source of economic instability is generally variations in spending, then the Fed should

Accepted Answer

A)  set money supply targets. 
B)  print more money. 
C)  buy gold. 
D)  raise taxes. 
A)  set money supply targets. 
B)  print more money. 
C)  buy gold. 
D)  raise taxes.

Question 9

Other things being equal, the quantity theory of money suggests that any increase in the money supply

Accepted Answer

A)  causes a reduction in the demand for money. 
B)  results in a decrease in the aggregate price level. 
C)  causes the aggregate level of nominal Gross Domestic Product (GDP) to fall. 
D)  results in a proportionate increase in the price level. 
A)  causes a reduction in the demand for money. 
B)  results in a decrease in the aggregate price level. 
C)  causes the aggregate level of nominal Gross Domestic Product (GDP) to fall. 
D)  results in a proportionate increase in the price level.

Question 10

According to the quantity theory of money, the price level decreases in equal proportion to

Accepted Answer

A)  an increase in the income velocity of money. 
B)  a decrease in the nominal interest rate. 
C)  an increase in the real interest rate. 
D)  a decrease in the money supply. 
A)  an increase in the income velocity of money. 
B)  a decrease in the nominal interest rate. 
C)  an increase in the real interest rate. 
D)  a decrease in the money supply.

Question 11

What is the maximum number of voting members of the FOMC?

Accepted Answer

A)  4 
B)  7 
C)  11 
D)  12 
A)  4 
B)  7 
C)  11 
D)  12

Question 12

A major difference between the transactions demand for money and the precautionary demand is that the

Accepted Answer

A)  transactions demand means that people are foregoing interest but they are not foregoing interest in the precautionary demand. 
B)  transactions demand leads to the purchase of assets while the precautionary demand does not. 
C)  transactions demand involves expected expenditures while the precautionary demand involves unexpected expenditures. 
D)  transactions demand is for emergencies while the precautionary demand is for every day expenditures. 
A)  transactions demand means that people are foregoing interest but they are not foregoing interest in the precautionary demand. 
B)  transactions demand leads to the purchase of assets while the precautionary demand does not. 
C)  transactions demand involves expected expenditures while the precautionary demand involves unexpected expenditures. 
D)  transactions demand is for emergencies while the precautionary demand is for every day expenditures.

Question 13

As nominal Gross Domestic Product (GDP) rises, the transactions demand for money

Accepted Answer

A)  increases, and the money demand curve shifts to the left. 
B)  decreases, and the money demand curve shifts to the left. 
C)  increases, and the money demand curve shifts to the right. 
D)  remains constant, and the money demand curve remains the same. 
A)  increases, and the money demand curve shifts to the left. 
B)  decreases, and the money demand curve shifts to the left. 
C)  increases, and the money demand curve shifts to the right. 
D)  remains constant, and the money demand curve remains the same.

Question 14

The net-export effect of contractionary monetary policy is a(n)

Accepted Answer

A)  depreciation of the value of the dollar and the increase of U.S. net exports. 
B)  depreciation of the value of the dollar and the decrease of U.S. net exports. 
C)  appreciation of the value of the dollar and the increase of U.S. net exports. 
D)  appreciation of the value of the dollar and the decrease of U.S. net exports. 
A)  depreciation of the value of the dollar and the increase of U.S. net exports. 
B)  depreciation of the value of the dollar and the decrease of U.S. net exports. 
C)  appreciation of the value of the dollar and the increase of U.S. net exports. 
D)  appreciation of the value of the dollar and the decrease of U.S. net exports.

Question 15

According to traditional Keynesians, monetary policy is ineffective in affecting the economy during a recession because

Accepted Answer

A)  an increase in the money supply will have little impact on interest rates. 
B)  an increase in the money supply will only lead to higher interest rates. 
C)  an increase in the money supply will only lead to lower investment spending. 
D)  an increase in the money supply will raise the amount of government debt. 
A)  an increase in the money supply will have little impact on interest rates. 
B)  an increase in the money supply will only lead to higher interest rates. 
C)  an increase in the money supply will only lead to lower investment spending. 
D)  an increase in the money supply will raise the amount of government debt.

Question 16

-In the above figure, assume the aggregate demand of the economy is AD2 and the Fed actions move aggregate demand to AD1. In this situation, the Fed has practiced

Accepted Answer

A)  contractionary monetary policy. 
B)  expansionary monetary policy. 
C)  irresponsible fiscal policy. 
D)  Keynesian fiscal policy. 
A)  contractionary monetary policy. 
B)  expansionary monetary policy. 
C)  irresponsible fiscal policy. 
D)  Keynesian fiscal policy.

Question 17

The interest-rate-based transmission mechanism assumes that the Fed can stimulate investment by

Accepted Answer

A)  selling bonds. 
B)  buying bonds. 
C)  raising the discount rate relative to the federal funds rate. 
D)  raising the required reserve ratio. 
A)  selling bonds. 
B)  buying bonds. 
C)  raising the discount rate relative to the federal funds rate. 
D)  raising the required reserve ratio.

Question 18

The transactions demand for money exists because households

Accepted Answer

A)  are insensitive to interest rate changes. 
B)  must save for unexpected emergencies. 
C)  do not like the fact that money is a liquid asset. 
D)  do not receive their incomes at the same time they wish to make purchases. 
A)  are insensitive to interest rate changes. 
B)  must save for unexpected emergencies. 
C)  do not like the fact that money is a liquid asset. 
D)  do not receive their incomes at the same time they wish to make purchases.

Question 19

When a person holds money, they give up

Accepted Answer

A)  the pleasure associated with spending money. 
B)  the pleasure associated with saving money. 
C)  the interest that could have been earned if the money had been changed into an interest-bearing asset. 
D)  nothing, since the person can always use the money to buy goods or services or interest-bearing assets. 
A)  the pleasure associated with spending money. 
B)  the pleasure associated with saving money. 
C)  the interest that could have been earned if the money had been changed into an interest-bearing asset. 
D)  nothing, since the person can always use the money to buy goods or services or interest-bearing assets.

Question 20

The demand for money for which the purpose is making unexpected purchases or meeting emergencies is considered to be part of

Accepted Answer

A)  precautionary demand. 
B)  transactions demand. 
C)  asset demand. 
D)  savings demand. 
A)  precautionary demand. 
B)  transactions demand. 
C)  asset demand. 
D)  savings demand.

Exam 16: Domestic and International Dimensions of Monetary Policy

According to Keynes, the impact of an increase in the money supply is

People hold money as an asset rather than other assets because

As a result of an increase in the money supply, some banks may end up with excess reserves. What is the likely result?

An increase in the money supply typically leads to

Which of the following best describes the income velocity of money?

The Fed engages in open market operations and sells government securities. The result is

In the market for bank reserves, the supply of reserves is

If the source of economic instability is generally variations in spending, then the Fed should

Other things being equal, the quantity theory of money suggests that any increase in the money supply

According to the quantity theory of money, the price level decreases in equal proportion to

What is the maximum number of voting members of the FOMC?

A major difference between the transactions demand for money and the precautionary demand is that the

As nominal Gross Domestic Product (GDP) rises, the transactions demand for money

The net-export effect of contractionary monetary policy is a(n)

According to traditional Keynesians, monetary policy is ineffective in affecting the economy during a recession because

-In the above figure, assume the aggregate demand of the economy is AD2 and the Fed actions move aggregate demand to AD1. In this situation, the Fed has practiced

The interest-rate-based transmission mechanism assumes that the Fed can stimulate investment by

The transactions demand for money exists because households

When a person holds money, they give up

The demand for money for which the purpose is making unexpected purchases or meeting emergencies is considered to be part of

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, assume the aggregate demand of the economy is AD₂ and the Fed actions move aggregate demand to AD₁. In this situation, the Fed has practiced