Question 1

Precautionary demand for money will fall when

Accepted Answer

A)  the interest rate rises. 
B)  the interest rate falls. 
C)  the money supply increases. 
D)  government spending falls. 
A)  the interest rate rises. 
B)  the interest rate falls. 
C)  the money supply increases. 
D)  government spending falls.

Question 2

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

Accepted Answer

A)  monetary policy will tend to produce that inflation rate. 
B)  monetary policy is contractionary. 
C)  monetary policy is expansionary. 
D)  fiscal policy will result in a balanced budget. 
A)  monetary policy will tend to produce that inflation rate. 
B)  monetary policy is contractionary. 
C)  monetary policy is expansionary. 
D)  fiscal policy will result in a balanced budget.

Question 3

When interest rates rise, the transactions demand for money usually

Accepted Answer

A)  decreases. 
B)  increases. 
C)  decreases initially and then increases to the original position. 
D)  does not change. 
A)  decreases. 
B)  increases. 
C)  decreases initially and then increases to the original position. 
D)  does not change.

Question 4

Open market operations by the Fed cause

Accepted Answer

A)  changes in the difference between the discount rate. and the federal funds rate. 
B)  aggregate supply to change. 
C)  the prices of bonds to change. 
D)  changes in the required reserve ratio. 
A)  changes in the difference between the discount rate. and the federal funds rate. 
B)  aggregate supply to change. 
C)  the prices of bonds to change. 
D)  changes in the required reserve ratio.

Question 5

What are three reasons people want to hold money balances?

Accepted Answer

There are three reasons people hold mone

Question 6

According to the text, the main reason for people to hold money is

Accepted Answer

A)  to enjoy looking at the pictures of past leaders. 
B)  to tell other people how rich they are. 
C)  because they are irrational. 
D)  to use it for different reasons. 
A)  to enjoy looking at the pictures of past leaders. 
B)  to tell other people how rich they are. 
C)  because they are irrational. 
D)  to use it for different reasons.

Question 7

The Taylor rule implies that the Fed should set the federal funds target based on which of the following?

Accepted Answer

A)  an estimated long-run real interest rate 
B)  the current deviation of the actual inflation rate from the Fed's inflation objective 
C)  the proportionate gap between actual real GDP and a measure of potential real GDP 
D)  all of the above 
A)  an estimated long-run real interest rate 
B)  the current deviation of the actual inflation rate from the Fed's inflation objective 
C)  the proportionate gap between actual real GDP and a measure of potential real GDP 
D)  all of the above

Question 8

The net-export effect of expansionary monetary policy is a(n)

Accepted Answer

A)  depreciation of the value of the dollar and the increase of U.S. net exports. 
B)  depreciation of the value of the dollar and the decrease of U.S. net exports. 
C)  appreciation of the value of the dollar and the increase of U.S. net exports. 
D)  appreciation of the value of the dollar and the decrease of U.S. net exports. 
A)  depreciation of the value of the dollar and the increase of U.S. net exports. 
B)  depreciation of the value of the dollar and the decrease of U.S. net exports. 
C)  appreciation of the value of the dollar and the increase of U.S. net exports. 
D)  appreciation of the value of the dollar and the decrease of U.S. net exports.

Question 9

The opportunity cost of holding excess reserves is equal to

Accepted Answer

A)  the discount rate. 
B)  the federal funds rate. 
C)  the federal funds rate minus the discount rate. 
D)  none of the above. 
A)  the discount rate. 
B)  the federal funds rate. 
C)  the federal funds rate minus the discount rate. 
D)  none of the above.

Question 10

The transactions demand for money refers to

Accepted Answer

A)  the desire for wealth. 
B)  the demand to hold money for use in planned purchases. 
C)  the desire for income. 
D)  the demand to hold money as a long-term store of value. 
A)  the desire for wealth. 
B)  the demand to hold money for use in planned purchases. 
C)  the desire for income. 
D)  the demand to hold money as a long-term store of value.

Question 11

-Refer to the above figure. Which panel is consistent with the Fed buying bonds?

Accepted Answer

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

Question 12

The money demand function implies that money demand is

Accepted Answer

A)  positively related to interest rates. 
B)  negatively related to bond prices. 
C)  negatively related to interest rates. 
D)  negatively related to transactions in the economy. 
A)  positively related to interest rates. 
B)  negatively related to bond prices. 
C)  negatively related to interest rates. 
D)  negatively related to transactions in the economy.

Question 13

An increase in the money supply will

Accepted Answer

A)  increase aggregate supply. 
B)  decrease aggregate supply. 
C)  increase aggregate demand. 
D)  decrease aggregate demand. 
A)  increase aggregate supply. 
B)  decrease aggregate supply. 
C)  increase aggregate demand. 
D)  decrease aggregate demand.

Question 14

Which of the following is a factor influencing the demand for money?

Accepted Answer

A)  Transactions demand 
B)  Precautionary demand 
C)  Asset demand 
D)  All of the above are correct 
A)  Transactions demand 
B)  Precautionary demand 
C)  Asset demand 
D)  All of the above are correct

Question 15

The amount of money people wish to hold shows an inverse relationship to

Accepted Answer

A)  their planned near-term purchases. 
B)  the money supply. 
C)  the income tax rate. 
D)  the interest rate. 
A)  their planned near-term purchases. 
B)  the money supply. 
C)  the income tax rate. 
D)  the interest rate.

Question 16

The equation of exchange can be written as

Accepted Answer

A)    P = VY. 
B)    V = PY. 
C)    Y = VP. 
D)  None of the above are correct. 
A)    P = VY. 
B)    V = PY. 
C)    Y = VP. 
D)  None of the above are correct.

Question 17

According to Keynes, the effect on planned real investment spending resulting from the interest-rate impact of a decrease in the money supply

Accepted Answer

A)  impacts the economy through the multiplier. 
B)  impacts the economy by reducing the value of the U.S. dollar. 
C)  impacts the economy by increasing the deficit. 
D)  does not impact the economy. 
A)  impacts the economy through the multiplier. 
B)  impacts the economy by reducing the value of the U.S. dollar. 
C)  impacts the economy by increasing the deficit. 
D)  does not impact the economy.

Question 18

The main reason people hold money is that

Accepted Answer

A)  money provides a standard of value. 
B)  money is used to buy goods and services. 
C)  money is intrinsically valuable. 
D)  money is power. 
A)  money provides a standard of value. 
B)  money is used to buy goods and services. 
C)  money is intrinsically valuable. 
D)  money is power.

Question 19

Which of the following is NOT a reason why people are motivated to hold money?

Accepted Answer

A)  Asset demand. 
B)  Precautionary demand. 
C)  Liability demand. 
D)  Transactions demand. 
A)  Asset demand. 
B)  Precautionary demand. 
C)  Liability demand. 
D)  Transactions demand.

Question 20

In economics, the demand for money as basically a demand for

Accepted Answer

A)  bonds. 
B)  status. 
C)  liquidity. 
D)  investment. 
A)  bonds. 
B)  status. 
C)  liquidity. 
D)  investment.

Exam 16: Domestic and International Dimensions of Monetary Policy

Precautionary demand for money will fall when

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

When interest rates rise, the transactions demand for money usually

Open market operations by the Fed cause

What are three reasons people want to hold money balances?

According to the text, the main reason for people to hold money is

The Taylor rule implies that the Fed should set the federal funds target based on which of the following?

The net-export effect of expansionary monetary policy is a(n)

The opportunity cost of holding excess reserves is equal to

The transactions demand for money refers to

-Refer to the above figure. Which panel is consistent with the Fed buying bonds?

The money demand function implies that money demand is

An increase in the money supply will

Which of the following is a factor influencing the demand for money?

The amount of money people wish to hold shows an inverse relationship to

The equation of exchange can be written as

According to Keynes, the effect on planned real investment spending resulting from the interest-rate impact of a decrease in the money supply

The main reason people hold money is that

Which of the following is NOT a reason why people are motivated to hold money?

In economics, the demand for money as basically a demand for

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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