Question 1

The official Federal Reserve strategy for implementing its monetary policy objectives is spelled out in the

Accepted Answer

A)  Federal Reserve Board (FR
B)  Decree. 
B)  Federal Reserve Bank Cooperative (FRB
C)  Proposal. 
C)  Federal Advisory Committee (FA
C)  Statement. 
D)  Federal Open Market Committee (FOM
C)  Directive. 
A)  Federal Reserve Board (FR
B)  Decree. 
B)  Federal Reserve Bank Cooperative (FRB
C)  Proposal. 
C)  Federal Advisory Committee (FA
C)  Statement. 
D)  Federal Open Market Committee (FOM
C)  Directive.

Question 2

The direct effect of an increase in the money supply is to

Accepted Answer

A)  raise interest rates as people increase their saving. 
B)  increase interest rates as people anticipate higher inflation in the future. 
C)  increase aggregate demand as people try to spend their excess money balances. 
D)  decrease aggregate demand as people anticipate future economic problems. 
A)  raise interest rates as people increase their saving. 
B)  increase interest rates as people anticipate higher inflation in the future. 
C)  increase aggregate demand as people try to spend their excess money balances. 
D)  decrease aggregate demand as people anticipate future economic problems.

Question 3

If the total money supply is $3 trillion, real GDP is $8 trillion and the price level is 1.5, then the equation of exchange tells us that velocity equals

Accepted Answer

A)  0.25 
B)  3 
C)  4 
D)  16 
A)  0.25 
B)  3 
C)  4 
D)  16

Question 4

John gets paid monthly and pays for everything with cash. When he cashes his check he keeps $200 for food, $100 for utilities, $900 for rent, $50 for transportation, $100 for entertainment and $300 for unexpected expenditures. Which of the following statements is true?

Accepted Answer

A)  The transactions demand for money is $1,350, the precautionary demand is $300 and the asset demand is $0. 
B)  The transactions demand for money is $450, the precautionary demand is $300 and the asset demand is $900. 
C)  The transactions demand for money is $350, the precautionary demand is $1,150 and the asset demand is $150. 
D)  The transactions demand for money is $350, the precautionary demand is $950 and the asset demand is $0. 
A)  The transactions demand for money is $1,350, the precautionary demand is $300 and the asset demand is $0. 
B)  The transactions demand for money is $450, the precautionary demand is $300 and the asset demand is $900. 
C)  The transactions demand for money is $350, the precautionary demand is $1,150 and the asset demand is $150. 
D)  The transactions demand for money is $350, the precautionary demand is $950 and the asset demand is $0.

Question 5

A decrease in the supply of money will, according to the quantity theory of money, lead to

Accepted Answer

A)  a higher price level. 
B)  a higher nominal Gross Domestic Product (GDP). 
C)  a lower real Gross Domestic Product (GDP). 
D)  a lower price level. 
A)  a higher price level. 
B)  a higher nominal Gross Domestic Product (GDP). 
C)  a lower real Gross Domestic Product (GDP). 
D)  a lower price level.

Question 6

The Fed would be pursuing a contractionary monetary policy if it was

Accepted Answer

A)  lowering the differential between the discount rate and the federal funds rate. 
B)  lowering the reserve requirement. 
C)  selling dollars in foreign exchange markets. 
D)  selling bonds in the open market. 
A)  lowering the differential between the discount rate and the federal funds rate. 
B)  lowering the reserve requirement. 
C)  selling dollars in foreign exchange markets. 
D)  selling bonds in the open market.

Question 7

Which of the following policy tools is directly controlled by the Trading Desk at the Federal Reserve Bank of New York?

Accepted Answer

A)  the spread between the discount rate and the federal funds rate 
B)  the spread between the federal funds rate and the interest rate on banks' required reserves 
C)  the required reserve ratio 
D)  open market sales and purchases 
A)  the spread between the discount rate and the federal funds rate 
B)  the spread between the federal funds rate and the interest rate on banks' required reserves 
C)  the required reserve ratio 
D)  open market sales and purchases

Question 8

One result of a contractionary monetary policy would be

Accepted Answer

A)  a decline in the price level. 
B)  an increase in the money supply. 
C)  an increase in business investment. 
D)  lower interest rates. 
A)  a decline in the price level. 
B)  an increase in the money supply. 
C)  an increase in business investment. 
D)  lower interest rates.

Question 9

The demand for money curve

Accepted Answer

A)  shows the relationship between money demanded and open market operations. 
B)  shows the relationship between the quantity of money balances demanded and the interest rate. 
C)  is positively related to the interest rate. 
D)  varies inversely with the supply of money. 
A)  shows the relationship between money demanded and open market operations. 
B)  shows the relationship between the quantity of money balances demanded and the interest rate. 
C)  is positively related to the interest rate. 
D)  varies inversely with the supply of money.

Question 10

According to the equation of exchange, if M = $400, P = 8, and Y = $200, then

Accepted Answer

A)  net domestic product is $800. 
B)  V is 4. 
C)  the price level must fall. 
D)  V cannot be determined. 
A)  net domestic product is $800. 
B)  V is 4. 
C)  the price level must fall. 
D)  V cannot be determined.

Question 11

The transactions 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 12

Using the interest rate as a measure of the opportunity cost of holding money, the demand for money curve

Accepted Answer

A)  slopes upward with respect to the rate of interest. 
B)  is not affected by the price level. 
C)  slopes downward with respect to the rate of interest. 
D)  is vertical. 
A)  slopes upward with respect to the rate of interest. 
B)  is not affected by the price level. 
C)  slopes downward with respect to the rate of interest. 
D)  is vertical.

Question 13

An appreciation of the U.S. dollar

Accepted Answer

A)  makes our exports more expensive in terms of foreign currency and imports cheaper in terms of the dollar, increasing net exports. 
B)  makes our exports less expensive in terms of foreign currency and imports cheaper in terms of the dollar, increasing net exports. 
C)  makes our exports less expensive in terms of foreign currency and imports cheaper in terms of the dollar, decreasing net exports. 
D)  makes our exports more expensive in terms of foreign currency and imports cheaper in terms of the dollar, decreasing net exports. 
A)  makes our exports more expensive in terms of foreign currency and imports cheaper in terms of the dollar, increasing net exports. 
B)  makes our exports less expensive in terms of foreign currency and imports cheaper in terms of the dollar, increasing net exports. 
C)  makes our exports less expensive in terms of foreign currency and imports cheaper in terms of the dollar, decreasing net exports. 
D)  makes our exports more expensive in terms of foreign currency and imports cheaper in terms of the dollar, decreasing net exports.

Question 14

The market price of existing bonds is ________ to the rate of interest prevailing in the economy.

Accepted Answer

A)  inversely related 
B)  directly related 
C)  totally unrelated 
D)  synonymous 
A)  inversely related 
B)  directly related 
C)  totally unrelated 
D)  synonymous

Question 15

In the long run, the effect of a reduction in the money supply is to

Accepted Answer

A)  decrease the price level only. 
B)  decrease real Gross Domestic Product (GDP) only. 
C)  decrease both the price level and real Gross Domestic Product (GDP). 
D)  decrease the price level and increase real Gross Domestic Product (GDP). 
A)  decrease the price level only. 
B)  decrease real Gross Domestic Product (GDP) only. 
C)  decrease both the price level and real Gross Domestic Product (GDP). 
D)  decrease the price level and increase real Gross Domestic Product (GDP).

Question 16

Samia makes $8,000 a month. Samia spends $2,500 on rent and related household expenses, $500 on food, $200 on clothes, $500 on entertainment and $600 on transportation. She always keeps $200 for things like the car breaking down. $3,500 is invested in the stock market. Which of the following statements is true?

Accepted Answer

A)  The transactions demand for money is $4,300, the precautionary demand is $200 and the asset demand is $3,500. 
B)  The transactions demand for money is $4,300, the precautionary demand is $3,500 and the asset demand is $200. 
C)  The transactions demand for money is $4,300, the precautionary demand is $200 and the asset demand is $0. 
D)  The transactions demand for money is $3,500, the precautionary demand is $200 and the asset demand is $4,300. 
A)  The transactions demand for money is $4,300, the precautionary demand is $200 and the asset demand is $3,500. 
B)  The transactions demand for money is $4,300, the precautionary demand is $3,500 and the asset demand is $200. 
C)  The transactions demand for money is $4,300, the precautionary demand is $200 and the asset demand is $0. 
D)  The transactions demand for money is $3,500, the precautionary demand is $200 and the asset demand is $4,300.

Question 17

The demand for money to cover unexpected expenditures and to meet emergencies is known as

Accepted Answer

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

Question 18

The federal funds rate is

Accepted Answer

A)  the interest rate paid on reserves held with the Fed. 
B)  the interest rate at which banks can borrow excess reserves from other banks. 
C)  the interest rate on bonds issued by the federal government. 
D)  none of the above. 
A)  the interest rate paid on reserves held with the Fed. 
B)  the interest rate at which banks can borrow excess reserves from other banks. 
C)  the interest rate on bonds issued by the federal government. 
D)  none of the above.

Question 19

In the equation of exchange, if the money supply is $6 trillion, the price level is 1.5, and the real GDP is $12 trillion, the velocity is

Accepted Answer

A)  3.0. 
B)  9.3. 
C)  6.0. 
D)  2.0. 
A)  3.0. 
B)  9.3. 
C)  6.0. 
D)  2.0.

Question 20

If the Fed sells bonds through its open market operations, then there is

Accepted Answer

A)  an increase in the demand for bonds and a rise in the price of existing bonds. 
B)  an increase in the supply of bonds and a fall in the price of existing bonds. 
C)  a decrease in interest rates because of the increase in the supply of bonds. 
D)  a decrease in interest rates because of the decrease in the demand for bonds. 
A)  an increase in the demand for bonds and a rise in the price of existing bonds. 
B)  an increase in the supply of bonds and a fall in the price of existing bonds. 
C)  a decrease in interest rates because of the increase in the supply of bonds. 
D)  a decrease in interest rates because of the decrease in the demand for bonds.

Exam 16: Domestic and International Dimensions of Monetary Policy

The official Federal Reserve strategy for implementing its monetary policy objectives is spelled out in the

The direct effect of an increase in the money supply is to

If the total money supply is $3 trillion, real GDP is $8 trillion and the price level is 1.5, then the equation of exchange tells us that velocity equals

John gets paid monthly and pays for everything with cash. When he cashes his check he keeps $200 for food, $100 for utilities, $900 for rent, $50 for transportation, $100 for entertainment and $300 for unexpected expenditures. Which of the following statements is true?

A decrease in the supply of money will, according to the quantity theory of money, lead to

The Fed would be pursuing a contractionary monetary policy if it was

Which of the following policy tools is directly controlled by the Trading Desk at the Federal Reserve Bank of New York?

One result of a contractionary monetary policy would be

The demand for money curve

According to the equation of exchange, if M = $400, P = 8, and Y = $200, then

The transactions demand for money is related to money functioning as a

Using the interest rate as a measure of the opportunity cost of holding money, the demand for money curve

An appreciation of the U.S. dollar

The market price of existing bonds is ________ to the rate of interest prevailing in the economy.

In the long run, the effect of a reduction in the money supply is to

The demand for money to cover unexpected expenditures and to meet emergencies is known as

The federal funds rate is

In the equation of exchange, if the money supply is $6 trillion, the price level is 1.5, and the real GDP is $12 trillion, the velocity is

If the Fed sells bonds through its open market operations, then there is

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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