Question 1

What are the direct and indirect effects of an increase in the money supply?

Accepted Answer

The direct effect of more money in the e

Question 2

What does the demand curve for money look like? Why?

Accepted Answer

If the quantity of money is on the horiz

Question 3

Suppose the economy is initially in long-run and short-run equilibrium. If the Fed decides to pursue a contractionary monetary policy, we will see

Accepted Answer

A)  bond prices fall, interest rates fall, aggregate demand remains unchanged as consumption spending decreases, but investment spending increases. GDP remains constant in both the short run and the long run, but the price level falls in both. 
B)  bond prices fall, interest rates rise, aggregate demand falls as investment and consumption spending decrease, and real GDP and the price level decreasing in the short-run, but only the price level decreasing in the long run. 
C)  bond prices fall, interest rates rise, aggregate demand falls as investment spending decreases and consumption spending remains unchanged, and real GDP and the price level decrease in the short run, but only the price level falls in the short run. 
D)  interest rates rise but no change in bond prices. Aggregate demand falls as consumption spending and investment spending decrease, and the price level and real GDP fall in both the short run and the long run. 
A)  bond prices fall, interest rates fall, aggregate demand remains unchanged as consumption spending decreases, but investment spending increases. GDP remains constant in both the short run and the long run, but the price level falls in both. 
B)  bond prices fall, interest rates rise, aggregate demand falls as investment and consumption spending decrease, and real GDP and the price level decreasing in the short-run, but only the price level decreasing in the long run. 
C)  bond prices fall, interest rates rise, aggregate demand falls as investment spending decreases and consumption spending remains unchanged, and real GDP and the price level decrease in the short run, but only the price level falls in the short run. 
D)  interest rates rise but no change in bond prices. Aggregate demand falls as consumption spending and investment spending decrease, and the price level and real GDP fall in both the short run and the long run.

Question 4

The relationship between the interest rate and the precautionary demand for money is

Accepted Answer

A)  positive. 
B)  inverse. 
C)  positive sometimes and inverse other times. 
D)  nonexistent. 
A)  positive. 
B)  inverse. 
C)  positive sometimes and inverse other times. 
D)  nonexistent.

Question 5

In an economy that is at full employment, an increase in money supply will result in inflation, unless

Accepted Answer

A)  velocity increases. 
B)  velocity decreases. 
C)  real GDP falls. 
D)  tax reduction is proportional to increases in the money supply. 
A)  velocity increases. 
B)  velocity decreases. 
C)  real GDP falls. 
D)  tax reduction is proportional to increases in the money supply.

Question 6

The equation of exchange is a formula indicating that the number of monetary units times

Accepted Answer

A)  the number of times each monetary unit is spent on final goods and services is identical to the price level times real GDP. 
B)  the price level is identical to the number of times each monetary unit is spent on final goods and services times real GDP. 
C)  real GDP is identical to the price level times the number of times each monetary unit is spent on final goods and services. 
D)  nominal GDP is identical to the price level times the number of times each monetary unit is spent on final goods and services. 
A)  the number of times each monetary unit is spent on final goods and services is identical to the price level times real GDP. 
B)  the price level is identical to the number of times each monetary unit is spent on final goods and services times real GDP. 
C)  real GDP is identical to the price level times the number of times each monetary unit is spent on final goods and services. 
D)  nominal GDP is identical to the price level times the number of times each monetary unit is spent on final goods and services.

Question 7

Something that affects the amount of money in existence will

Accepted Answer

A)  have no particular effect. 
B)  not affect the economy as a whole but may affect certain key markets such as the market for loans. 
C)  have an effect only if the change in money is large. 
D)  affect all markets. 
A)  have no particular effect. 
B)  not affect the economy as a whole but may affect certain key markets such as the market for loans. 
C)  have an effect only if the change in money is large. 
D)  affect all markets.

Question 8

Which of the following will NOT occur in the short run when the money supply decreases?

Accepted Answer

A)  People will buy fewer goods and services. 
B)  The interest rate will increase. 
C)  Aggregate supply decreases. 
D)  The price level decreases. 
A)  People will buy fewer goods and services. 
B)  The interest rate will increase. 
C)  Aggregate supply decreases. 
D)  The price level decreases.

Question 9

Which of the following is NOT a basis for the Taylor-rule guideline for how the Federal Reserve should set its target value for the federal funds rate?

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 present deviation of the actual unemployment rate from the Fed's unemployment objective 
D)  the gap between actual real GDP and a measure of potential real GDP 
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 present deviation of the actual unemployment rate from the Fed's unemployment objective 
D)  the gap between actual real GDP and a measure of potential real GDP

Question 10

Which of the following will lead to a decrease in the price of existing bonds?

Accepted Answer

A)  A decrease in the rate of interest 
B)  An inward shift in money demand 
C)  A decrease in planned investment spending 
D)  A reduction in the money supply 
A)  A decrease in the rate of interest 
B)  An inward shift in money demand 
C)  A decrease in planned investment spending 
D)  A reduction in the money supply

Question 11

The Federal Reserve's credit policy refers to

Accepted Answer

A)  a direct credit on bank depositors' saving and checking accounts. 
B)  regulations on terms on credit cards that banks issue. 
C)  the Fed's direct lending to homeowners and students. 
D)  the Fed's direct lending to financial and nonfinancial firms. 
A)  a direct credit on bank depositors' saving and checking accounts. 
B)  regulations on terms on credit cards that banks issue. 
C)  the Fed's direct lending to homeowners and students. 
D)  the Fed's direct lending to financial and nonfinancial firms.

Question 12

The Federal Reserve finances its credit policy with

Accepted Answer

A)  reserve deposits that private banks hold with the Fed. 
B)  borrowing from the federal government. 
C)  the insurance premiums collected by the FDIC. 
D)  funding from the U.S. Treasury Department. 
A)  reserve deposits that private banks hold with the Fed. 
B)  borrowing from the federal government. 
C)  the insurance premiums collected by the FDIC. 
D)  funding from the U.S. Treasury Department.

Question 13

The asset demand for money is related to the function of money called

Accepted Answer

A)  medium of exchange. 
B)  unit of account. 
C)  store of value. 
D)  standard of deferred payment. 
A)  medium of exchange. 
B)  unit of account. 
C)  store of value. 
D)  standard of deferred payment.

Question 14

According to the quantity theory of money,

Accepted Answer

A)  a change in the money supply can lead only to a proportionate change in the price level. 
B)  the velocity of money is the least stable factor in monetary analysis. 
C)  the rate of inflation is not related to changes in the money supply. 
D)  price level changes can best be explained by Keynesian analysis. 
A)  a change in the money supply can lead only to a proportionate change in the price level. 
B)  the velocity of money is the least stable factor in monetary analysis. 
C)  the rate of inflation is not related to changes in the money supply. 
D)  price level changes can best be explained by Keynesian analysis.

Question 15

According to the quantity theory of money and prices, a 10 percent increase in the money supply ultimately leads to

Accepted Answer

A)  a 10 percent increase in real GDP. 
B)  a 10 percent increase in real national output. 
C)  a 10 percent increase in the price level. 
D)  a 10 percent increase in velocity. 
A)  a 10 percent increase in real GDP. 
B)  a 10 percent increase in real national output. 
C)  a 10 percent increase in the price level. 
D)  a 10 percent increase in velocity.

Question 16

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

Accepted Answer

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

Question 17

In addition to open market operations and the required reserve ratio, another tool of monetary policy available to the Fed is

Accepted Answer

A)  fiscal policy. 
B)  tax rates and the progressivity of the income-tax system. 
C)  government spending and various transfer-payment programs. 
D)  the difference between the discount rate and the federal funds rate. 
A)  fiscal policy. 
B)  tax rates and the progressivity of the income-tax system. 
C)  government spending and various transfer-payment programs. 
D)  the difference between the discount rate and the federal funds rate.

Question 18

According to Keynes, contractionary monetary policy

Accepted Answer

A)  impacts the economy by an amount smaller than the change in investment. 
B)  impacts the economy by an amount larger than the change in investment. 
C)  will have no impact on the equilibrium nominal GDP. 
D)  will have no impact on the equilibrium real GDP. 
A)  impacts the economy by an amount smaller than the change in investment. 
B)  impacts the economy by an amount larger than the change in investment. 
C)  will have no impact on the equilibrium nominal GDP. 
D)  will have no impact on the equilibrium real GDP.

Question 19

The quantity theory of money and prices rests on the assumption that

Accepted Answer

A)  the velocity of money is constant. 
B)  the minimum wage is constant. 
C)  the nominal interest rate is constant. 
D)  the foreign exchange rate is constant. 
A)  the velocity of money is constant. 
B)  the minimum wage is constant. 
C)  the nominal interest rate is constant. 
D)  the foreign exchange rate is constant.

Question 20

Typically, increasing the difference between the discount and federal funds rates causes

Accepted Answer

A)  an increase in market interest rates. 
B)  no change in interest rates. 
C)  a boom in the economy. 
D)  high corporate profits. 
A)  an increase in market interest rates. 
B)  no change in interest rates. 
C)  a boom in the economy. 
D)  high corporate profits.

Exam 16: Domestic and International Dimensions of Monetary Policy

What are the direct and indirect effects of an increase in the money supply?

What does the demand curve for money look like? Why?

Suppose the economy is initially in long-run and short-run equilibrium. If the Fed decides to pursue a contractionary monetary policy, we will see

The relationship between the interest rate and the precautionary demand for money is

In an economy that is at full employment, an increase in money supply will result in inflation, unless

The equation of exchange is a formula indicating that the number of monetary units times

Something that affects the amount of money in existence will

Which of the following will NOT occur in the short run when the money supply decreases?

Which of the following is NOT a basis for the Taylor-rule guideline for how the Federal Reserve should set its target value for the federal funds rate?

Which of the following will lead to a decrease in the price of existing bonds?

The Federal Reserve's credit policy refers to

The Federal Reserve finances its credit policy with

The asset demand for money is related to the function of money called

According to the quantity theory of money,

According to the quantity theory of money and prices, a 10 percent increase in the money supply ultimately leads to

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

In addition to open market operations and the required reserve ratio, another tool of monetary policy available to the Fed is

According to Keynes, contractionary monetary policy

The quantity theory of money and prices rests on the assumption that

Typically, increasing the difference between the discount and federal funds rates 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

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