Question 1

An increase in interest rates causes the demand for money to:

Accepted Answer

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

Question 2

To fight a recession, the Federal Reserve should conduct _____ monetary policy to _____ interest rates, which will shift the aggregate demand curve to the _____.

Accepted Answer

A) expansionary; lower; left 
B) contractionary; raise; left 
C) contractionary; lower; right 
D) expansionary; lower; right 
A) expansionary; lower; left 
B) contractionary; raise; left 
C) contractionary; lower; right 
D) expansionary; lower; right

Question 3

According to the concept of monetary neutrality, _____ in the money supply _____ GDP and _____ the price level.

Accepted Answer

A) increases; do not change; raise 
B) increases; raise; do not change 
C) decreases; lower; lower 
D) increases; raise; raise 
A) increases; do not change; raise 
B) increases; raise; do not change 
C) decreases; lower; lower 
D) increases; raise; raise

Question 4

Short-term interest rates apply to financial assets due within:

Accepted Answer

A) 24 hours. 
B) three months. 
C) six months. 
D) one year. 
A) 24 hours. 
B) three months. 
C) six months. 
D) one year.

Question 5

Congress sets the target federal funds rate, but it is the Fed's responsibility to achieve the target rate through purchases and sales of reserves.

Accepted Answer

A) True 
 B)False

Question 6

The concept of monetary neutrality means that changes in the money supply have no real effects on real output in the long run.

Accepted Answer

A) True 
 B)False

Question 7

If an economy is operating at an aggregate output level above its potential output level, the Federal Reserve may:

Accepted Answer

A) conduct an open market sale. 
B) conduct an open market purchase. 
C) lower the federal funds rate target. 
D) decrease government spending. 
A) conduct an open market sale. 
B) conduct an open market purchase. 
C) lower the federal funds rate target. 
D) decrease government spending.

Question 8

When real GDP is above potential GDP, the Fed uses contractionary monetary policy.

Accepted Answer

A) True 
 B)False

Question 9

Interest rates can be determined in models of:

Accepted Answer

A) money demand and supply. 
B) M1 markets only. 
C) the demand and supply of loanable funds. 
D) demand and supply of both money and loanable funds. 
A) money demand and supply. 
B) M1 markets only. 
C) the demand and supply of loanable funds. 
D) demand and supply of both money and loanable funds.

Question 10

An increase in real aggregate spending will shift the money:

Accepted Answer

A) demand curve rightward. 
B) demand curve leftward. 
C) supply curve rightward. 
D) supply curve leftward. 
A) demand curve rightward. 
B) demand curve leftward. 
C) supply curve rightward. 
D) supply curve leftward.

Question 11

When the Fed changes tax rates, interest rates change, and this changes real GDP.

Accepted Answer

A) True 
 B)False

Question 12

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. If the Federal Reserve wants to maintain the same federal funds rate, it should:

Accepted Answer

A) increase taxes. 
B) decrease government spending. 
C) sell Treasury bills. 
D) buy Treasury bills. 
A) increase taxes. 
B) decrease government spending. 
C) sell Treasury bills. 
D) buy Treasury bills.

Question 13

People pay a cost for holding money instead of nonmonetary assets such as Treasury bills.

Accepted Answer

A) True 
 B)False

Question 14

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. If the money supply remains constant, interest rates will likely:

Accepted Answer

A) decrease. 
B) increase. 
C) remain the same. 
D) increase or decrease, depending upon what maximizes profits for the largest commercial banks. 
A) decrease. 
B) increase. 
C) remain the same. 
D) increase or decrease, depending upon what maximizes profits for the largest commercial banks.

Question 15

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

Accepted Answer

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

Question 16

If the opportunity cost of holding money rises, then the money demand curve shifts to the left.

Accepted Answer

A) True 
 B)False

Question 17

International data for 1970-2010 show that monetary neutrality occurs only in wealthy countries.

Accepted Answer

A) True 
 B)False

Question 18

The short-term interest rate applies to financial assets that mature within:

Accepted Answer

A) less than a year. 
B) a year or more. 
C) 2 years. 
D) 5 years. 
A) less than a year. 
B) a year or more. 
C) 2 years. 
D) 5 years.

Question 19

When the economy is developing an inflationary gap, the Fed should increase the money supply to decrease interest rates.

Accepted Answer

A) True 
 B)False

Question 20

Use the following to answer questions :
Figure: Output Gap  
-(Figure: Output Gap) Look at the figure Output Gap. If the economy is producing at Y2, then it has a(n) _____ gap, as _____ real GDP exceeds _____ real GDP, and the Federal Reserve should use _____ monetary policy.

Accepted Answer

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

An increase in interest rates causes the demand for money to:

To fight a recession, the Federal Reserve should conduct ___ monetary policy to _ interest rates, which will shift the aggregate demand curve to the ___.

According to the concept of monetary neutrality, ___ in the money supply _ GDP and ___ the price level.

Short-term interest rates apply to financial assets due within:

Congress sets the target federal funds rate, but it is the Fed's responsibility to achieve the target rate through purchases and sales of reserves.

The concept of monetary neutrality means that changes in the money supply have no real effects on real output in the long run.

If an economy is operating at an aggregate output level above its potential output level, the Federal Reserve may:

When real GDP is above potential GDP, the Fed uses contractionary monetary policy.

Interest rates can be determined in models of:

An increase in real aggregate spending will shift the money:

When the Fed changes tax rates, interest rates change, and this changes real GDP.

People pay a cost for holding money instead of nonmonetary assets such as Treasury bills.

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

If the opportunity cost of holding money rises, then the money demand curve shifts to the left.

International data for 1970-2010 show that monetary neutrality occurs only in wealthy countries.

The short-term interest rate applies to financial assets that mature within:

When the economy is developing an inflationary gap, the Fed should increase the money supply to decrease interest rates.

Use the following to answer questions : Figure: Output Gap -(Figure: Output Gap) Look at the figure Output Gap. If the economy is producing at Y₂, then it has a(n) ___ gap, as _ real GDP exceeds _ real GDP, and the Federal Reserve should use ___ monetary policy.

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

An increase in interest rates causes the demand for money to:

To fight a recession, the Federal Reserve should conduct _____ monetary policy to _____ interest rates, which will shift the aggregate demand curve to the _____.

According to the concept of monetary neutrality, _____ in the money supply _____ GDP and _____ the price level.

Short-term interest rates apply to financial assets due within:

Congress sets the target federal funds rate, but it is the Fed's responsibility to achieve the target rate through purchases and sales of reserves.

The concept of monetary neutrality means that changes in the money supply have no real effects on real output in the long run.

If an economy is operating at an aggregate output level above its potential output level, the Federal Reserve may:

When real GDP is above potential GDP, the Fed uses contractionary monetary policy.

Interest rates can be determined in models of:

An increase in real aggregate spending will shift the money:

When the Fed changes tax rates, interest rates change, and this changes real GDP.

People pay a cost for holding money instead of nonmonetary assets such as Treasury bills.

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

If the opportunity cost of holding money rises, then the money demand curve shifts to the left.

International data for 1970-2010 show that monetary neutrality occurs only in wealthy countries.

The short-term interest rate applies to financial assets that mature within:

When the economy is developing an inflationary gap, the Fed should increase the money supply to decrease interest rates.

Use the following to answer questions : Figure: Output Gap -(Figure: Output Gap) Look at the figure Output Gap. If the economy is producing at Y2, then it has a(n) _____ gap, as _____ real GDP exceeds _____ real GDP, and the Federal Reserve should use _____ monetary policy.

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

To fight a recession, the Federal Reserve should conduct ___ monetary policy to _ interest rates, which will shift the aggregate demand curve to the ___.

According to the concept of monetary neutrality, ___ in the money supply _ GDP and ___ the price level.

An increase in the supply of money with no change in demand will lead to a(n) _ in the equilibrium quantity of money and a _ 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 Y₂, then it has a(n) ___ gap, as _ real GDP exceeds _ real GDP, and the Federal Reserve should use ___ monetary policy.