Question 1

When the Fed unexpectedly increases the money supply,it will cause an increase in aggregate demand because:

Accepted Answer

A)  real interest rates will fall, stimulating business investment and consumer purchases. 
B)  the dollar will depreciate on the foreign exchange market, leading to an increase in net exports. 
C)  lower interest rates will tend to increase asset prices, which increases wealth and thereby stimulates current consumption. 
D)  of all the above reasons. 
A)  real interest rates will fall, stimulating business investment and consumer purchases. 
B)  the dollar will depreciate on the foreign exchange market, leading to an increase in net exports. 
C)  lower interest rates will tend to increase asset prices, which increases wealth and thereby stimulates current consumption. 
D)  of all the above reasons.

Question 2

When the Fed purchases government securities from a commercial bank,the bank:

Accepted Answer

A)  automatically becomes poorer. 
B)  loses equity in the Fed. 
C)  receives reserves that can be used to make additional loans. 
D)  loses its ability to make loans. 
A)  automatically becomes poorer. 
B)  loses equity in the Fed. 
C)  receives reserves that can be used to make additional loans. 
D)  loses its ability to make loans.

Question 3

Which of the following is true?

Accepted Answer

A)  When increased government purchases or expansionary monetary policy does give the economy a boost, no one knows precisely how long it will take to do so. 
B)  Given the difficulties of timing stabilization policy, an expansionary monetary policy intended to reduce the severity of a recession may instead add inflationary pressures to an economy that is already overheating. 
C)  If velocity changes, but it moves in a fairly predictable pattern, the connection between money supply and GDP is still fairly predictable. 
D)  All of the above are true. 
A)  When increased government purchases or expansionary monetary policy does give the economy a boost, no one knows precisely how long it will take to do so. 
B)  Given the difficulties of timing stabilization policy, an expansionary monetary policy intended to reduce the severity of a recession may instead add inflationary pressures to an economy that is already overheating. 
C)  If velocity changes, but it moves in a fairly predictable pattern, the connection between money supply and GDP is still fairly predictable. 
D)  All of the above are true.

Question 4

Real GDP can rise at the same time money supply falls if:

Accepted Answer

A)  velocity rises rapidly enough. 
B)  velocity falls rapidly enough. 
C)  the price level rises rapidly enough. 
D)  either b. or c. occurs. 
A)  velocity rises rapidly enough. 
B)  velocity falls rapidly enough. 
C)  the price level rises rapidly enough. 
D)  either b. or c. occurs.

Question 5

Monetary policy can influence interest rates,which in turn can change spending.

Accepted Answer

A) True 
 B)False

Question 6

Why is the time lag for making fiscal policy changes longer than for making monetary policy changes?

Accepted Answer

Both monetary and fiscal policies face f

Question 7

When money demand increases,the Fed cannot keep both the money supply from rising and the interest rate from rising..

Accepted Answer

A) True 
 B)False

Question 8

The primary reason that money is demanded is for:

Accepted Answer

A)  transaction purposes. 
B)  asset purposes. 
C)  precautionary reasons. 
D)  investment purposes. 
A)  transaction purposes. 
B)  asset purposes. 
C)  precautionary reasons. 
D)  investment purposes.

Question 9

If the velocity of money (V)and real output (Q)were increasing at approximately the same rate,then:

Accepted Answer

A)  it would be impossible for monetary authorities to control inflation. 
B)  monetary acceleration would not lead to inflation. 
C)  inflation would be closely related to the long-run rate of monetary expansion. 
D)  none of the above 
A)  it would be impossible for monetary authorities to control inflation. 
B)  monetary acceleration would not lead to inflation. 
C)  inflation would be closely related to the long-run rate of monetary expansion. 
D)  none of the above

Question 10

If M increases faster than V decreases:

Accepted Answer

A)  nominal GDP increases. 
B)  nominal GDP decreases. 
C)  nominal GDP stays the same. 
D)  there is an indeterminate effect on nominal GDP. 
A)  nominal GDP increases. 
B)  nominal GDP decreases. 
C)  nominal GDP stays the same. 
D)  there is an indeterminate effect on nominal GDP.

Question 11

Changing reserve requirements is the most important method the Federal Reserve uses to change the supply of money.

Accepted Answer

A) True 
 B)False

Question 12

In the equation of exchange,velocity will tend to rise when:

Accepted Answer

A)  the price level rises, other things being equal. 
B)  real GDP rises, other things being equal. 
C)  the money supply declines, other things being equal. 
D)  all of the above. 
A)  the price level rises, other things being equal. 
B)  real GDP rises, other things being equal. 
C)  the money supply declines, other things being equal. 
D)  all of the above.

Question 13

If money supply and money demand both increased:

Accepted Answer

A)  nominal interest rates would increase and investment would increase. 
B)  niminal interest rates would increase and investment would decrease. 
C)  niminal interest rates would decrease and investment would increase. 
D)  the change in nominal interest rates and investment would be indeterminate. 
A)  nominal interest rates would increase and investment would increase. 
B)  niminal interest rates would increase and investment would decrease. 
C)  niminal interest rates would decrease and investment would increase. 
D)  the change in nominal interest rates and investment would be indeterminate.

Question 14

If unemployment is the major problem in the economy,which of the following would be an appropriate monetary policy response?

Accepted Answer

A)  decrease the reserve ratio 
B)  decrease the discount rate 
C)  buy government bonds 
D)  all of the above 
A)  decrease the reserve ratio 
B)  decrease the discount rate 
C)  buy government bonds 
D)  all of the above

Question 15

If M increases and V decreases:

Accepted Answer

A)  nominal GDP increases. 
B)  nominal GDP decreases. 
C)  nominal GDP stays the same. 
D)  there is an indeterminate effect on nominal GDP. 
A)  nominal GDP increases. 
B)  nominal GDP decreases. 
C)  nominal GDP stays the same. 
D)  there is an indeterminate effect on nominal GDP.

Question 16

In the equation of exchange,an increase in M of 8 percent could be accompanied by changes in velocity,the price level and real GDP of:

Accepted Answer

A)  0%, 4%, 4%. 
B)  0%, 8%, 0%. 
C)  0%, 0%, 8%. 
D)  all of the above 
A)  0%, 4%, 4%. 
B)  0%, 8%, 0%. 
C)  0%, 0%, 8%. 
D)  all of the above

Question 17

Profitable investment is most effectively promoted when:

Accepted Answer

A)  the money supply and price level are stable. 
B)  inflation is rising rapidly. 
C)  monetary policy is unanticipated. 
D)  persistent inflation increases uncertainty. 
A)  the money supply and price level are stable. 
B)  inflation is rising rapidly. 
C)  monetary policy is unanticipated. 
D)  persistent inflation increases uncertainty.

Question 18

Explain how the Fed's structure provides a high degree of independence from the U.S.government.What are some of the benefits of this independence?

Accepted Answer

The members of the Board of Governors ar

Question 19

Rising reserve requirements,other things being equal,would tend to:

Accepted Answer

A)  increase the dollar volume of loans made by the banking system. 
B)  increase the money supply. 
C)  increase aggregate demand. 
D)  none of the above 
A)  increase the dollar volume of loans made by the banking system. 
B)  increase the money supply. 
C)  increase aggregate demand. 
D)  none of the above

Question 20

If the money supply grew by 6 percent and velocity fell by 2 percent,nominal GDP would:

Accepted Answer

A)  fall by 4 percent. 
B)  rise by 4 percent. 
C)  rise by 8 percent. 
D)  rise by 12 percent. 
A)  fall by 4 percent. 
B)  rise by 4 percent. 
C)  rise by 8 percent. 
D)  rise by 12 percent.

Exam 26: The Federal Reserve System and Monetary Policy

When the Fed unexpectedly increases the money supply,it will cause an increase in aggregate demand because:

When the Fed purchases government securities from a commercial bank,the bank:

Which of the following is true?

Real GDP can rise at the same time money supply falls if:

Monetary policy can influence interest rates,which in turn can change spending.

Why is the time lag for making fiscal policy changes longer than for making monetary policy changes?

When money demand increases,the Fed cannot keep both the money supply from rising and the interest rate from rising..

The primary reason that money is demanded is for:

If the velocity of money (V)and real output (Q)were increasing at approximately the same rate,then:

If M increases faster than V decreases:

Changing reserve requirements is the most important method the Federal Reserve uses to change the supply of money.

In the equation of exchange,velocity will tend to rise when:

If money supply and money demand both increased:

If unemployment is the major problem in the economy,which of the following would be an appropriate monetary policy response?

If M increases and V decreases:

In the equation of exchange,an increase in M of 8 percent could be accompanied by changes in velocity,the price level and real GDP of:

Profitable investment is most effectively promoted when:

Explain how the Fed's structure provides a high degree of independence from the U.S.government.What are some of the benefits of this independence?

Rising reserve requirements,other things being equal,would tend to:

If the money supply grew by 6 percent and velocity fell by 2 percent,nominal GDP would:

The Role and Method of Economics

Economics: Eight Powerful Ideas

Scarcity, Trade-Offs, and Production Possibilities

Demand, Supply, and Market Equilibrium

Markets in Motion and Price Controls

Elasticities

Market Efficiency and Welfare

Market Failure

Public Finance and Public Choice

Consumer Choice Theory

The Firm: Production and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Product Differentiation

Oligopoly and Strategic Behavior

The Markets for Labor, Capital, and Land

Income, Poverty, and Health Care

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Measuring Economic Performance

Economic Growth in the Global Economy

Financial Markets, Saving, and Investment

Aggregate Demand and Aggregate Supply

The Aggregate Expenditure Model

Monetary Institutions

Issues in Macroeconomic Theory and Policy

International Trade

International Finance

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