Question 1

The Federal Open Market Committee engages in contractionary monetary policy by

Accepted Answer

A)  lowering interest rates. 
B)  creating excess reserves. 
C)  selling bonds. 
D)  buying bonds. 
A)  lowering interest rates. 
B)  creating excess reserves. 
C)  selling bonds. 
D)  buying bonds.

Question 2

What effects does an expansionary monetary policy have on the trade balance? Why?

Accepted Answer

An expansionary monetary policy may caus

Question 3

An open market purchase of government securities by the Fed will cause which of the following?

Accepted Answer

A)  an excess quantity of reserves supplied and an increase in the federal funds rate 
B)  an excess quantity of reserves supplied and a reduction in the federal funds rate 
C)  an excess quantity of reserves demanded and an increase in the federal funds rate 
D)  an excess quantity of reserves demanded and a reduction in the federal funds rate 
A)  an excess quantity of reserves supplied and an increase in the federal funds rate 
B)  an excess quantity of reserves supplied and a reduction in the federal funds rate 
C)  an excess quantity of reserves demanded and an increase in the federal funds rate 
D)  an excess quantity of reserves demanded and a reduction in the federal funds rate

Question 4

-In the above figure, if we begin at   and the Fed sells bonds,

Accepted Answer

A)  the price of bonds falls, and the interest rate rises. 
B)  the price of bonds falls, and so does the interest rate. 
C)  the price of bonds rises, and so does the interest rate. 
D)  the price of bonds rises, and the interest rate falls. 
A)  the price of bonds falls, and the interest rate rises. 
B)  the price of bonds falls, and so does the interest rate. 
C)  the price of bonds rises, and so does the interest rate. 
D)  the price of bonds rises, and the interest rate falls.

Question 5

As the world economy becomes more integrated through globalization,

Accepted Answer

A)  the Fed will find it easier to conduct monetary policy. 
B)  the Fed will have a more difficult time reaching its money supply growth rate targets. 
C)  the Fed will rely less on open market operations and more on changing the required reserve ratio when conducting monetary policy. 
D)  U.S. interest rates will determine world interest rates. 
A)  the Fed will find it easier to conduct monetary policy. 
B)  the Fed will have a more difficult time reaching its money supply growth rate targets. 
C)  the Fed will rely less on open market operations and more on changing the required reserve ratio when conducting monetary policy. 
D)  U.S. interest rates will determine world interest rates.

Question 6

What effect does an expansionary monetary policy in the U.S. have on the foreign trade sector?

Accepted Answer

A)  The lower value of the dollar will decrease exports and increase imports. 
B)  The lower value of the dollar will decrease imports and increase exports. 
C)  The higher value of the dollar will decrease exports and increase imports. 
D)  The higher value of the dollar will decrease imports and increase exports. 
A)  The lower value of the dollar will decrease exports and increase imports. 
B)  The lower value of the dollar will decrease imports and increase exports. 
C)  The higher value of the dollar will decrease exports and increase imports. 
D)  The higher value of the dollar will decrease imports and increase exports.

Question 7

According to traditional Keynesians, monetary policy as a tool to fight a recession

Accepted Answer

A)  has an uncertain effect on the economy, depending on the direction of fiscal policy. 
B)  is very effective because interest rates will fall immediately. 
C)  is ineffective because interest rates will not fall. 
D)  cannot be determined because traditional Keynesians do not consider monetary policy at all. 
A)  has an uncertain effect on the economy, depending on the direction of fiscal policy. 
B)  is very effective because interest rates will fall immediately. 
C)  is ineffective because interest rates will not fall. 
D)  cannot be determined because traditional Keynesians do not consider monetary policy at all.

Question 8

Alberto purchases ten cups of coffee a week. The amount of money that he holds to purchase ten cups of coffee is 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 9

The number of times per year that a dollar is spent on final goods and services defines

Accepted Answer

A)  the money supply. 
B)  the income velocity of money. 
C)  the price index. 
D)  GDP. 
A)  the money supply. 
B)  the income velocity of money. 
C)  the price index. 
D)  GDP.

Question 10

The transactions demand for money

Accepted Answer

A)  varies inversely with the precautionary demand for money. 
B)  varies directly with the rate of interest. 
C)  is a function of nominal Gross Domestic Product (GDP). 
D)  is determined by the Federal Reserve System. 
A)  varies inversely with the precautionary demand for money. 
B)  varies directly with the rate of interest. 
C)  is a function of nominal Gross Domestic Product (GDP). 
D)  is determined by the Federal Reserve System.

Question 11

According to Keynes, the impact of a decrease in the money supply is a

Accepted Answer

A)  lower interest rate and larger growth in real GDP. 
B)  lower interest rate and smaller growth in real GDP. 
C)  higher interest rate and larger growth in real GDP. 
D)  higher interest rate and smaller growth in real GDP. 
A)  lower interest rate and larger growth in real GDP. 
B)  lower interest rate and smaller growth in real GDP. 
C)  higher interest rate and larger growth in real GDP. 
D)  higher interest rate and smaller growth in real GDP.

Question 12

The asset demand for money is related to which function of money?

Accepted Answer

A)  Medium of exchange 
B)  Unit of accounting 
C)  Store of value 
D)  Standard of deferred payment 
A)  Medium of exchange 
B)  Unit of accounting 
C)  Store of value 
D)  Standard of deferred payment

Question 13

Suppose a family is holding $1000 in its checking account for normal transactions, $500 in cash for emergencies, and $1500 as a store of value when the interest rate is 4 percent. If the interest rate rises to 10 percent, which of the following patterns of holding money would be most likely and why?

Accepted Answer

A)  Transactions demand-$1000; Precautionary demand-$350; Asset demand-$500, because the opportunity cost of holding money has increased. The reduction money balances held as an asset is greatest because interest-bearing assets are much more attractive when interest rates are higher. 
B)  Transactions demand-$500; Precautionary demand-$500; Asset demand-$1400, because the opportunity cost of holding money balances has risen. The reduction in money balances held for transaction purposes falls the most because people start using credit cards more when the opportunity cost of holding money increases. 
C)  Transactions demand-$1000; Precautionary demand-$500; Asset demand-$500, because only the asset demand is responsive to changes in the interest rate. 
D)  Transactions demand-$800; Precautionary demand-$600; Asset demand-$1500, because people can economize on their money balances for making transactions, but the possibility of an emergency increases with the interest rate. People will also expect rates to go higher, so they will hold money as an asset until the rates increase further. 
A)  Transactions demand-$1000; Precautionary demand-$350; Asset demand-$500, because the opportunity cost of holding money has increased. The reduction money balances held as an asset is greatest because interest-bearing assets are much more attractive when interest rates are higher. 
B)  Transactions demand-$500; Precautionary demand-$500; Asset demand-$1400, because the opportunity cost of holding money balances has risen. The reduction in money balances held for transaction purposes falls the most because people start using credit cards more when the opportunity cost of holding money increases. 
C)  Transactions demand-$1000; Precautionary demand-$500; Asset demand-$500, because only the asset demand is responsive to changes in the interest rate. 
D)  Transactions demand-$800; Precautionary demand-$600; Asset demand-$1500, because people can economize on their money balances for making transactions, but the possibility of an emergency increases with the interest rate. People will also expect rates to go higher, so they will hold money as an asset until the rates increase further.

Question 14

An appreciation of the U.S. dollar occurs when

Accepted Answer

A)  the international price of the dollar falls. 
B)  the international price of the dollar rises. 
C)  the U.S. demand for foreign currencies increases. 
D)  the supply of dollars in international markets increases. 
A)  the international price of the dollar falls. 
B)  the international price of the dollar rises. 
C)  the U.S. demand for foreign currencies increases. 
D)  the supply of dollars in international markets increases.

Question 15

Operations of the Trading Desk of the Federal Reserve Bank of New York are typically conducted

Accepted Answer

A)  no more often than once per month. 
B)  once a year. 
C)  no more often than once per week. 
D)  within a one-hour period during each day. 
A)  no more often than once per month. 
B)  once a year. 
C)  no more often than once per week. 
D)  within a one-hour period during each day.

Question 16

Suppose Tim has $1,000 in cash on hand to buy collectable baseball cards at a swap meet. Tim often sells these cards at a profit. This is an example of the

Accepted Answer

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

Question 17

In the long run, a decrease in the money supply will

Accepted Answer

A)  decrease real Gross Domestic Product (GDP). 
B)  increase real Gross Domestic Product (GDP). 
C)  increase the price level. 
D)  decrease the price level. 
A)  decrease real Gross Domestic Product (GDP). 
B)  increase real Gross Domestic Product (GDP). 
C)  increase the price level. 
D)  decrease the price level.

Question 18

Under the Fed's current interest-rate-targeting approach to monetary policy, if the demand for federal funds by depository institutions increases today, then, other things being equal,

Accepted Answer

A)  the market federal funds rate decreases, and the Fed's Trading Desk responds by selling bonds. 
B)  the market federal funds rate increases, and the Fed's Trading Desk responds by buying bonds. 
C)  the market federal funds rate decreases, and the Fed's Trading Desk responds by buying bonds. 
D)  the market federal funds rate increases, and the Fed's Trading Desk responds by selling bonds. 
A)  the market federal funds rate decreases, and the Fed's Trading Desk responds by selling bonds. 
B)  the market federal funds rate increases, and the Fed's Trading Desk responds by buying bonds. 
C)  the market federal funds rate decreases, and the Fed's Trading Desk responds by buying bonds. 
D)  the market federal funds rate increases, and the Fed's Trading Desk responds by selling bonds.

Question 19

In words, the equation of exchange says that

Accepted Answer

A)  the total amount spent on final output equals the amount received for final output. 
B)  the amount of money in circulation equals the velocity of the price level. 
C)  changes in the money supply will have no impact on the amount spent on final output. 
D)  when velocity equals 1, nominal GDP equals the price level. 
A)  the total amount spent on final output equals the amount received for final output. 
B)  the amount of money in circulation equals the velocity of the price level. 
C)  changes in the money supply will have no impact on the amount spent on final output. 
D)  when velocity equals 1, nominal GDP equals the price level.

Question 20

If the Fed raises the interest rate paid on excess reserves while holding the federal funds rate unchanged, then banks will

Accepted Answer

A)  lend more reserves in the federal funds market and keep more excess reserves. 
B)  lend fewer reserves in the federal funds market and keep more excess reserves. 
C)  not keep excess reserves or lend reserves in the federal funds market. 
D)  not react to it. 
A)  lend more reserves in the federal funds market and keep more excess reserves. 
B)  lend fewer reserves in the federal funds market and keep more excess reserves. 
C)  not keep excess reserves or lend reserves in the federal funds market. 
D)  not react to it.

Exam 16: Domestic and International Dimensions of Monetary Policy

The Federal Open Market Committee engages in contractionary monetary policy by

What effects does an expansionary monetary policy have on the trade balance? Why?

An open market purchase of government securities by the Fed will cause which of the following?

-In the above figure, if we begin at and the Fed sells bonds,

As the world economy becomes more integrated through globalization,

What effect does an expansionary monetary policy in the U.S. have on the foreign trade sector?

According to traditional Keynesians, monetary policy as a tool to fight a recession

Alberto purchases ten cups of coffee a week. The amount of money that he holds to purchase ten cups of coffee is the

The number of times per year that a dollar is spent on final goods and services defines

The transactions demand for money

According to Keynes, the impact of a decrease in the money supply is a

The asset demand for money is related to which function of money?

An appreciation of the U.S. dollar occurs when

Operations of the Trading Desk of the Federal Reserve Bank of New York are typically conducted

Suppose Tim has $1,000 in cash on hand to buy collectable baseball cards at a swap meet. Tim often sells these cards at a profit. This is an example of the

In the long run, a decrease in the money supply will

Under the Fed's current interest-rate-targeting approach to monetary policy, if the demand for federal funds by depository institutions increases today, then, other things being equal,

In words, the equation of exchange says that

If the Fed raises the interest rate paid on excess reserves while holding the federal funds rate unchanged, then banks will

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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