Question 1

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

Accepted Answer

A)  lower interest rates, which causes an increase in planned real investment spending and an increase in aggregate demand. 
B)  increased spending on consumer goods and services directly, which causes an increase in aggregate demand. 
C)  an increase in nominal GDP and a change in the price level, but no change in real GDP. 
D)  an increase in aggregate supply since the supply of money is part of aggregate supply. 
A)  lower interest rates, which causes an increase in planned real investment spending and an increase in aggregate demand. 
B)  increased spending on consumer goods and services directly, which causes an increase in aggregate demand. 
C)  an increase in nominal GDP and a change in the price level, but no change in real GDP. 
D)  an increase in aggregate supply since the supply of money is part of aggregate supply.

Question 2

The interest rate that the Fed charges banks to borrow funds from the Fed is the

Accepted Answer

A)  discount rate. 
B)  federal funds rate. 
C)  money market rate. 
D)  nominal interest rate. 
A)  discount rate. 
B)  federal funds rate. 
C)  money market rate. 
D)  nominal interest rate.

Question 3

Javier has been thinking about purchasing a bond but is afraid that the bond will lose value. He has decided to hold money instead. This is known as the

Accepted Answer

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

Question 4

Which of the following is NOT a reason the Fed alters the rate of growth of the money supply?

Accepted Answer

A)  To influence aggregate demand 
B)  To shift the demand for money curve 
C)  To influence the amount of consumption 
D)  To influence the amount of investment 
A)  To influence aggregate demand 
B)  To shift the demand for money curve 
C)  To influence the amount of consumption 
D)  To influence the amount of investment

Question 5

A person puts a $100 bill in the glove compartment of his car in case of an emergency. This is an example of

Accepted Answer

A)  the precautionary demand for money. 
B)  the transaction demand for money. 
C)  the emergency investment demand for money. 
D)  the asset demand for money. 
A)  the precautionary demand for money. 
B)  the transaction demand for money. 
C)  the emergency investment demand for money. 
D)  the asset demand for money.

Question 6

Money is a ________ and a transaction is a ________.

Accepted Answer

A)  stock; stock 
B)  flow; flow 
C)  flow; stock 
D)  stock; flow 
A)  stock; stock 
B)  flow; flow 
C)  flow; stock 
D)  stock; flow

Question 7

The equation of exchange specifies that

Accepted Answer

A)    V = PY. 
B)  velocity and money supply are directly related. 
C)    P = VY. 
D)    = PVY. 
A)    V = PY. 
B)  velocity and money supply are directly related. 
C)    P = VY. 
D)    = PVY.

Question 8

If the economy is underutilizing its economic resources, the Fed should

Accepted Answer

A)  discourage investment spending. 
B)  expand the money supply to increase aggregate demand. 
C)  decrease aggregate supply. 
D)  contract the money supply to decrease aggregate demand. 
A)  discourage investment spending. 
B)  expand the money supply to increase aggregate demand. 
C)  decrease aggregate supply. 
D)  contract the money supply to decrease aggregate demand.

Question 9

Interest rates typically rise when

Accepted Answer

A)  bond prices increase. 
B)  bond prices decrease. 
C)  the coupon payout on existing bonds increase. 
D)  the maturity date on existing bonds extends farther into the future. 
A)  bond prices increase. 
B)  bond prices decrease. 
C)  the coupon payout on existing bonds increase. 
D)  the maturity date on existing bonds extends farther into the future.

Question 10

The relationship between the quantity of money balances demanded and the interest rate is

Accepted Answer

A)  determined by open market operations. 
B)  negative. 
C)  contractionary monetary policy. 
D)  the reserve requirements. 
A)  determined by open market operations. 
B)  negative. 
C)  contractionary monetary policy. 
D)  the reserve requirements.

Question 11

The quantity theory of money and prices

Accepted Answer

A)  is derived from the equation of exchange assuming that prices remain constant. 
B)  shows how a change in the price level leads to a change in the money supply. 
C)  shows how the demand for money is inversely related to the price level. 
D)  is the hypothesis that changes in the money supply leads to proportional changes in the price level. 
A)  is derived from the equation of exchange assuming that prices remain constant. 
B)  shows how a change in the price level leads to a change in the money supply. 
C)  shows how the demand for money is inversely related to the price level. 
D)  is the hypothesis that changes in the money supply leads to proportional changes in the price level.

Question 12

Changes in which of the following will cause changes in the equilibrium federal funds rate?

Accepted Answer

A)  the demand for excess reserves by banks 
B)  the demand for required reserves by banks 
C)  the supply of reserves created through past open market operations 
D)  all of the above 
A)  the demand for excess reserves by banks 
B)  the demand for required reserves by banks 
C)  the supply of reserves created through past open market operations 
D)  all of the above

Question 13

Other things being equal, an increase in the supply of money

Accepted Answer

A)  reduces the amount of money balances. 
B)  increases the price level. 
C)  reduces aggregate demand. 
D)  generates significant changes in relative prices. 
A)  reduces the amount of money balances. 
B)  increases the price level. 
C)  reduces aggregate demand. 
D)  generates significant changes in relative prices.

Question 14

A key causal link in the interest-rate-based transmission mechanism for monetary policy is from

Accepted Answer

A)  investment to the interest rate. 
B)  the money supply to excess reserves. 
C)  a monetary policy action to excess reserves. 
D)  real GDP to investment. 
A)  investment to the interest rate. 
B)  the money supply to excess reserves. 
C)  a monetary policy action to excess reserves. 
D)  real GDP to investment.

Question 15

The transactions demand for money

Accepted Answer

A)  varies directly with nominal Gross Domestic Product (GDP). 
B)  varies inversely with nominal Gross Domestic Product (GDP). 
C)  varies negatively with real nominal Gross Domestic Product (GDP). 
D)  has no relationship with nominal Gross Domestic Product (GDP). 
A)  varies directly with nominal Gross Domestic Product (GDP). 
B)  varies inversely with nominal Gross Domestic Product (GDP). 
C)  varies negatively with real nominal Gross Domestic Product (GDP). 
D)  has no relationship with nominal Gross Domestic Product (GDP).

Question 16

Suppose the Fed conducts an open market purchase of bonds. This monetary policy action will tend to cause

Accepted Answer

A)  the price of bonds to increase, and the interest rate to increase. 
B)  the price of bonds to increase, and the interest rate to decrease. 
C)  the price of bonds to decrease, and the interest rate to increase. 
D)  the price of bonds to decrease, and the interest rate to decrease. 
A)  the price of bonds to increase, and the interest rate to increase. 
B)  the price of bonds to increase, and the interest rate to decrease. 
C)  the price of bonds to decrease, and the interest rate to increase. 
D)  the price of bonds to decrease, and the interest rate to decrease.

Question 17

What happens when the Fed aims to change interest rates?

Accepted Answer

A)  It asks Congress to legislate new interest rates. 
B)  It buys or sells government bonds on the open market to achieve the desired rate. 
C)  It buys or sells dollars on the foreign exchange market to achieve the desired rate. 
D)  It announces a new discount interest rate. 
A)  It asks Congress to legislate new interest rates. 
B)  It buys or sells government bonds on the open market to achieve the desired rate. 
C)  It buys or sells dollars on the foreign exchange market to achieve the desired rate. 
D)  It announces a new discount interest rate.

Question 18

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

Accepted Answer

A)  raise interest rates so people will save more. 
B)  lower interest rates, which stimulates both investment and consumption spending. 
C)  put more cash in people's pockets, thereby increasing aggregate demand. 
D)  pay off a portion of the public debt. 
A)  raise interest rates so people will save more. 
B)  lower interest rates, which stimulates both investment and consumption spending. 
C)  put more cash in people's pockets, thereby increasing aggregate demand. 
D)  pay off a portion of the public debt.

Question 19

An increase in the interest rate will

Accepted Answer

A)  decrease the price of bonds. 
B)  increase the price of bonds. 
C)  increase or decrease the price of bonds depending upon whether the money supply has increased or decreased. 
D)  leave the price of bonds unchanged. 
A)  decrease the price of bonds. 
B)  increase the price of bonds. 
C)  increase or decrease the price of bonds depending upon whether the money supply has increased or decreased. 
D)  leave the price of bonds unchanged.

Question 20

The downward slope of the demand for money curve reflects the fact that

Accepted Answer

A)  people hold more of their wealth in the form of money as the price level rises. 
B)  people hold more of their wealth in the form of money as the price level falls. 
C)  people hold more of their wealth in the form of money as the interest rate rises. 
D)  people hold more of their wealth in the form of money as the interest rate falls. 
A)  people hold more of their wealth in the form of money as the price level rises. 
B)  people hold more of their wealth in the form of money as the price level falls. 
C)  people hold more of their wealth in the form of money as the interest rate rises. 
D)  people hold more of their wealth in the form of money as the interest rate falls.

Exam 16: Domestic and International Dimensions of Monetary Policy

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

The interest rate that the Fed charges banks to borrow funds from the Fed is the

Javier has been thinking about purchasing a bond but is afraid that the bond will lose value. He has decided to hold money instead. This is known as the

Which of the following is NOT a reason the Fed alters the rate of growth of the money supply?

A person puts a $100 bill in the glove compartment of his car in case of an emergency. This is an example of

Money is a ________ and a transaction is a ________.

The equation of exchange specifies that

If the economy is underutilizing its economic resources, the Fed should

Interest rates typically rise when

The relationship between the quantity of money balances demanded and the interest rate is

The quantity theory of money and prices

Changes in which of the following will cause changes in the equilibrium federal funds rate?

Other things being equal, an increase in the supply of money

A key causal link in the interest-rate-based transmission mechanism for monetary policy is from

The transactions demand for money

Suppose the Fed conducts an open market purchase of bonds. This monetary policy action will tend to cause

What happens when the Fed aims to change interest rates?

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

An increase in the interest rate will

The downward slope of the demand for money curve reflects the fact that

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

Money is a and a transaction is a .