Question 1

If the Fed has announced that it plans on increasing the interest rate it will

Accepted Answer

A)  engage in expansionary open market operations, thereby decreasing the money supply. 
B)  engage in expansionary open market operations, thereby increasing the money supply. 
C)  engage in contractionary open market operations, thereby decreasing the money supply. 
D)  engage in contractionary open market operations, thereby increasing the money supply. 
A)  engage in expansionary open market operations, thereby decreasing the money supply. 
B)  engage in expansionary open market operations, thereby increasing the money supply. 
C)  engage in contractionary open market operations, thereby decreasing the money supply. 
D)  engage in contractionary open market operations, thereby increasing the money supply.

Question 2

When considering the demand for money curve, the interest rate

Accepted Answer

A)  will have a positive relationship with the quantity of money demanded. 
B)  varies negatively with the transactions demand for money. 
C)  is the price of holding money. 
D)  is independent of the opportunity cost of money. 
A)  will have a positive relationship with the quantity of money demanded. 
B)  varies negatively with the transactions demand for money. 
C)  is the price of holding money. 
D)  is independent of the opportunity cost of money.

Question 3

The demand for money is based on

Accepted Answer

A)  the transactions demand, asset demand, and precautionary demand. 
B)  the demand for cash, demand for securities, and the demand for real estate. 
C)  the demand for consumption, demand for investment, and demand by government. 
D)  a demand for liquidity and wealth. 
A)  the transactions demand, asset demand, and precautionary demand. 
B)  the demand for cash, demand for securities, and the demand for real estate. 
C)  the demand for consumption, demand for investment, and demand by government. 
D)  a demand for liquidity and wealth.

Question 4

An increase in the money supply will affect aggregate demand

Accepted Answer

A)  only if the increase in the money supply causes interest rates to rise. 
B)  only if the increase in the money supply causes people to buy less goods and services. 
C)  only if the increase in the money supply causes people to increase their saving. 
D)  if the increase in the money supply causes interest rates to fall and/or causes people to buy more goods and services. 
A)  only if the increase in the money supply causes interest rates to rise. 
B)  only if the increase in the money supply causes people to buy less goods and services. 
C)  only if the increase in the money supply causes people to increase their saving. 
D)  if the increase in the money supply causes interest rates to fall and/or causes people to buy more goods and services.

Question 5

If both nominal and real GDP are increasing when the money supply is constant, than we can conclude that

Accepted Answer

A)  velocity has increased. 
B)  velocity has decreased. 
C)  interest rate has fallen. 
D)  interest rate has increased. 
A)  velocity has increased. 
B)  velocity has decreased. 
C)  interest rate has fallen. 
D)  interest rate has increased.

Question 6

The precautionary demand for money is when people hold money

Accepted Answer

A)  for the interest it yields. 
B)  as a store of value. 
C)  as a medium of exchange. 
D)  to meet unplanned expenditures. 
A)  for the interest it yields. 
B)  as a store of value. 
C)  as a medium of exchange. 
D)  to meet unplanned expenditures.

Question 7

Which of the following is a true statement about the relationship between the price of bonds and the interest rate?

Accepted Answer

A)  The prices of bonds are directly related to the interest rate. 
B)  The prices of bonds increase when the interest rates rise. 
C)  The prices of bonds are unrelated to the interest rate. 
D)  The prices of bonds are inversely related to the interest rate. 
A)  The prices of bonds are directly related to the interest rate. 
B)  The prices of bonds increase when the interest rates rise. 
C)  The prices of bonds are unrelated to the interest rate. 
D)  The prices of bonds are inversely related to the interest rate.

Question 8

According to the equation of exchange, if real Gross Domestic Product (GDP), in base year dollars, is $25 billion, the money supply is $1 billion, and the price index equals 2, then the income velocity of money is

Accepted Answer

A)  5. 
B)  10. 
C)  25. 
D)  50. 
A)  5. 
B)  10. 
C)  25. 
D)  50.

Question 9

Between 2003 and 2008, the actual federal funds rate

Accepted Answer

A)  tended to be lower than the rates predicted by the Taylor rule. 
B)  tended to higher than the rates predicted by the Taylor rule. 
C)  followed closely the rates predicted by the Taylor rule. 
D)  moved in directions opposite to the rates predicted by the Taylor rule. 
A)  tended to be lower than the rates predicted by the Taylor rule. 
B)  tended to higher than the rates predicted by the Taylor rule. 
C)  followed closely the rates predicted by the Taylor rule. 
D)  moved in directions opposite to the rates predicted by the Taylor rule.

Question 10

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

Accepted Answer

A)  fiscal policy is contractionary. 
B)  fiscal policy is expansionary. 
C)  monetary policy is expansionary. 
D)  monetary policy is contractionary. 
A)  fiscal policy is contractionary. 
B)  fiscal policy is expansionary. 
C)  monetary policy is expansionary. 
D)  monetary policy is contractionary.

Question 11

Holding money to meet unplanned expenditures and emergencies is known as

Accepted Answer

A)  transactions demand. 
B)  precautionary demand. 
C)  asset demand. 
D)  aggregate demand. 
A)  transactions demand. 
B)  precautionary demand. 
C)  asset demand. 
D)  aggregate demand.

Question 12

The interest-rate-based monetary policy transmission mechanism emphasizes the

Accepted Answer

A)  indirect effect of a change in the money supply that operates via a change in total planned expenditures generated by a change in the interest rate. 
B)  direct effect of a change in the money supply that operates via a change in total planned production generated by a change in the price level. 
C)  direct effect of a change in the money supply that operates via a change in total planned expenditures generated by a change in the interest rate. 
D)  indirect effect of a change in the money supply that operates via a change in total planned production generated by a change in the price level. 
A)  indirect effect of a change in the money supply that operates via a change in total planned expenditures generated by a change in the interest rate. 
B)  direct effect of a change in the money supply that operates via a change in total planned production generated by a change in the price level. 
C)  direct effect of a change in the money supply that operates via a change in total planned expenditures generated by a change in the interest rate. 
D)  indirect effect of a change in the money supply that operates via a change in total planned production generated by a change in the price level.

Question 13

The hypothesis that changes in the money supply lead to proportional changes in the price level is called

Accepted Answer

A)  the equation of exchange. 
B)  the Keynesian multiplier. 
C)  the theory of empirical relativity. 
D)  the quantity theory of money and prices. 
A)  the equation of exchange. 
B)  the Keynesian multiplier. 
C)  the theory of empirical relativity. 
D)  the quantity theory of money and prices.

Question 14

When the interest rate increases, people will adjust their precautionary demand for money

Accepted Answer

A)  upward. 
B)  downward. 
C)  not at all. 
D)  downward or upward depending upon the actual supply of money. 
A)  upward. 
B)  downward. 
C)  not at all. 
D)  downward or upward depending upon the actual supply of money.

Question 15

"The demand for money is infinite since everyone wants more money." Do you agree or disagree with this statement? Why?

Accepted Answer

Disagree. The demand for money does not

Question 16

According to the interest-rate-based transmission mechanism for monetary policy, a decrease in the money supply will cause the

Accepted Answer

A)  interest rate to fall, causing planned real investment spending to rise and leading to a decrease in aggregate demand. 
B)  interest rate to rise, causing planned real investment spending to rise and leading to a decrease in aggregate demand. 
C)  interest rate to fall, causing planned real investment spending to rise and leading to an increase in aggregate demand. 
D)  interest rate to rise, causing planned real investment spending to fall and leading to a decrease in aggregate demand. 
A)  interest rate to fall, causing planned real investment spending to rise and leading to a decrease in aggregate demand. 
B)  interest rate to rise, causing planned real investment spending to rise and leading to a decrease in aggregate demand. 
C)  interest rate to fall, causing planned real investment spending to rise and leading to an increase in aggregate demand. 
D)  interest rate to rise, causing planned real investment spending to fall and leading to a decrease in aggregate demand.

Question 17

Which of the following is NOT a type of demand for holding money?

Accepted Answer

A)  transactions demand 
B)  precautionary demand 
C)  asset demand 
D)  qualitative demand 
A)  transactions demand 
B)  precautionary demand 
C)  asset demand 
D)  qualitative demand

Question 18

The precautionary demand for holding money arises because

Accepted Answer

A)  people want be able to make unexpected purchases or to meet emergencies. 
B)  credit cards charge low interest rates, which makes money more attractive than credit. 
C)  people would rather hold money in the form of time deposits than in the form of hard currency. 
D)  expected transactions are completed more easily with debit cards than with credit cards. 
A)  people want be able to make unexpected purchases or to meet emergencies. 
B)  credit cards charge low interest rates, which makes money more attractive than credit. 
C)  people would rather hold money in the form of time deposits than in the form of hard currency. 
D)  expected transactions are completed more easily with debit cards than with credit cards.

Question 19

-In the above figure, suppose the economy is in short-run equilibrium at point D. Which of the following is the best policy option for the Fed?

Accepted Answer

A)  Increase the required reserve ratio 
B)  Increase government spending 
C)  Increase taxes 
D)  Open market purchase of government securities 
A)  Increase the required reserve ratio 
B)  Increase government spending 
C)  Increase taxes 
D)  Open market purchase of government securities

Question 20

To change the rate of growth of the money supply, the Fed can do all but which one of the following?

Accepted Answer

A)  Engage in open market operations 
B)  Change the discount rate 
C)  Shift the demand for money curve by changing the interest rate 
D)  Change the required reserve ratio. 
A)  Engage in open market operations 
B)  Change the discount rate 
C)  Shift the demand for money curve by changing the interest rate 
D)  Change the required reserve ratio.

Exam 16: Domestic and International Dimensions of Monetary Policy

If the Fed has announced that it plans on increasing the interest rate it will

When considering the demand for money curve, the interest rate

The demand for money is based on

An increase in the money supply will affect aggregate demand

If both nominal and real GDP are increasing when the money supply is constant, than we can conclude that

The precautionary demand for money is when people hold money

Which of the following is a true statement about the relationship between the price of bonds and the interest rate?

According to the equation of exchange, if real Gross Domestic Product (GDP), in base year dollars, is $25 billion, the money supply is $1 billion, and the price index equals 2, then the income velocity of money is

Between 2003 and 2008, the actual federal funds rate

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

Holding money to meet unplanned expenditures and emergencies is known as

The interest-rate-based monetary policy transmission mechanism emphasizes the

The hypothesis that changes in the money supply lead to proportional changes in the price level is called

When the interest rate increases, people will adjust their precautionary demand for money

"The demand for money is infinite since everyone wants more money." Do you agree or disagree with this statement? Why?

According to the interest-rate-based transmission mechanism for monetary policy, a decrease in the money supply will cause the

Which of the following is NOT a type of demand for holding money?

The precautionary demand for holding money arises because

-In the above figure, suppose the economy is in short-run equilibrium at point D. Which of the following is the best policy option for the Fed?

To change the rate of growth of the money supply, the Fed can do all but which one of the following?

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