Question 1

Since the Federal Reserve has the power to determine the supply of money, the money supply curve in the liquidity preference model is a(n):

Accepted Answer

A) horizontal line. 
B) vertical line. 
C) upward-sloping line. 
D) upward-sloping, then vertical line when Congressional rules change the Federal Reserve's powers. 
A) horizontal line. 
B) vertical line. 
C) upward-sloping line. 
D) upward-sloping, then vertical line when Congressional rules change the Federal Reserve's powers.

Question 2

If the economy is at potential output and the Fed decreases the money supply, in the SHORT run the aggregate demand will likely:

Accepted Answer

A) shift to the right. 
B) remain the same. 
C) increase. 
D) decrease. 
A) shift to the right. 
B) remain the same. 
C) increase. 
D) decrease.

Question 3

When the demand for money exceeds the supply:

Accepted Answer

A) people offering to sell nonmonetary financial assets must increase the interest rate these assets pay to sell them. 
B) interest rates will fall. 
C) the opportunity cost of holding money will fall. 
D) more people will hold money. 
A) people offering to sell nonmonetary financial assets must increase the interest rate these assets pay to sell them. 
B) interest rates will fall. 
C) the opportunity cost of holding money will fall. 
D) more people will hold money.

Question 4

Use the following to answer questions :
Figure: Monetary Policy and the AD-SRAS Model  
-(Figure: Monetary Policy and the AD-SRAS Model) Look at the figure Monetary Policy and the AD-SRAS Model. An increase in the money supply is most likely to cause a shift:

Accepted Answer

A) from SRAS to SRAS'. 
B) from AD to AD'. 
C) from SRAS' to SRAS. 
D) from AD' to AD. 
A) from SRAS to SRAS'. 
B) from AD to AD'. 
C) from SRAS' to SRAS. 
D) from AD' to AD.

Question 5

On average short-term interest rates are higher than long-term rates to compensate for higher risk in the short term.

Accepted Answer

A) True 
 B)False

Question 6

Over time, contractionary monetary policy _____ nominal wages and causes the short-run aggregate supply curve to shift _____.

Accepted Answer

A) lowers; leftward 
B) raises; rightward 
C) lowers; rightward 
D) raises; leftward 
A) lowers; leftward 
B) raises; rightward 
C) lowers; rightward 
D) raises; leftward

Question 7

The demand for money is higher in Japan than in the United States because:

Accepted Answer

A) Japanese banks pay interest on checking accounts. 
B) most stores in Japan do not accept credit cards. 
C) the ATMs are open all night. 
D) the average price level is lower in Japan. 
A) Japanese banks pay interest on checking accounts. 
B) most stores in Japan do not accept credit cards. 
C) the ATMs are open all night. 
D) the average price level is lower in Japan.

Question 8

According to the loanable funds model, in the short run contractionary monetary policy shifts the _____ curve for loanable funds to the _____.

Accepted Answer

A) demand; right 
B) supply; right 
C) demand; left 
D) supply; left 
A) demand; right 
B) supply; right 
C) demand; left 
D) supply; left

Question 9

If the demand for money is $100 billion and the supply of money is $200 billion, then the interest rate will:

Accepted Answer

A) fall. 
B) rise. 
C) remain unchanged. 
D) be in equilibrium. 
A) fall. 
B) rise. 
C) remain unchanged. 
D) be in equilibrium.

Question 10

To close an inflationary gap using monetary policy, the Federal Reserve should _____ the money supply to _____ investment and consumer spending and shift the aggregate demand curve to the _____.

Accepted Answer

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

Question 11

Use the following to answer questions:
Figure: A Money Market  
-(Figure: A Money Market) Look at the figure A Money Market. If the current interest rate is r1, the interest rate will _____ because there is a _____ of money in the market.

Accepted Answer

A) fall; surplus 
B) fall; shortage 
C) rise; surplus 
D) rise; shortage 
A) fall; surplus 
B) fall; shortage 
C) rise; surplus 
D) rise; shortage

Question 12

Between 1970 and the present, research comparing similar wealthy countries found that increases in the money supply:

Accepted Answer

A) and increases in the price level were roughly proportional. 
B) had little effect on prices. 
C) caused large increases in real GDP. 
D) caused large decreases in real GDP. 
A) and increases in the price level were roughly proportional. 
B) had little effect on prices. 
C) caused large increases in real GDP. 
D) caused large decreases in real GDP.

Question 13

A rise in interest rates due to a decrease in the money supply will _____ aggregate demand.

Accepted Answer

A) reduce 
B) not change 
C) increase 
D) cause random fluctuations in 
A) reduce 
B) not change 
C) increase 
D) cause random fluctuations in

Question 14

Expansionary monetary policy causes _____ in interest rates in the short run and _____ in interest rates in the long run.

Accepted Answer

A) a fall; no change 
B) a fall; a fall 
C) no change; a fall 
D) no change; no change 
A) a fall; no change 
B) a fall; a fall 
C) no change; a fall 
D) no change; no change

Question 15

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 the resulting short-run shift in the supply of savings (loanable funds) may be represented by a shift of the:

Accepted Answer

A) money supply curve to MS1, which lowers the interest rate. 
B) supply of loanable funds from S1 to S2, which lowers the interest rate. 
C) supply of loanable funds from S2 to S1, which raises the interest rate. 
D) interest rate from r1 to r2. 
A) money supply curve to MS1, which lowers the interest rate. 
B) supply of loanable funds from S1 to S2, which lowers the interest rate. 
C) supply of loanable funds from S2 to S1, which raises the interest rate. 
D) interest rate from r1 to r2.

Question 16

An increase in the demand for money with no change in supply will lead to _____ in the equilibrium quantity of money and _____ in the equilibrium interest rate.

Accepted Answer

A) no change; a rise 
B) no change; a fall 
C) a decrease; a rise 
D) an increase; a fall 
A) no change; a rise 
B) no change; a fall 
C) a decrease; a rise 
D) an increase; a fall

Question 17

The money supply curve is:

Accepted Answer

A) downward sloping. 
B) vertical. 
C) upward rising. 
D) horizontal. 
A) downward sloping. 
B) vertical. 
C) upward rising. 
D) horizontal.

Question 18

According to the loanable funds model, in the short run expansionary monetary policy:

Accepted Answer

A) increases the supply of loanable funds. 
B) increases the demand for loanable funds. 
C) increases the quantity of loanable funds supplied. 
D) has no effect on the supply of loanable funds. 
A) increases the supply of loanable funds. 
B) increases the demand for loanable funds. 
C) increases the quantity of loanable funds supplied. 
D) has no effect on the supply of loanable funds.

Question 19

Use the following to answer questions :
Figure: Output Gap  
-(Figure: Output Gap) Look at the figure Output Gap. If the economy is producing at Y1, then it has a(n) _____ gap, as _____ real GDP exceeds _____ real GDP, and the Federal Reserve should use _____ monetary policy.

Accepted Answer

A) inflationary; actual; potential; contractionary 
B) recessionary; potential; actual; expansionary 
C) inflationary; potential; actual; contractionary 
D) recessionary; actual; potential; expansionary 
A) inflationary; actual; potential; contractionary 
B) recessionary; potential; actual; expansionary 
C) inflationary; potential; actual; contractionary 
D) recessionary; actual; potential; expansionary

Question 20

Generally, the more liquid an asset is, the:

Accepted Answer

A) lower its purchasing power. 
B) lower its rate of return. 
C) higher its capacity to store value over time. 
D) higher its rate of return. 
A) lower its purchasing power. 
B) lower its rate of return. 
C) higher its capacity to store value over time. 
D) higher its rate of return.

Since the Federal Reserve has the power to determine the supply of money, the money supply curve in the liquidity preference model is a(n):

If the economy is at potential output and the Fed decreases the money supply, in the SHORT run the aggregate demand will likely:

When the demand for money exceeds the supply:

Use the following to answer questions : Figure: Monetary Policy and the AD-SRAS Model -(Figure: Monetary Policy and the AD-SRAS Model) Look at the figure Monetary Policy and the AD-SRAS Model. An increase in the money supply is most likely to cause a shift:

On average short-term interest rates are higher than long-term rates to compensate for higher risk in the short term.

Over time, contractionary monetary policy _ nominal wages and causes the short-run aggregate supply curve to shift _.

The demand for money is higher in Japan than in the United States because:

According to the loanable funds model, in the short run contractionary monetary policy shifts the _ curve for loanable funds to the _.

If the demand for money is $100 billion and the supply of money is $200 billion, then the interest rate will:

To close an inflationary gap using monetary policy, the Federal Reserve should ___ the money supply to _ investment and consumer spending and shift the aggregate demand curve to the ___.

Use the following to answer questions: Figure: A Money Market -(Figure: A Money Market) Look at the figure A Money Market. If the current interest rate is r₁, the interest rate will _ because there is a _ of money in the market.

Between 1970 and the present, research comparing similar wealthy countries found that increases in the money supply:

A rise in interest rates due to a decrease in the money supply will _____ aggregate demand.

Expansionary monetary policy causes _ in interest rates in the short run and _ in interest rates in the long run.

An increase in the demand for money with no change in supply will lead to _ in the equilibrium quantity of money and _ in the equilibrium interest rate.

The money supply curve is:

According to the loanable funds model, in the short run expansionary monetary policy:

Use the following to answer questions : Figure: Output Gap -(Figure: Output Gap) Look at the figure Output Gap. If the economy is producing at Y₁, then it has a(n) ___ gap, as _ real GDP exceeds _ real GDP, and the Federal Reserve should use ___ monetary policy.

Generally, the more liquid an asset is, the:

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

Since the Federal Reserve has the power to determine the supply of money, the money supply curve in the liquidity preference model is a(n):

If the economy is at potential output and the Fed decreases the money supply, in the SHORT run the aggregate demand will likely:

When the demand for money exceeds the supply:

Use the following to answer questions : Figure: Monetary Policy and the AD-SRAS Model -(Figure: Monetary Policy and the AD-SRAS Model) Look at the figure Monetary Policy and the AD-SRAS Model. An increase in the money supply is most likely to cause a shift:

On average short-term interest rates are higher than long-term rates to compensate for higher risk in the short term.

Over time, contractionary monetary policy _____ nominal wages and causes the short-run aggregate supply curve to shift _____.

The demand for money is higher in Japan than in the United States because:

According to the loanable funds model, in the short run contractionary monetary policy shifts the _____ curve for loanable funds to the _____.

If the demand for money is $100 billion and the supply of money is $200 billion, then the interest rate will:

To close an inflationary gap using monetary policy, the Federal Reserve should _____ the money supply to _____ investment and consumer spending and shift the aggregate demand curve to the _____.

Use the following to answer questions: Figure: A Money Market -(Figure: A Money Market) Look at the figure A Money Market. If the current interest rate is r1, the interest rate will _____ because there is a _____ of money in the market.

Between 1970 and the present, research comparing similar wealthy countries found that increases in the money supply:

A rise in interest rates due to a decrease in the money supply will _____ aggregate demand.

Expansionary monetary policy causes _____ in interest rates in the short run and _____ in interest rates in the long run.

An increase in the demand for money with no change in supply will lead to _____ in the equilibrium quantity of money and _____ in the equilibrium interest rate.

The money supply curve is:

According to the loanable funds model, in the short run expansionary monetary policy:

Use the following to answer questions : Figure: Output Gap -(Figure: Output Gap) Look at the figure Output Gap. If the economy is producing at Y1, then it has a(n) _____ gap, as _____ real GDP exceeds _____ real GDP, and the Federal Reserve should use _____ monetary policy.

Generally, the more liquid an asset is, the:

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

Over time, contractionary monetary policy _ nominal wages and causes the short-run aggregate supply curve to shift _.

According to the loanable funds model, in the short run contractionary monetary policy shifts the _ curve for loanable funds to the _.

To close an inflationary gap using monetary policy, the Federal Reserve should ___ the money supply to _ investment and consumer spending and shift the aggregate demand curve to the ___.

Use the following to answer questions: Figure: A Money Market -(Figure: A Money Market) Look at the figure A Money Market. If the current interest rate is r₁, the interest rate will _ because there is a _ of money in the market.

Expansionary monetary policy causes _ in interest rates in the short run and _ in interest rates in the long run.

An increase in the demand for money with no change in supply will lead to _ in the equilibrium quantity of money and _ in the equilibrium interest rate.

Use the following to answer questions : Figure: Output Gap -(Figure: Output Gap) Look at the figure Output Gap. If the economy is producing at Y₁, then it has a(n) ___ gap, as _ real GDP exceeds _ real GDP, and the Federal Reserve should use ___ monetary policy.