Question 1

Which of the following would NOT be a result of a contractionary monetary policy?

Accepted Answer

A)  Interest rates would rise. 
B)  Foreign goods would become more expensive to U.S. residents. 
C)  Net exports would decline. 
D)  Imports would rise. 
A)  Interest rates would rise. 
B)  Foreign goods would become more expensive to U.S. residents. 
C)  Net exports would decline. 
D)  Imports would rise.

Question 2

The transaction demand for money varies

Accepted Answer

A)  directly with the interest rate. 
B)  directly with nominal GDP. 
C)  inversely with nominal GDP and real GDP. 
D)  inversely with nominal GDP only. 
A)  directly with the interest rate. 
B)  directly with nominal GDP. 
C)  inversely with nominal GDP and real GDP. 
D)  inversely with nominal GDP only.

Question 3

-Refer to the above figure. Which panel is consistent with the Fed selling 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 4

According to the quantity theory of money,

Accepted Answer

A)  real Gross Domestic Product (GDP) is directly related to changes in the money supply in the long run. 
B)  velocity varies indirectly with the rate of growth of the money supply. 
C)  a proportionate increase in the money supply leads to a less than proportionate increase in real Gross Domestic Product (GDP), at least in the long run. 
D)  a given proportionate increase in the money supply leads to an equal proportionate increase in the price level. 
A)  real Gross Domestic Product (GDP) is directly related to changes in the money supply in the long run. 
B)  velocity varies indirectly with the rate of growth of the money supply. 
C)  a proportionate increase in the money supply leads to a less than proportionate increase in real Gross Domestic Product (GDP), at least in the long run. 
D)  a given proportionate increase in the money supply leads to an equal proportionate increase in the price level.

Question 5

As global financial markets become more intertwined, the Fed has

Accepted Answer

A)  less control over monetary policy. 
B)  more control over monetary policy. 
C)  more control over fiscal policy. 
D)  less control over fiscal policy. 
A)  less control over monetary policy. 
B)  more control over monetary policy. 
C)  more control over fiscal policy. 
D)  less control over fiscal policy.

Question 6

If the interest rate increases, there is a(n)

Accepted Answer

A)  increase in the demand for money. 
B)  decrease in the demand for money. 
C)  increase in the quantity of money demanded. 
D)  decrease in the quantity of money demanded. 
A)  increase in the demand for money. 
B)  decrease in the demand for money. 
C)  increase in the quantity of money demanded. 
D)  decrease in the quantity of money demanded.

Question 7

The demand for money refers to the desire to

Accepted Answer

A)  hold a good that yields utility when it is consumed. 
B)  a high income. 
C)  spend money because money is used in all transactions. 
D)  hold money because money is used in all non-barter transactions. 
A)  hold a good that yields utility when it is consumed. 
B)  a high income. 
C)  spend money because money is used in all transactions. 
D)  hold money because money is used in all non-barter transactions.

Question 8

According to the interest-rate-based monetary policy transmission mechanism,

Accepted Answer

A)  an increase in the required reserve ratio will lower interest rates. 
B)  a decrease in the required reserve ratio will lower interest rates. 
C)  a decrease in the required reserve ratio will not affect interest rates. 
D)  an increase in the required reserve ratio will not affect interest rates. 
A)  an increase in the required reserve ratio will lower interest rates. 
B)  a decrease in the required reserve ratio will lower interest rates. 
C)  a decrease in the required reserve ratio will not affect interest rates. 
D)  an increase in the required reserve ratio will not affect interest rates.

Question 9

The price of bonds and the interest rate are

Accepted Answer

A)  inversely related. 
B)  positively related. 
C)  unrelated. 
D)  related, but we are not sure how. 
A)  inversely related. 
B)  positively related. 
C)  unrelated. 
D)  related, but we are not sure how.

Question 10

Both the precautionary and asset demand for money are influenced by

Accepted Answer

A)  the U.S. Treasury. 
B)  the interest rate. 
C)  gold prices. 
D)  none of the above. 
A)  the U.S. Treasury. 
B)  the interest rate. 
C)  gold prices. 
D)  none of the above.

Question 11

-In the above figure, if the economy is at equilibrium at E1, the Fed would most likely

Accepted Answer

A)  adopt a contractionary monetary policy. 
B)  adopt an expansionary monetary policy. 
C)  attempt to lower the aggregate demand in the economy. 
D)  attempt to lower the price level below 120. 
A)  adopt a contractionary monetary policy. 
B)  adopt an expansionary monetary policy. 
C)  attempt to lower the aggregate demand in the economy. 
D)  attempt to lower the price level below 120.

Question 12

How is the effect of expansionary monetary policy depicted in an aggregate supply-aggregate demand graph?

Accepted Answer

A)  The aggregate supply curve shifts leftward. 
B)  The aggregate supply curve shifts rightward. 
C)  The aggregate demand curve shifts rightward. 
D)  The equilibrium level of income increases, but neither curve shifts. 
A)  The aggregate supply curve shifts leftward. 
B)  The aggregate supply curve shifts rightward. 
C)  The aggregate demand curve shifts rightward. 
D)  The equilibrium level of income increases, but neither curve shifts.

Question 13

An appreciation of the U.S. dollar is most likely a result that

Accepted Answer

A)  the Fed has pursued an expansionary monetary policy. 
B)  U.S. interest rates have increased. 
C)  U.S. bond prices have increased. 
D)  more dollars are required to obtain foreign currencies. 
A)  the Fed has pursued an expansionary monetary policy. 
B)  U.S. interest rates have increased. 
C)  U.S. bond prices have increased. 
D)  more dollars are required to obtain foreign currencies.

Question 14

As interest rates rise, the quantity of money demanded

Accepted Answer

A)  falls. 
B)  rises. 
C)  stays the same. 
D)  does not react to interest rate changes. 
A)  falls. 
B)  rises. 
C)  stays the same. 
D)  does not react to interest rate changes.

Question 15

Which of the following represents the opportunity cost of holding money?

Accepted Answer

A)  liquidity 
B)  the interest rate 
C)  the rate of inflation 
D)  none of the above 
A)  liquidity 
B)  the interest rate 
C)  the rate of inflation 
D)  none of the above

Question 16

The interest-rate-based approach to the monetary policy transmission mechanism says that a change in the money supply influences aggregate demand by

Accepted Answer

A)  a change in interest rates, which changes investment. 
B)  a change in interest rates, which changes the money supply. 
C)  changing consumer consumption behavior as they adjust to a change in the number of dollars available. 
D)  leading to shifts of the short-run aggregate supply curve. 
A)  a change in interest rates, which changes investment. 
B)  a change in interest rates, which changes the money supply. 
C)  changing consumer consumption behavior as they adjust to a change in the number of dollars available. 
D)  leading to shifts of the short-run aggregate supply curve.

Question 17

Why is it more difficult for the Fed to control the money supply today than it was fifty years ago?

Accepted Answer

The international financial markets are

Question 18

According to the simple quantity theory of money, which of the following variables are considered either constant or relatively stable?

Accepted Answer

A)  V and Y 
B)  Y and   
C)  P and   
D)  P and Y 
A)  V and Y 
B)  Y and   
C)  P and   
D)  P and Y

Question 19

The direct effect of an increase in the money supply is

Accepted Answer

A)  people will spend the extra money, causing the aggregate demand curve to shift to the right and prices to rise, and causing the economy to go into recession. 
B)  people will save the money, causing an increase in bank deposits, causing interest rates to fall, and loans to expand. 
C)  people will save more money, causing a decrease in economic activity and a fall in prices. 
D)  people will spend the extra money, causing the aggregate demand curve to shift to the right, creating an increase in economic activity. 
A)  people will spend the extra money, causing the aggregate demand curve to shift to the right and prices to rise, and causing the economy to go into recession. 
B)  people will save the money, causing an increase in bank deposits, causing interest rates to fall, and loans to expand. 
C)  people will save more money, causing a decrease in economic activity and a fall in prices. 
D)  people will spend the extra money, causing the aggregate demand curve to shift to the right, creating an increase in economic activity.

Question 20

When interest rates in the bond market go up,

Accepted Answer

A)  there is no impact on the price of existing bonds. 
B)  the price of existing bonds goes up. 
C)  the price of stocks goes up. 
D)  the price of existing bonds goes down. 
A)  there is no impact on the price of existing bonds. 
B)  the price of existing bonds goes up. 
C)  the price of stocks goes up. 
D)  the price of existing bonds goes down.

Exam 16: Domestic and International Dimensions of Monetary Policy

Which of the following would NOT be a result of a contractionary monetary policy?

The transaction demand for money varies

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

According to the quantity theory of money,

As global financial markets become more intertwined, the Fed has

If the interest rate increases, there is a(n)

The demand for money refers to the desire to

According to the interest-rate-based monetary policy transmission mechanism,

The price of bonds and the interest rate are

Both the precautionary and asset demand for money are influenced by

-In the above figure, if the economy is at equilibrium at E1, the Fed would most likely

How is the effect of expansionary monetary policy depicted in an aggregate supply-aggregate demand graph?

An appreciation of the U.S. dollar is most likely a result that

As interest rates rise, the quantity of money demanded

Which of the following represents the opportunity cost of holding money?

The interest-rate-based approach to the monetary policy transmission mechanism says that a change in the money supply influences aggregate demand by

Why is it more difficult for the Fed to control the money supply today than it was fifty years ago?

According to the simple quantity theory of money, which of the following variables are considered either constant or relatively stable?

The direct effect of an increase in the money supply is

When interest rates in the bond market go up,

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

-In the above figure, if the economy is at equilibrium at E₁, the Fed would most likely