Question 1

If the economy is at potential output and the Fed increases the money supply, in the short run the aggregate demand will likely decrease.

Accepted Answer

A) True 
 B)False  False

Question 2

Use the following to answer questions:
Figure: Short-Run Determination of the Interest Rate  
-(Figure: Short-Run Determination of the Interest Rate) Look at the figure Short-Run Determination of the Interest Rate. If the money supply is at MS2 and the central bank sells Treasury bills, then in the short run the interest rate will:

Accepted Answer

A) decrease below r2. 
B) remain at r2. 
C) increase to r1. 
D) fluctuate randomly. 
A) decrease below r2. 
B) remain at r2. 
C) increase to r1. 
D) fluctuate randomly. C

Question 3

If during 2007 the interest rate on one-month Treasury bills was 2.5% and during 2008 it was 2%, the opportunity cost of holding money:

Accepted Answer

A) decreased. 
B) became negative. 
C) increased. 
D) did not change. 
A) decreased. 
B) became negative. 
C) increased. 
D) did not change. A

Question 4

If the actual interest rate is below the target rate, the Fed should decrease the money supply.

Accepted Answer

A) True 
 B)False

Question 5

At interest rates below equilibrium, people will want to:

Accepted Answer

A) shift their wealth into Treasury bills. 
B) shift their wealth into money. 
C) decrease the amount of money that they hold. 
D) make no changes to their assets. 
A) shift their wealth into Treasury bills. 
B) shift their wealth into money. 
C) decrease the amount of money that they hold. 
D) make no changes to their assets.

Question 6

In the short run, the interest rate is determined in the _____ market.

Accepted Answer

A) stock 
B) money 
C) loanable funds 
D) commodity 
A) stock 
B) money 
C) loanable funds 
D) commodity

Question 7

Which of the following is NOT one of the reasons that the Japanese tend to keep large amounts of cash?

Accepted Answer

A) Banks have invested heavily in credit card technology. 
B) Japan has a low crime rate. 
C) Interest rates in Japan have been below 1% since the 1990s. 
D) Japan's retail sector is dominated by mom-and-pop stores that don't accept credit cards. 
A) Banks have invested heavily in credit card technology. 
B) Japan has a low crime rate. 
C) Interest rates in Japan have been below 1% since the 1990s. 
D) Japan's retail sector is dominated by mom-and-pop stores that don't accept credit cards.

Question 8

In the long run, if the money supply rises by 10%, then the price level may rise by more than 10%.

Accepted Answer

A) True 
 B)False

Question 9

If the economy is at potential output and the Fed increases the money supply, in the SHORT run interest rates will likely:

Accepted Answer

A) increase. 
B) decrease. 
C) remain constant. 
D) fluctuate randomly 
A) increase. 
B) decrease. 
C) remain constant. 
D) fluctuate randomly

Question 10

A sale of Treasury bills by the Federal Reserve _____ interest rates and _____ the money supply.

Accepted Answer

A) raises; increases 
B) raises; reduces 
C) lowers; reduces 
D) lowers; increases 
A) raises; increases 
B) raises; reduces 
C) lowers; reduces 
D) lowers; increases

Question 11

Use the following to answer questions :
Scenario: Money and Interest Rates
Banks decide to do away with fees charged when other banks' customers use the bank's own ATM.
-(Scenario: Money and Interest Rates) Look at the scenario Money and Interest Rates. The demand for money will _____, and the supply of money will _____.

Accepted Answer

A) increase; not change 
B) increase; decrease 
C) decrease; not change 
D) decrease; increase 
A) increase; not change 
B) increase; decrease 
C) decrease; not change 
D) decrease; increase

Question 12

If interest rates are at the zero lower bound:

Accepted Answer

A) the effectiveness of monetary policy increases. 
B) monetary policy is ineffective. 
C) automatic stabilizers don't work. 
D) monetary policy is more effective than fiscal policy. 
A) the effectiveness of monetary policy increases. 
B) monetary policy is ineffective. 
C) automatic stabilizers don't work. 
D) monetary policy is more effective than fiscal policy.

Question 13

The Federal Reserve affects interest rates by:

Accepted Answer

A) setting them with regulations. 
B) open market operations that shift the money demand curve. 
C) open market operations that shift the money supply curve. 
D) changing tax rates. 
A) setting them with regulations. 
B) open market operations that shift the money demand curve. 
C) open market operations that shift the money supply curve. 
D) changing tax rates.

Question 14

Use the following to answer questions :
Figure: Equilibrium in the Money Market  
-(Figure: Equilibrium in the Money Market) Look at the figure Equilibrium in the Money Market. If the interest rate is above equilibrium, there will be an excess _____ money and the interest rate will _____.

Accepted Answer

A) demand for; rise 
B) supply of; fall 
C) demand for; fall 
D) supply of; rise 
A) demand for; rise 
B) supply of; fall 
C) demand for; fall 
D) supply of; rise

Question 15

Use the following to answer questions :
Figure: Economic Adjustments  
-(Figure: Economic Adjustments) Look at the figure Economic Adjustments. Assume that the economy is at point b. The effect of a decrease in the money supply is represented by a shift of the _____ curve to _____.

Accepted Answer

A) SRAS1; SRAS2 
B) SRAS2; SRAS1 
C) AD1; AD2 
D) AD2; AD1 
A) SRAS1; SRAS2 
B) SRAS2; SRAS1 
C) AD1; AD2 
D) AD2; AD1

Question 16

If the economy is at potential output and the Fed increases the money supply, in the SHORT run the likely result will be a(n) _____ in investment and a(n) _____ in consumption.

Accepted Answer

A) increase; increase 
B) increase; decrease 
C) decrease; increase 
D) decrease; decrease 
A) increase; increase 
B) increase; decrease 
C) decrease; increase 
D) decrease; decrease

Question 17

If an economy is operating below its potential output level, holding everything else constant, one would expect:

Accepted Answer

A) nominal wages to rise. 
B) nominal wages to stay the same. 
C) nominal wages to fall. 
D) price levels to increase. 
A) nominal wages to rise. 
B) nominal wages to stay the same. 
C) nominal wages to fall. 
D) price levels to increase.

Question 18

Suppose the annual inflation rate is at 2% and 8.5% of the labor force is unemployed. If you were on the Federal Open Market Committee, what action would you prescribe? How would this affect the economy, the inflation rate, and the unemployment rate?

Accepted Answer

Inflation is low and unemployment is hig

Question 19

What is the opportunity cost of holding money?

Accepted Answer

The interest you could have ea

Question 20

Explain what is meant by money neutrality. Use an example of expansionary monetary policy, both in the short run and the long run.

Accepted Answer

Many economists believe that monetary po

If the economy is at potential output and the Fed increases the money supply, in the short run the aggregate demand will likely decrease.

If during 2007 the interest rate on one-month Treasury bills was 2.5% and during 2008 it was 2%, the opportunity cost of holding money:

If the actual interest rate is below the target rate, the Fed should decrease the money supply.

At interest rates below equilibrium, people will want to:

In the short run, the interest rate is determined in the _____ market.

Which of the following is NOT one of the reasons that the Japanese tend to keep large amounts of cash?

In the long run, if the money supply rises by 10%, then the price level may rise by more than 10%.

If the economy is at potential output and the Fed increases the money supply, in the SHORT run interest rates will likely:

A sale of Treasury bills by the Federal Reserve _ interest rates and _ the money supply.

If interest rates are at the zero lower bound:

The Federal Reserve affects interest rates by:

Use the following to answer questions : Figure: Equilibrium in the Money Market -(Figure: Equilibrium in the Money Market) Look at the figure Equilibrium in the Money Market. If the interest rate is above equilibrium, there will be an excess _ money and the interest rate will _.

Use the following to answer questions : Figure: Economic Adjustments -(Figure: Economic Adjustments) Look at the figure Economic Adjustments. Assume that the economy is at point b. The effect of a decrease in the money supply is represented by a shift of the _ curve to _.

If the economy is at potential output and the Fed increases the money supply, in the SHORT run the likely result will be a(n) _ in investment and a(n) _ in consumption.

If an economy is operating below its potential output level, holding everything else constant, one would expect:

Suppose the annual inflation rate is at 2% and 8.5% of the labor force is unemployed. If you were on the Federal Open Market Committee, what action would you prescribe? How would this affect the economy, the inflation rate, and the unemployment rate?

What is the opportunity cost of holding money?

Explain what is meant by money neutrality. Use an example of expansionary monetary policy, both in the short run and the long run.

First Principles

Economic Models

Supply and Demand

International Trade 5

Macroeconomics: the Big Picture

Gdp and Cpi: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending, and the Financial System

Fiscal Policy Appendix Taxes and the Multiplier

Money, Banking, and the Federal Reserve System

Inflation, Disinflation, and Deflation

Crises and Consequences

Events and Ideas

Open-Economy Macroeconomics

Graphs in Economics

toward a Fuller Understanding of Present Value

Filters

Exam 15: Monetary Policy

If the economy is at potential output and the Fed increases the money supply, in the short run the aggregate demand will likely decrease.

If during 2007 the interest rate on one-month Treasury bills was 2.5% and during 2008 it was 2%, the opportunity cost of holding money:

If the actual interest rate is below the target rate, the Fed should decrease the money supply.

At interest rates below equilibrium, people will want to:

In the short run, the interest rate is determined in the _____ market.

Which of the following is NOT one of the reasons that the Japanese tend to keep large amounts of cash?

In the long run, if the money supply rises by 10%, then the price level may rise by more than 10%.

If the economy is at potential output and the Fed increases the money supply, in the SHORT run interest rates will likely:

A sale of Treasury bills by the Federal Reserve _____ interest rates and _____ the money supply.

If interest rates are at the zero lower bound:

The Federal Reserve affects interest rates by:

Use the following to answer questions : Figure: Equilibrium in the Money Market -(Figure: Equilibrium in the Money Market) Look at the figure Equilibrium in the Money Market. If the interest rate is above equilibrium, there will be an excess _____ money and the interest rate will _____.

Use the following to answer questions : Figure: Economic Adjustments -(Figure: Economic Adjustments) Look at the figure Economic Adjustments. Assume that the economy is at point b. The effect of a decrease in the money supply is represented by a shift of the _____ curve to _____.

If the economy is at potential output and the Fed increases the money supply, in the SHORT run the likely result will be a(n) _____ in investment and a(n) _____ in consumption.

If an economy is operating below its potential output level, holding everything else constant, one would expect:

Suppose the annual inflation rate is at 2% and 8.5% of the labor force is unemployed. If you were on the Federal Open Market Committee, what action would you prescribe? How would this affect the economy, the inflation rate, and the unemployment rate?

What is the opportunity cost of holding money?

Explain what is meant by money neutrality. Use an example of expansionary monetary policy, both in the short run and the long run.

First Principles

Economic Models

Supply and Demand

International Trade 5

Macroeconomics: the Big Picture

Gdp and Cpi: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending, and the Financial System

Fiscal Policy Appendix Taxes and the Multiplier

Money, Banking, and the Federal Reserve System

Inflation, Disinflation, and Deflation

Crises and Consequences

Events and Ideas

Open-Economy Macroeconomics

Graphs in Economics

toward a Fuller Understanding of Present Value

Filters

A sale of Treasury bills by the Federal Reserve _ interest rates and _ the money supply.

Use the following to answer questions : Figure: Equilibrium in the Money Market -(Figure: Equilibrium in the Money Market) Look at the figure Equilibrium in the Money Market. If the interest rate is above equilibrium, there will be an excess _ money and the interest rate will _.

Use the following to answer questions : Figure: Economic Adjustments -(Figure: Economic Adjustments) Look at the figure Economic Adjustments. Assume that the economy is at point b. The effect of a decrease in the money supply is represented by a shift of the _ curve to _.

If the economy is at potential output and the Fed increases the money supply, in the SHORT run the likely result will be a(n) _ in investment and a(n) _ in consumption.