Question 1

To expand the money supply, the Federal Reserve would have to:

Accepted Answer

A) make an open purchase of Treasury bills. 
B) have an open sale of Treasury bills. 
C) raise interest rates. 
D) get approval from Congress. 
A) make an open purchase of Treasury bills. 
B) have an open sale of Treasury bills. 
C) raise interest rates. 
D) get approval from Congress.

Question 2

Between 2004 and 2006, the Fed raised its target federal funds rate to prevent inflation.

Accepted Answer

A) True 
 B)False

Question 3

The liquidity preference model focuses on interest rates in the short run.

Accepted Answer

A) True 
 B)False

Question 4

Use the following to answer questions:
Figure: Changes in the Money Supply  
-(Figure: Changes in the Money Supply) Look at the figure Changes in the Money Supply. If the supply of money shifts from S1 to S2, the Federal Reserve must have _____ Treasury bills in the open market.

Accepted Answer

A) sold 
B) bought 
C) issued new 
D) borrowed 
A) sold 
B) bought 
C) issued new 
D) borrowed

Question 5

If the economy is at potential output and the Fed decreases the money supply, in the short run the price level will likely decrease.

Accepted Answer

A) True 
 B)False

Question 6

A decrease in the supply of money will lead to a(n) _____ in equilibrium real GDP and a(n) _____ in equilibrium interest rates.

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 7

Firms and businesses hold some of their assets in the form of money because:

Accepted Answer

A) it allows them to make purchases directly. 
B) it is a form of M2. 
C) bonds are more liquid. 
D) interest rates on money tend to be lower than other types of assets. 
A) it allows them to make purchases directly. 
B) it is a form of M2. 
C) bonds are more liquid. 
D) interest rates on money tend to be lower than other types of assets.

Question 8

The demand for money in Japan is much lower than the demand for money in the United States.

Accepted Answer

A) True 
 B)False

Question 9

A change in _____ does NOT shift the money demand curve.

Accepted Answer

A) the interest rate 
B) the price level 
C) banking technology 
D) real GDP 
A) the interest rate 
B) the price level 
C) banking technology 
D) real GDP

Question 10

If the money supply decreases by 5%, in the long run:

Accepted Answer

A) interest rates rise by 5%. 
B) the unemployment rate rises by 10%. 
C) the price level drops by 5%. 
D) real GDP drops by 5%. 
A) interest rates rise by 5%. 
B) the unemployment rate rises by 10%. 
C) the price level drops by 5%. 
D) real GDP drops by 5%.

Question 11

In the liquidity preference model, the money supply is represented by:

Accepted Answer

A) a vertical line. 
B) an upward-sloping curve with a slope of 1 / V. 
C) a horizontal line. 
D) a downward-sloping curve with a slope of 1 / k. 
A) a vertical line. 
B) an upward-sloping curve with a slope of 1 / V. 
C) a horizontal line. 
D) a downward-sloping curve with a slope of 1 / k.

Question 12

According to the liquidity preference model, if the Federal Reserve increases the money supply, the equilibrium interest rate _____, and this leads to a(n) _____ in the quantity demanded of nonmonetary interest-bearing financial assets.

Accepted Answer

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

Question 13

When long-term interest rates are higher than short-term rates, as they were in 2010:

Accepted Answer

A) it implies that short-term interest rates are expected to fall. 
B) it has no implication for short-term interest rates. 
C) it implies that inflation will fall. 
D) it implies that short-term interest rates are expected to rise. 
A) it implies that short-term interest rates are expected to fall. 
B) it has no implication for short-term interest rates. 
C) it implies that inflation will fall. 
D) it implies that short-term interest rates are expected to rise.

Question 14

When nominal wages decrease, the short-run aggregate supply curve shifts to the left.

Accepted Answer

A) True 
 B)False

Question 15

Use the following to answer questions :
Figure: The Money Supply and Aggregate Demand  
-(Figure: The Money Supply and Aggregate Demand) Look at the figure The Money Supply and Aggregate Demand. Panel (b) illustrates what happens when the Federal Reserve decides to _____ the money supply and _____ interest rates.

Accepted Answer

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

Question 16

The Federal Open Market Committee has decided that the federal funds rate should be 0.5% rather than the current rate of 1.25%. The appropriate open market action is to _____ Treasury bills to _____ money _____.

Accepted Answer

A) buy; decrease; demand 
B) buy; decrease; supply 
C) sell; decrease; demand 
D) buy; increase; supply 
A) buy; decrease; demand 
B) buy; decrease; supply 
C) sell; decrease; demand 
D) buy; increase; supply

Question 17

Use the following to answer questions :
Figure: Monetary Policy I  
-(Figure: Monetary Policy I) Look at the figure Monetary Policy I. If the economy is initially in equilibrium at E2 and the central bank chooses to buy Treasury bills, _____ shift to _____ a(n) _____ gap.

Accepted Answer

A) AD2 will; right, causing; inflationary 
B) AD2 may; AD1, causing; recessionary 
C) AD1 may; AD2, closing; recessionary 
D) AD1 will; left, increasing; recessionary 
A) AD2 will; right, causing; inflationary 
B) AD2 may; AD1, causing; recessionary 
C) AD1 may; AD2, closing; recessionary 
D) AD1 will; left, increasing; recessionary

Question 18

If the equilibrium interest rate in the money market is 5%, at an interest rate of 2% the quantity of nonmonetary interest-bearing financial assets demanded is _____ the quantity supplied.

Accepted Answer

A) less than 
B) greater than 
C) equal to 
D) irrelevant to 
A) less than 
B) greater than 
C) equal to 
D) irrelevant to

Question 19

Monetary policy is similar among wealthy countries because the central banks of most countries:

Accepted Answer

A) try to keep inflation between 2% and 3% per year. 
B) try to keep inflation between 5% and 6% per year. 
C) try to keep inflation between 0% and 2% per year. 
D) are trying to establish a single global currency. 
A) try to keep inflation between 2% and 3% per year. 
B) try to keep inflation between 5% and 6% per year. 
C) try to keep inflation between 0% and 2% per year. 
D) are trying to establish a single global currency.

Question 20

If interest rates rise, there will be a(n):

Accepted Answer

A) decrease in aggregate demand. 
B) increase in aggregate demand. 
C) increase in aggregate supply. 
D) increase in the money supply. 
A) decrease in aggregate demand. 
B) increase in aggregate demand. 
C) increase in aggregate supply. 
D) increase in the money supply.

To expand the money supply, the Federal Reserve would have to:

Between 2004 and 2006, the Fed raised its target federal funds rate to prevent inflation.

The liquidity preference model focuses on interest rates in the short run.

Use the following to answer questions: Figure: Changes in the Money Supply -(Figure: Changes in the Money Supply) Look at the figure Changes in the Money Supply. If the supply of money shifts from S₁ to S₂, the Federal Reserve must have _____ Treasury bills in the open market.

If the economy is at potential output and the Fed decreases the money supply, in the short run the price level will likely decrease.

A decrease in the supply of money will lead to a(n) _ in equilibrium real GDP and a(n) _ in equilibrium interest rates.

Firms and businesses hold some of their assets in the form of money because:

The demand for money in Japan is much lower than the demand for money in the United States.

A change in _____ does NOT shift the money demand curve.

If the money supply decreases by 5%, in the long run:

In the liquidity preference model, the money supply is represented by:

According to the liquidity preference model, if the Federal Reserve increases the money supply, the equilibrium interest rate _, and this leads to a(n) _ in the quantity demanded of nonmonetary interest-bearing financial assets.

When long-term interest rates are higher than short-term rates, as they were in 2010:

When nominal wages decrease, the short-run aggregate supply curve shifts to the left.

The Federal Open Market Committee has decided that the federal funds rate should be 0.5% rather than the current rate of 1.25%. The appropriate open market action is to ___ Treasury bills to _ money ___.

Use the following to answer questions : Figure: Monetary Policy I -(Figure: Monetary Policy I) Look at the figure Monetary Policy I. If the economy is initially in equilibrium at E₂ and the central bank chooses to buy Treasury bills, ___ shift to _ a(n) ___ gap.

If the equilibrium interest rate in the money market is 5%, at an interest rate of 2% the quantity of nonmonetary interest-bearing financial assets demanded is _____ the quantity supplied.

Monetary policy is similar among wealthy countries because the central banks of most countries:

If interest rates rise, there will be a(n):

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

To expand the money supply, the Federal Reserve would have to:

Between 2004 and 2006, the Fed raised its target federal funds rate to prevent inflation.

The liquidity preference model focuses on interest rates in the short run.

Use the following to answer questions: Figure: Changes in the Money Supply -(Figure: Changes in the Money Supply) Look at the figure Changes in the Money Supply. If the supply of money shifts from S1 to S2, the Federal Reserve must have _____ Treasury bills in the open market.

If the economy is at potential output and the Fed decreases the money supply, in the short run the price level will likely decrease.

A decrease in the supply of money will lead to a(n) _____ in equilibrium real GDP and a(n) _____ in equilibrium interest rates.

Firms and businesses hold some of their assets in the form of money because:

The demand for money in Japan is much lower than the demand for money in the United States.

A change in _____ does NOT shift the money demand curve.

If the money supply decreases by 5%, in the long run:

In the liquidity preference model, the money supply is represented by:

According to the liquidity preference model, if the Federal Reserve increases the money supply, the equilibrium interest rate _____, and this leads to a(n) _____ in the quantity demanded of nonmonetary interest-bearing financial assets.

When long-term interest rates are higher than short-term rates, as they were in 2010:

When nominal wages decrease, the short-run aggregate supply curve shifts to the left.

The Federal Open Market Committee has decided that the federal funds rate should be 0.5% rather than the current rate of 1.25%. The appropriate open market action is to _____ Treasury bills to _____ money _____.

Use the following to answer questions : Figure: Monetary Policy I -(Figure: Monetary Policy I) Look at the figure Monetary Policy I. If the economy is initially in equilibrium at E2 and the central bank chooses to buy Treasury bills, _____ shift to _____ a(n) _____ gap.

If the equilibrium interest rate in the money market is 5%, at an interest rate of 2% the quantity of nonmonetary interest-bearing financial assets demanded is _____ the quantity supplied.

Monetary policy is similar among wealthy countries because the central banks of most countries:

If interest rates rise, there will be a(n):

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

Use the following to answer questions: Figure: Changes in the Money Supply -(Figure: Changes in the Money Supply) Look at the figure Changes in the Money Supply. If the supply of money shifts from S₁ to S₂, the Federal Reserve must have _____ Treasury bills in the open market.

A decrease in the supply of money will lead to a(n) _ in equilibrium real GDP and a(n) _ in equilibrium interest rates.

According to the liquidity preference model, if the Federal Reserve increases the money supply, the equilibrium interest rate _, and this leads to a(n) _ in the quantity demanded of nonmonetary interest-bearing financial assets.

The Federal Open Market Committee has decided that the federal funds rate should be 0.5% rather than the current rate of 1.25%. The appropriate open market action is to ___ Treasury bills to _ money ___.

Use the following to answer questions : Figure: Monetary Policy I -(Figure: Monetary Policy I) Look at the figure Monetary Policy I. If the economy is initially in equilibrium at E₂ and the central bank chooses to buy Treasury bills, ___ shift to _ a(n) ___ gap.