Question 1

In the long run, changes in the money supply _____ the aggregate price level and _____ aggregate output.

Accepted Answer

A) affect; affect 
B) affect; do not affect 
C) do not affect; affect 
D) do not affect; do not affect 
A) affect; affect 
B) affect; do not affect 
C) do not affect; affect 
D) do not affect; do not affect

Question 2

Available international evidence for the period 1970-2010 shows that the:

Accepted Answer

A) increases in the quantity of money led to a proportionate increase in the aggregate price level. 
B) relationship between money and the aggregate price level changes over time and across countries. 
C) concept of monetary neutrality applies only to developing countries. 
D) increases in the money supply in the long run led to equal percent rises in the aggregate price level. 
A) increases in the quantity of money led to a proportionate increase in the aggregate price level. 
B) relationship between money and the aggregate price level changes over time and across countries. 
C) concept of monetary neutrality applies only to developing countries. 
D) increases in the money supply in the long run led to equal percent rises in the aggregate price level.

Question 3

An increase in the money supply _____ the interest rate in the short run but _____ the interest rate in the long run.

Accepted Answer

A) lowers; does not affect 
B) raises; lowers 
C) does not affect; raises 
D) does not affect; lowers 
A) lowers; does not affect 
B) raises; lowers 
C) does not affect; raises 
D) does not affect; lowers

Question 4

If the interest rate is below equilibrium, then the quantity of money demanded is more than the quantity of money supplied, and the quantity of interest-bearing financial assets demanded is also more than the quantity supplied.

Accepted Answer

A) True 
 B)False

Question 5

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. If the economy is in an inflationary gap, the Federal Reserve will _____ Treasury bills, which will _____ the money supply and _____ interest rates. This is shown in panel _____.

Accepted Answer

A) buy; increase; lower; (a) 
B) sell; decrease; raise; (b) 
C) buy; decrease; raise; (b) 
D) sell; increase; raise; (b) 
A) buy; increase; lower; (a) 
B) sell; decrease; raise; (b) 
C) buy; decrease; raise; (b) 
D) sell; increase; raise; (b)

Question 6

In the long run a change in the money supply will affect:
I. the interest rate.
II. real GDP.
III. prices.

Accepted Answer

A) I only 
B) II only 
C) III only 
D) I, II, and III 
A) I only 
B) II only 
C) III only 
D) I, II, and III

Question 7

If the money supply increases by 10%, in the long run:

Accepted Answer

A) unemployment drops by 10%. 
B) the price level increases by 10%. 
C) real GDP increases by 10%. 
D) unemployment drops by 20%. 
A) unemployment drops by 10%. 
B) the price level increases by 10%. 
C) real GDP increases by 10%. 
D) unemployment drops by 20%.

Question 8

The short-run aggregate supply curve is _____, and the long-run aggregate supply curve is _____.

Accepted Answer

A) vertical; upward sloping 
B) upward sloping; vertical 
C) downward sloping; vertical 
D) vertical; horizontal 
A) vertical; upward sloping 
B) upward sloping; vertical 
C) downward sloping; vertical 
D) vertical; horizontal

Question 9

Use the following to answer questions :
Figure: Monetary Policy II  
-(Figure: Monetary Policy II) Look at the figure Monetary Policy II. If the short-run equilibrium is at Y2, appropriate central bank policy is:

Accepted Answer

A) contractionary. 
B) expansionary. 
C) neutral. 
D) balanced. 
A) contractionary. 
B) expansionary. 
C) neutral. 
D) balanced.

Question 10

Suppose the Federal Reserve is conducting an expansionary monetary policy. It will _____ Treasury bills on the open market, so that the money supply will _____, interest rates will _____, planned investment spending will _____, and the AD curve will shift to the _____.

Accepted Answer

A) buy; decrease; fall; fall; left 
B) sell; decrease; rise; fall; left 
C) buy; increase; fall; rise; right 
D) sell; increase; rise; rise; left 
A) buy; decrease; fall; fall; left 
B) sell; decrease; rise; fall; left 
C) buy; increase; fall; rise; right 
D) sell; increase; rise; rise; left

Question 11

If the Federal Reserve wants to lower the interest rate, it will:

Accepted Answer

A) decrease the money supply. 
B) increase the money supply. 
C) keep the money supply unchanged. 
D) mandate a lower interest rate. 
A) decrease the money supply. 
B) increase the money supply. 
C) keep the money supply unchanged. 
D) mandate a lower interest rate.

Question 12

The quantity demanded of money is negatively related to _____, and the demand for money is positively related to _____.

Accepted Answer

A) the interest rate; real GDP 
B) the interest rate; unemployment 
C) real GDP; the interest rate 
D) real GDP; the money supply 
A) the interest rate; real GDP 
B) the interest rate; unemployment 
C) real GDP; the interest rate 
D) real GDP; the money supply

Question 13

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

Accepted Answer

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

Question 14

Use the following to answer questions :
Figure: Monetary Policy III  
-(Figure: Monetary Policy III) Look at the figure Monetary Policy III. Expansionary economic policy will lead to an equilibrium GDP of:

Accepted Answer

A) Y1. 
B) Y2. 
C) Y3. 
D) Y4. 
A) Y1. 
B) Y2. 
C) Y3. 
D) Y4.

Question 15

An increase in the money supply will decrease interest rates in the short run but will not affect interest rates in the long run because an increase in the money supply will eventually _____ prices and _____ money demand.

Accepted Answer

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

Question 16

Suppose the Federal Reserve has set a target for the federal funds rate. If initially the equilibrium interest rate happens to be higher than the target interest rate, then the Federal Reserve should _____ Treasury bills in the open market, _____ the money supply, shift the supply of money curve to the _____, and _____ the interest rate to the target rate.

Accepted Answer

A) sell; decrease; left; raise 
B) purchase; decrease; left; lower 
C) purchase; increase; right; lower 
D) sell; increase; left; raise 
A) sell; decrease; left; raise 
B) purchase; decrease; left; lower 
C) purchase; increase; right; lower 
D) sell; increase; left; raise

Question 17

In the income-expenditure model, contractionary monetary policy leads to _____ interest rates, a(n) _____ in planned investment spending, and a(n) _____ in equilibrium GDP.

Accepted Answer

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

Question 18

If an economy is in long-run equilibrium at its potential output level, this also means:

Accepted Answer

A) the money market is in equilibrium. 
B) money demand is greater than money supply. 
C) money supply is greater than money demand. 
D) there is excess money in the money market. 
A) the money market is in equilibrium. 
B) money demand is greater than money supply. 
C) money supply is greater than money demand. 
D) there is excess money in the money market.

Question 19

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 rate of interest is below 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 20

Short-term interest rates:

Accepted Answer

A) fluctuate widely depending on their terms. 
B) tend to move together. 
C) move in the same direction as long-term interest rates. 
D) are always less than long-term interest rates. 
A) fluctuate widely depending on their terms. 
B) tend to move together. 
C) move in the same direction as long-term interest rates. 
D) are always less than long-term interest rates.

In the long run, changes in the money supply _ the aggregate price level and _ aggregate output.

Available international evidence for the period 1970-2010 shows that the:

An increase in the money supply _ the interest rate in the short run but _ the interest rate in the long run.

If the interest rate is below equilibrium, then the quantity of money demanded is more than the quantity of money supplied, and the quantity of interest-bearing financial assets demanded is also more than the quantity supplied.

In the long run a change in the money supply will affect: I. the interest rate. II. real GDP. III. prices.

If the money supply increases by 10%, in the long run:

The short-run aggregate supply curve is _, and the long-run aggregate supply curve is _.

Use the following to answer questions : Figure: Monetary Policy II -(Figure: Monetary Policy II) Look at the figure Monetary Policy II. If the short-run equilibrium is at Y₂, appropriate central bank policy is:

Suppose the Federal Reserve is conducting an expansionary monetary policy. It will ___ Treasury bills on the open market, so that the money supply will _, interest rates will _, planned investment spending will _, and the AD curve will shift to the ___.

If the Federal Reserve wants to lower the interest rate, it will:

The quantity demanded of money is negatively related to _, and the demand for money is positively related to _.

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

Use the following to answer questions : Figure: Monetary Policy III -(Figure: Monetary Policy III) Look at the figure Monetary Policy III. Expansionary economic policy will lead to an equilibrium GDP of:

An increase in the money supply will decrease interest rates in the short run but will not affect interest rates in the long run because an increase in the money supply will eventually _ prices and _ money demand.

In the income-expenditure model, contractionary monetary policy leads to ___ interest rates, a(n) _ in planned investment spending, and a(n) ___ in equilibrium GDP.

If an economy is in long-run equilibrium at its potential output level, this also means:

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 rate of interest is below equilibrium, there will be an excess _ money and the interest rate will _.

Short-term interest rates:

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

In the long run, changes in the money supply _____ the aggregate price level and _____ aggregate output.

Available international evidence for the period 1970-2010 shows that the:

An increase in the money supply _____ the interest rate in the short run but _____ the interest rate in the long run.

If the interest rate is below equilibrium, then the quantity of money demanded is more than the quantity of money supplied, and the quantity of interest-bearing financial assets demanded is also more than the quantity supplied.

In the long run a change in the money supply will affect: I. the interest rate. II. real GDP. III. prices.

If the money supply increases by 10%, in the long run:

The short-run aggregate supply curve is _____, and the long-run aggregate supply curve is _____.

Use the following to answer questions : Figure: Monetary Policy II -(Figure: Monetary Policy II) Look at the figure Monetary Policy II. If the short-run equilibrium is at Y2, appropriate central bank policy is:

Suppose the Federal Reserve is conducting an expansionary monetary policy. It will _____ Treasury bills on the open market, so that the money supply will _____, interest rates will _____, planned investment spending will _____, and the AD curve will shift to the _____.

If the Federal Reserve wants to lower the interest rate, it will:

The quantity demanded of money is negatively related to _____, and the demand for money is positively related to _____.

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

Use the following to answer questions : Figure: Monetary Policy III -(Figure: Monetary Policy III) Look at the figure Monetary Policy III. Expansionary economic policy will lead to an equilibrium GDP of:

An increase in the money supply will decrease interest rates in the short run but will not affect interest rates in the long run because an increase in the money supply will eventually _____ prices and _____ money demand.

In the income-expenditure model, contractionary monetary policy leads to _____ interest rates, a(n) _____ in planned investment spending, and a(n) _____ in equilibrium GDP.

If an economy is in long-run equilibrium at its potential output level, this also means:

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 rate of interest is below equilibrium, there will be an excess _____ money and the interest rate will _____.

Short-term interest rates:

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

In the long run, changes in the money supply _ the aggregate price level and _ aggregate output.

An increase in the money supply _ the interest rate in the short run but _ the interest rate in the long run.

The short-run aggregate supply curve is _, and the long-run aggregate supply curve is _.

Use the following to answer questions : Figure: Monetary Policy II -(Figure: Monetary Policy II) Look at the figure Monetary Policy II. If the short-run equilibrium is at Y₂, appropriate central bank policy is:

Suppose the Federal Reserve is conducting an expansionary monetary policy. It will ___ Treasury bills on the open market, so that the money supply will _, interest rates will _, planned investment spending will _, and the AD curve will shift to the ___.

The quantity demanded of money is negatively related to _, and the demand for money is positively related to _.

An increase in the money supply will decrease interest rates in the short run but will not affect interest rates in the long run because an increase in the money supply will eventually _ prices and _ money demand.

In the income-expenditure model, contractionary monetary policy leads to ___ interest rates, a(n) _ in planned investment spending, and a(n) ___ in equilibrium GDP.

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 rate of interest is below equilibrium, there will be an excess _ money and the interest rate will _.