Question 1

According to the interest-rate-based monetary policy transmission mechanism,

Accepted Answer

A)  an increase in money supply will increase interest rates. 
B)  an increase in money supply will decrease interest rates. 
C)  a decrease in money supply will decrease interest rates. 
D)  a decrease in money supply will not change interest rates. 
A)  an increase in money supply will increase interest rates. 
B)  an increase in money supply will decrease interest rates. 
C)  a decrease in money supply will decrease interest rates. 
D)  a decrease in money supply will not change interest rates.

Question 2

According to the interest-rate-based perspective on the monetary policy transmission mechanism,

Accepted Answer

A)  key channels of monetary policy indirectly ultimately relate money supply changes to total planned spending through indirect effects on planned investment. 
B)  changes in the money supply have little influence on macroeconomic variables. 
C)  monetary policy leads to increases in the price level but will have no effect on the rate of output. 
D)  inflation is always caused by excessive monetary growth and changes in the money supply offset aggregate demand only directly. 
A)  key channels of monetary policy indirectly ultimately relate money supply changes to total planned spending through indirect effects on planned investment. 
B)  changes in the money supply have little influence on macroeconomic variables. 
C)  monetary policy leads to increases in the price level but will have no effect on the rate of output. 
D)  inflation is always caused by excessive monetary growth and changes in the money supply offset aggregate demand only directly.

Question 3

If you initially pay $1,000 for a bond with an annual interest rate of 5 percent, but then the market interest rate rises to 6 percent,

Accepted Answer

A)  the market price of the bond is still $1,000. 
B)  the bond's annual interest payment remains equal to $50. 
C)  the market price of the bond has increased. 
D)  the market price of the bond has decreased. 
A)  the market price of the bond is still $1,000. 
B)  the bond's annual interest payment remains equal to $50. 
C)  the market price of the bond has increased. 
D)  the market price of the bond has decreased.

Question 4

The reason that people may not want to hold money is

Accepted Answer

A)  the precautionary demand for money and the risk of being robbed. 
B)  the opportunity cost. 
C)  the transactions demand makes it unnecessary. 
D)  due to the direct relationship between money demand and the interest rate. 
A)  the precautionary demand for money and the risk of being robbed. 
B)  the opportunity cost. 
C)  the transactions demand makes it unnecessary. 
D)  due to the direct relationship between money demand and the interest rate.

Question 5

The prices of all fixed-income assets (bonds)

Accepted Answer

A)  vary directly with the interest rate. 
B)  are independent of the interest rate. 
C)  vary inversely with the interest rate. 
D)  are determined by the U.S. Treasury. 
A)  vary directly with the interest rate. 
B)  are independent of the interest rate. 
C)  vary inversely with the interest rate. 
D)  are determined by the U.S. Treasury.

Question 6

Warren always carries a one hundred dollar bill in case of emergencies. This is an example of the

Accepted Answer

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

Question 7

According to the interest-rate-based transmission mechanism, a decrease 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 a decrease 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 a decrease 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 a decrease 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 a decrease in real GDP which is greater than the increase in investment spending.

Question 8

Holding money to meet unplanned expenditures is

Accepted Answer

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

Question 9

Describe and explain the relationship between the price of bonds and the interest rate.

Accepted Answer

There is an inverse relationship between

Question 10

The quantity theory of money and prices assumes

Accepted Answer

A)  velocity is constant. 
B)  real output is constant. 
C)  the price level is constant. 
D)  the price level is increasing at a constant rate. 
A)  velocity is constant. 
B)  real output is constant. 
C)  the price level is constant. 
D)  the price level is increasing at a constant rate.

Question 11

Which of the following actions by the Fed would lead to an increase in the money supply?

Accepted Answer

A)  An increase in the required reserve ratio 
B)  An increase in the differential between the discount rate and the federal funds rate 
C)  An increase in tax rates 
D)  The purchase of government securities 
A)  An increase in the required reserve ratio 
B)  An increase in the differential between the discount rate and the federal funds rate 
C)  An increase in tax rates 
D)  The purchase of government securities

Question 12

An open market sale of government securities by the Fed will cause which of the following?

Accepted Answer

A)  an excess quantity of reserves supplied and an increase in the federal funds rate 
B)  an excess quantity of reserves supplied and a reduction in the federal funds rate 
C)  an excess quantity of reserves demanded and an increase in the federal funds rate 
D)  an excess quantity of reserves demanded and a reduction in the federal funds rate 
A)  an excess quantity of reserves supplied and an increase in the federal funds rate 
B)  an excess quantity of reserves supplied and a reduction in the federal funds rate 
C)  an excess quantity of reserves demanded and an increase in the federal funds rate 
D)  an excess quantity of reserves demanded and a reduction in the federal funds rate

Question 13

It has been observed that a change in monetary policy in the United States

Accepted Answer

A)  impacts net exports. 
B)  has little or no effect on foreign markets. 
C)  leads to corresponding changes in other countries. 
D)  has only short run influences. 
A)  impacts net exports. 
B)  has little or no effect on foreign markets. 
C)  leads to corresponding changes in other countries. 
D)  has only short run influences.

Question 14

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

Accepted Answer

A)  monetary policy is expansionary. 
B)  monetary policy is contractionary. 
C)  monetary policy is neither expansionary or contractionary. 
D)  fiscal policy is contractionary. 
A)  monetary policy is expansionary. 
B)  monetary policy is contractionary. 
C)  monetary policy is neither expansionary or contractionary. 
D)  fiscal policy is contractionary.

Question 15

As nominal Gross Domestic Product (GDP) rises, people will wish to

Accepted Answer

A)  hold less money for transactions. 
B)  hold more money for transactions. 
C)  spend less. 
D)  invest only in stocks. 
A)  hold less money for transactions. 
B)  hold more money for transactions. 
C)  spend less. 
D)  invest only in stocks.

Question 16

How would expansionary monetary policy affect the AD curve?

Accepted Answer

A)  It would shift to the right. 
B)  It would shift to the left. 
C)  It would become more static. 
D)  It would fall. 
A)  It would shift to the right. 
B)  It would shift to the left. 
C)  It would become more static. 
D)  It would fall.

Question 17

-Look at the above figure. Suppose the economy was initially in equilibrium at point A. What point would represent the short-run equilibrium if the Fed makes an open market purchase of bonds?

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  D 
A)  A 
B)  B 
C)  C 
D)  D

Question 18

When households hold money for unplanned expenditures and emergencies, it is called

Accepted Answer

A)  the speculative demand for money. 
B)  the transactions demand for money. 
C)  the irrational demand for money. 
D)  the precautionary demand for money. 
A)  the speculative demand for money. 
B)  the transactions demand for money. 
C)  the irrational demand for money. 
D)  the precautionary demand for money.

Question 19

It is the responsibility of the Trading Desk at the Federal Reserve Bank of New York to implement policies in the form of

Accepted Answer

A)  changes in the spread between the federal funds rate and the discount rate that are consistent with rules established by the twelve Federal Reserve bank presidents. 
B)  variations in reserve requirements that are consistent with the announcements by the Chair of the Fed's Board of Governors. 
C)  changes in foreign exchange rates that are consistent with policies established by the Secretary of the Treasury. 
D)  buying or selling government securities that are consistent with the FOMC Directive. 
A)  changes in the spread between the federal funds rate and the discount rate that are consistent with rules established by the twelve Federal Reserve bank presidents. 
B)  variations in reserve requirements that are consistent with the announcements by the Chair of the Fed's Board of Governors. 
C)  changes in foreign exchange rates that are consistent with policies established by the Secretary of the Treasury. 
D)  buying or selling government securities that are consistent with the FOMC Directive.

Question 20

-In the above figure, assume the economy starts out in equilibrium at point d. If the Fed increases the money supply so that the new aggregate demand curve is AD3, then the long-run equilibrium will be at point

Accepted Answer

A)  a. 
B)  b. 
C)  c. 
D)  i. 
A)  a. 
B)  b. 
C)  c. 
D)  i.

Exam 16: Domestic and International Dimensions of Monetary Policy

According to the interest-rate-based monetary policy transmission mechanism,

According to the interest-rate-based perspective on the monetary policy transmission mechanism,

If you initially pay $1,000 for a bond with an annual interest rate of 5 percent, but then the market interest rate rises to 6 percent,

The reason that people may not want to hold money is

The prices of all fixed-income assets (bonds)

Warren always carries a one hundred dollar bill in case of emergencies. This is an example of the

According to the interest-rate-based transmission mechanism, a decrease in the money supply will

Holding money to meet unplanned expenditures is

Describe and explain the relationship between the price of bonds and the interest rate.

The quantity theory of money and prices assumes

Which of the following actions by the Fed would lead to an increase in the money supply?

An open market sale of government securities by the Fed will cause which of the following?

It has been observed that a change in monetary policy in the United States

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

As nominal Gross Domestic Product (GDP) rises, people will wish to

How would expansionary monetary policy affect the AD curve?

-Look at the above figure. Suppose the economy was initially in equilibrium at point A. What point would represent the short-run equilibrium if the Fed makes an open market purchase of bonds?

When households hold money for unplanned expenditures and emergencies, it is called

It is the responsibility of the Trading Desk at the Federal Reserve Bank of New York to implement policies in the form of

-In the above figure, assume the economy starts out in equilibrium at point d. If the Fed increases the money supply so that the new aggregate demand curve is AD3, then the long-run equilibrium will be at point

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 economy starts out in equilibrium at point d. If the Fed increases the money supply so that the new aggregate demand curve is AD₃, then the long-run equilibrium will be at point