Question 1

The number of times per year, on average, that a dollar is spent on final goods and services is known as

Accepted Answer

A)  the money supply. 
B)  the equation of exchange. 
C)  the price of money. 
D)  the income velocity of money. 
A)  the money supply. 
B)  the equation of exchange. 
C)  the price of money. 
D)  the income velocity of money.

Question 2

The linkages of the interest-rate-based transmission mechanism of monetary policy are summarized as follows:

Accepted Answer

A)  change in the money supply → change in speculative balances → change in transactions balances → change in planned investment → change in aggregate demand. 
B)  change in the money supply → change in planned investment → change in government spending → change in aggregate demand. 
C)  change in the money supply → change in interest rates → change in planned investment → change in aggregate demand. 
D)  change in the money supply → change in interest rates → change in transactions balances → change in government spending → change in aggregate demand. 
A)  change in the money supply → change in speculative balances → change in transactions balances → change in planned investment → change in aggregate demand. 
B)  change in the money supply → change in planned investment → change in government spending → change in aggregate demand. 
C)  change in the money supply → change in interest rates → change in planned investment → change in aggregate demand. 
D)  change in the money supply → change in interest rates → change in transactions balances → change in government spending → change in aggregate demand.

Question 3

-Refer to the above figure. Suppose point A is the original equilibrium. If there is an increase in the money supply, the new short-run equilibrium is given by point

Accepted Answer

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

Question 4

If the Fed sells U.S. government securities , the

Accepted Answer

A)  money supply increases, and the money supply curve shifts to the right. 
B)  money supply increases, and the money supply curve shifts to the left. 
C)  money supply decreases, and the money supply curve shifts to the right. 
D)  money supply decreases, and the money supply curve shifts to the left. 
A)  money supply increases, and the money supply curve shifts to the right. 
B)  money supply increases, and the money supply curve shifts to the left. 
C)  money supply decreases, and the money supply curve shifts to the right. 
D)  money supply decreases, and the money supply curve shifts to the left.

Question 5

The opportunity cost of holding money refers to

Accepted Answer

A)  the service fees associated with checking accounts. 
B)  the service fees associated with checking accounts plus the costs undertaken to prevent theft. 
C)  the interest that could have been earned if the money balances had been transferred to an interest-bearing asset. 
D)  the pleasure that would have been received if the money balances had been used to buy a good or service. 
A)  the service fees associated with checking accounts. 
B)  the service fees associated with checking accounts plus the costs undertaken to prevent theft. 
C)  the interest that could have been earned if the money balances had been transferred to an interest-bearing asset. 
D)  the pleasure that would have been received if the money balances had been used to buy a good or service.

Question 6

The "V" in the equation of exchange   V = PY refers to

Accepted Answer

A)  a variable. 
B)  income velocity of money. 
C)  the velocity of inflation. 
D)  a vector that links P to Y. 
A)  a variable. 
B)  income velocity of money. 
C)  the velocity of inflation. 
D)  a vector that links P to Y.

Question 7

The velocity of money

Accepted Answer

A)  is, according to the equation of exchange, equal to P/M. 
B)  indicates the number of times per year a dollar is spent on final goods and services. 
C)  is, according to the equation of exchange, equal to M/Y. 
D)  indicates the speed with which the U.S. Treasury can mint new coins. 
A)  is, according to the equation of exchange, equal to P/M. 
B)  indicates the number of times per year a dollar is spent on final goods and services. 
C)  is, according to the equation of exchange, equal to M/Y. 
D)  indicates the speed with which the U.S. Treasury can mint new coins.

Question 8

What are the two features of money that distinguish it from all other goods in the economy?

Accepted Answer

A)  Money is government issued and it is redeemable for gold or silver. 
B)  Money is accepted as a medium of exchange and it is the common unit of account used to express prices. 
C)  Money is part of every barter transaction and it is divisible. 
D)  Money is a common unit of account and it is also can be traded for other currencies at a guaranteed exchange rate. 
A)  Money is government issued and it is redeemable for gold or silver. 
B)  Money is accepted as a medium of exchange and it is the common unit of account used to express prices. 
C)  Money is part of every barter transaction and it is divisible. 
D)  Money is a common unit of account and it is also can be traded for other currencies at a guaranteed exchange rate.

Question 9

To close a recessionary gap, the Fed would

Accepted Answer

A)  decrease the money supply. 
B)  increase interest rates. 
C)  sell bonds. 
D)  increase the money supply. 
A)  decrease the money supply. 
B)  increase interest rates. 
C)  sell bonds. 
D)  increase the money supply.

Question 10

The transactions demand for money is the demand to hold money to

Accepted Answer

A)  make regular, expected purchases. 
B)  meet unplanned expenditures. 
C)  store one's wealth. 
D)  purchase bonds when interest rates increase. 
A)  make regular, expected purchases. 
B)  meet unplanned expenditures. 
C)  store one's wealth. 
D)  purchase bonds when interest rates increase.

Question 11

Which of the following is a true statement?

Accepted Answer

A)  To demand money is to demand wealth. 
B)  To demand money is to demand a higher income. 
C)  To use money, one must hold money. 
D)  To get more money, one must earn interest on money. 
A)  To demand money is to demand wealth. 
B)  To demand money is to demand a higher income. 
C)  To use money, one must hold money. 
D)  To get more money, one must earn interest on money.

Question 12

Holding money as a medium of exchange to make payments 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 13

When the Federal Reserve conducts open market purchases to increase bank reserves without trying to alter the interest rate that is already close to zero, the policy action is called

Accepted Answer

A)  qualitative easing. 
B)  quantitative easing. 
C)  qualitative tightening. 
D)  quantitative tightening. 
A)  qualitative easing. 
B)  quantitative easing. 
C)  qualitative tightening. 
D)  quantitative tightening.

Question 14

According to the equation of exchange, nominal GDP equals

Accepted Answer

A)  the amount of actual money balances times the income velocity of money. 
B)  the amount of actual money balances divided by the income velocity of money. 
C)  the price level divided by the income velocity of money. 
D)  the price level times the income velocity of money. 
A)  the amount of actual money balances times the income velocity of money. 
B)  the amount of actual money balances divided by the income velocity of money. 
C)  the price level divided by the income velocity of money. 
D)  the price level times the income velocity of money.

Question 15

Suppose the Fed increases the money supply. As a result of this, people deposit excess funds into their bank accounts, causing banks to have excess reserves. As a result, the banks lower the interest rates that they charge on loans, and investment rises, causing an increase in aggregate spending. This is known as a(n)

Accepted Answer

A)  direct effect of monetary policy. 
B)  indirect effect of monetary policy. 
C)  direct effect of fiscal policy. 
D)  indirect effect of fiscal policy. 
A)  direct effect of monetary policy. 
B)  indirect effect of monetary policy. 
C)  direct effect of fiscal policy. 
D)  indirect effect of fiscal policy.

Question 16

What happens to the price of bonds when the Fed is selling bonds? What happens to the interest rate? What happens to the money supply?

Accepted Answer

If the Fed sells bonds, the supply of bo

Question 17

-Refer to the above figure. Suppose point A is the original equilibrium. If there is an increase in the money supply, the new long-run equilibrium is given by point

Accepted Answer

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

Question 18

The demand for money curve is drawn with

Accepted Answer

A)  the interest rate on the vertical axis and the curve sloping down. 
B)  the interest rate on the vertical axis and the curve sloping up. 
C)  nominal Gross Domestic Product (GDP) on the vertical axis and the curve sloping up. 
D)  nominal Gross Domestic Product (GDP) on the horizontal axis and the curve sloping down. 
A)  the interest rate on the vertical axis and the curve sloping down. 
B)  the interest rate on the vertical axis and the curve sloping up. 
C)  nominal Gross Domestic Product (GDP) on the vertical axis and the curve sloping up. 
D)  nominal Gross Domestic Product (GDP) on the horizontal axis and the curve sloping down.

Question 19

Briefly describe the effects of an open market sale by the Federal Reserve, according to the interest-rate-based approach to the monetary policy transmission mechanism.

Accepted Answer

If the Fed decreases the money supply th

Question 20

The transactions demand for money

Accepted Answer

A)  varies negatively with nominal Gross Domestic Product (GDP). 
B)  varies inversely with nominal Gross Domestic Product (GDP). 
C)  varies directly with nominal Gross Domestic Product (GDP). 
D)  is unrelated to nominal Gross Domestic Product (GDP). 
A)  varies negatively with nominal Gross Domestic Product (GDP). 
B)  varies inversely with nominal Gross Domestic Product (GDP). 
C)  varies directly with nominal Gross Domestic Product (GDP). 
D)  is unrelated to nominal Gross Domestic Product (GDP).

Exam 16: Domestic and International Dimensions of Monetary Policy

The number of times per year, on average, that a dollar is spent on final goods and services is known as

The linkages of the interest-rate-based transmission mechanism of monetary policy are summarized as follows:

-Refer to the above figure. Suppose point A is the original equilibrium. If there is an increase in the money supply, the new short-run equilibrium is given by point

If the Fed sells U.S. government securities , the

The opportunity cost of holding money refers to

The "V" in the equation of exchange V = PY refers to

The velocity of money

What are the two features of money that distinguish it from all other goods in the economy?

To close a recessionary gap, the Fed would

The transactions demand for money is the demand to hold money to

Which of the following is a true statement?

Holding money as a medium of exchange to make payments is

When the Federal Reserve conducts open market purchases to increase bank reserves without trying to alter the interest rate that is already close to zero, the policy action is called

According to the equation of exchange, nominal GDP equals

What happens to the price of bonds when the Fed is selling bonds? What happens to the interest rate? What happens to the money supply?

-Refer to the above figure. Suppose point A is the original equilibrium. If there is an increase in the money supply, the new long-run equilibrium is given by point

The demand for money curve is drawn with

Briefly describe the effects of an open market sale by the Federal Reserve, according to the interest-rate-based approach to the monetary policy transmission mechanism.

The transactions demand for money

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

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The Macroeconomy: Unemployment, Inflation, and Deflation

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Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

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Money, Banking, and Central Banking

Stabilization in an Integrated World Economy

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