Question 1

Holding money as a store of value instead of other assets 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 2

Suppose the economy currently has an inflationary gap. The Fed engages in contractionary monetary policy. The impact of contractionary monetary policy will be to

Accepted Answer

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

Question 3

Suppose that the Fed has decided to utilize the Taylor rule to implement monetary policy. If the actual federal funds rate target is presently below the level specified by the Taylor rule and has been lower than this level for several weeks, then this would be a signal that

Accepted Answer

A)  monetary policy is very expansionary. 
B)  monetary policy is very contractionary. 
C)  the Fed should halt efforts to target the money supply. 
D)  the Fed should switch to targeting the money supply instead of the federal funds rate. 
A)  monetary policy is very expansionary. 
B)  monetary policy is very contractionary. 
C)  the Fed should halt efforts to target the money supply. 
D)  the Fed should switch to targeting the money supply instead of the federal funds rate.

Question 4

An increase in the price level means that

Accepted Answer

A)  long-run aggregate supply has increased. 
B)  monetary policy has been contractionary. 
C)  the value of the dollar has increased. 
D)  the purchasing power of money has fallen. 
A)  long-run aggregate supply has increased. 
B)  monetary policy has been contractionary. 
C)  the value of the dollar has increased. 
D)  the purchasing power of money has fallen.

Question 5

When households choose to hold money as a store of value, rather than holding assets such as certificates of deposit, stocks, and bonds, ________ demand for money results.

Accepted Answer

A)  liquidity 
B)  transactions 
C)  precautionary 
D)  asset 
A)  liquidity 
B)  transactions 
C)  precautionary 
D)  asset

Question 6

How does the Fed increase the level of reserves in the banking system?

Accepted Answer

A)  by lowering interest rates 
B)  by raising interest rates 
C)  by selling bonds 
D)  by buying bonds 
A)  by lowering interest rates 
B)  by raising interest rates 
C)  by selling bonds 
D)  by buying bonds

Question 7

Bertha holds some of her savings as currency and coins placed in her sewing basket. This is an example of

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 8

What is the most common reason people demand money?

Accepted Answer

A)  Each bill and coin is a reflection of important people and events in a nation's history. 
B)  People desire to use money as a medium of exchange when they buy goods and services. 
C)  Since very few of us engage in a flow of transactions, money is our financial safety net. 
D)  They demand money to ensure that the nation's government will not spend too much. 
A)  Each bill and coin is a reflection of important people and events in a nation's history. 
B)  People desire to use money as a medium of exchange when they buy goods and services. 
C)  Since very few of us engage in a flow of transactions, money is our financial safety net. 
D)  They demand money to ensure that the nation's government will not spend too much.

Question 9

Empirical evidence across numerous countries indicates that changes in the ________ are associated with nearly equiproportional changes in ________ .

Accepted Answer

A)  money supply, real GDP per year 
B)  money supply, price level 
C)  price level, money supply 
D)  real GDP per year, income velocity of money 
A)  money supply, real GDP per year 
B)  money supply, price level 
C)  price level, money supply 
D)  real GDP per year, income velocity of money

Question 10

An expansionary monetary policy is one that

Accepted Answer

A)  stimulates aggregate supply. 
B)  reduces aggregate supply and aggregate demand. 
C)  stimulates aggregate demand. 
D)  reduces aggregate demand while stimulating aggregate supply. 
A)  stimulates aggregate supply. 
B)  reduces aggregate supply and aggregate demand. 
C)  stimulates aggregate demand. 
D)  reduces aggregate demand while stimulating aggregate supply.

Question 11

The appropriate monetary policy in the event of a recessionary gap would be to

Accepted Answer

A)  increase the difference between the discount rate and the federal funds rate. 
B)  engage in an open market purchase of U.S. government securities. 
C)  increase the difference between the federal funds rate and the required reserve ratio. 
D)  raise the required reserve ratio. 
A)  increase the difference between the discount rate and the federal funds rate. 
B)  engage in an open market purchase of U.S. government securities. 
C)  increase the difference between the federal funds rate and the required reserve ratio. 
D)  raise the required reserve ratio.

Question 12

If the Fed thought the economy was experiencing a recessionary gap, and it wanted to correct this gap, it would

Accepted Answer

A)  sell bonds. 
B)  lower the differential between the discount rate and the federal funds rate. 
C)  raise the reserve requirement. 
D)  increase aggregate supply. 
A)  sell bonds. 
B)  lower the differential between the discount rate and the federal funds rate. 
C)  raise the reserve requirement. 
D)  increase aggregate supply.

Question 13

The office of the Federal Reserve Bank of New York charged with implementing Federal Reserve open market policy actions is known as the

Accepted Answer

A)  Open Market Coordination Office. 
B)  Open Market Cooperation Office. 
C)  Response Desk. 
D)  Trading Desk. 
A)  Open Market Coordination Office. 
B)  Open Market Cooperation Office. 
C)  Response Desk. 
D)  Trading Desk.

Question 14

The asset demand for money is

Accepted Answer

A)  greater at high interest rates as investors can earn more on their investments. 
B)  greater at low interest rates, because the opportunity cost of holding money is low. 
C)  greater at low interest rates, because the opportunity cost of holding money is high. 
D)  lower at low interest rates, because the opportunity cost of holding money is high. 
A)  greater at high interest rates as investors can earn more on their investments. 
B)  greater at low interest rates, because the opportunity cost of holding money is low. 
C)  greater at low interest rates, because the opportunity cost of holding money is high. 
D)  lower at low interest rates, because the opportunity cost of holding money is high.

Question 15

Which of the following statements is FALSE?

Accepted Answer

A)  Both monetary and interest rate targets cannot be pursued simultaneously. 
B)  A reduction in the required reserve ratio increases the money supply and pushes down the equilibrium interest rate. 
C)  An open market purchase reduces the money supply and pushes down the equilibrium interest rate. 
D)  an open market sale decreases the money supply and pushes up the equilibrium interest rate. 
A)  Both monetary and interest rate targets cannot be pursued simultaneously. 
B)  A reduction in the required reserve ratio increases the money supply and pushes down the equilibrium interest rate. 
C)  An open market purchase reduces the money supply and pushes down the equilibrium interest rate. 
D)  an open market sale decreases the money supply and pushes up the equilibrium interest rate.

Question 16

When people want to hold money to make regular planned expenditures, this is

Accepted Answer

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

Question 17

If the interest rate increases, the

Accepted Answer

A)  quantity of money demanded will remain unchanged. 
B)  money demand curve will shift to the right. 
C)  money demand curve will shift to the left. 
D)  quantity of money demanded will fall. 
A)  quantity of money demanded will remain unchanged. 
B)  money demand curve will shift to the right. 
C)  money demand curve will shift to the left. 
D)  quantity of money demanded will fall.

Question 18

In the real world, contractionary monetary policy would be used to

Accepted Answer

A)  combat a recession. 
B)  reduce the rate of inflation. 
C)  increase nominal GDP. 
D)  increase long-run aggregate supply. 
A)  combat a recession. 
B)  reduce the rate of inflation. 
C)  increase nominal GDP. 
D)  increase long-run aggregate supply.

Question 19

The opportunity cost of holding money is

Accepted Answer

A)  the interest income foregone. 
B)  the transactions demand for money. 
C)  contractionary monetary policy. 
D)  the monetary rule. 
A)  the interest income foregone. 
B)  the transactions demand for money. 
C)  contractionary monetary policy. 
D)  the monetary rule.

Question 20

A contractionary monetary policy causes

Accepted Answer

A)  higher interest rates, which increases the international price of the dollar and decreases net exports. 
B)  higher interest rates, which decreases the foreign demand for U.S. financial instruments, raising the international price of the dollar and increasing net exports. 
C)  lower interest rates, which decreases the foreign demand for U.S. financial instruments, raising the international price of the dollar and increasing net exports. 
D)  higher interest rates, which increases the foreign demand for U.S. financial instruments, which causes interest rates to decrease. There is no effect on net exports. 
A)  higher interest rates, which increases the international price of the dollar and decreases net exports. 
B)  higher interest rates, which decreases the foreign demand for U.S. financial instruments, raising the international price of the dollar and increasing net exports. 
C)  lower interest rates, which decreases the foreign demand for U.S. financial instruments, raising the international price of the dollar and increasing net exports. 
D)  higher interest rates, which increases the foreign demand for U.S. financial instruments, which causes interest rates to decrease. There is no effect on net exports.

Exam 16: Domestic and International Dimensions of Monetary Policy

Holding money as a store of value instead of other assets is

Suppose the economy currently has an inflationary gap. The Fed engages in contractionary monetary policy. The impact of contractionary monetary policy will be to

Suppose that the Fed has decided to utilize the Taylor rule to implement monetary policy. If the actual federal funds rate target is presently below the level specified by the Taylor rule and has been lower than this level for several weeks, then this would be a signal that

An increase in the price level means that

When households choose to hold money as a store of value, rather than holding assets such as certificates of deposit, stocks, and bonds, ________ demand for money results.

How does the Fed increase the level of reserves in the banking system?

Bertha holds some of her savings as currency and coins placed in her sewing basket. This is an example of

What is the most common reason people demand money?

Empirical evidence across numerous countries indicates that changes in the ________ are associated with nearly equiproportional changes in ________ .

An expansionary monetary policy is one that

The appropriate monetary policy in the event of a recessionary gap would be to

If the Fed thought the economy was experiencing a recessionary gap, and it wanted to correct this gap, it would

The office of the Federal Reserve Bank of New York charged with implementing Federal Reserve open market policy actions is known as the

The asset demand for money is

Which of the following statements is FALSE?

When people want to hold money to make regular planned expenditures, this is

If the interest rate increases, the

In the real world, contractionary monetary policy would be used to

The opportunity cost of holding money is

A contractionary monetary policy causes

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

Empirical evidence across numerous countries indicates that changes in the are associated with nearly equiproportional changes in .