Question 1

Monetary policy affects aggregate demand through changes in:

Accepted Answer

A) government spending. 
B) consumer and investment spending. 
C) tax receipts. 
D) export demand. 
A) government spending. 
B) consumer and investment spending. 
C) tax receipts. 
D) export demand.

Question 2

If the interest rate is too low, it is possible that:

Accepted Answer

A) the quantity of money demanded is greater than the quantity of money supplied. 
B) money supply is equal to money demand. 
C) the money supply curve is downward sloping. 
D) money demand is vertical. 
A) the quantity of money demanded is greater than the quantity of money supplied. 
B) money supply is equal to money demand. 
C) the money supply curve is downward sloping. 
D) money demand is vertical.

Question 3

A decrease in the supply of money with no change in demand for money 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 4

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 5

How does an increase in the money supply affect interest rates if the economy is operating at potential output?

Accepted Answer

In the short run, an increase in the mon

Question 6

Expansionary monetary policy may decrease investment spending.

Accepted Answer

A) True 
 B)False

Question 7

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. If the economy is at point h because of an open market purchase by the Federal Reserve and no further monetary policy is implemented, in the LONG run nominal wages will _____, SRAS will shift _____, real GDP will _____, and the price level will _____.

Accepted Answer

A) increase; to SRAS'; decrease; increase 
B) increase; to SRAS'; increase; decrease 
C) decrease; farther to the right; decrease; increase 
D) decrease; to SRAS'; increase; decrease 
A) increase; to SRAS'; decrease; increase 
B) increase; to SRAS'; increase; decrease 
C) decrease; farther to the right; decrease; increase 
D) decrease; to SRAS'; increase; decrease

Question 8

In the long run changes in the money supply will change prices, real GDP, and interest rates.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements is FALSE? In the long run, monetary policy:

Accepted Answer

A) affects only the aggregate price level. 
B) does not affect aggregate output. 
C) is neutral. 
D) increases potential output. 
A) affects only the aggregate price level. 
B) does not affect aggregate output. 
C) is neutral. 
D) increases potential output.

Question 10

What is the goal of contractionary monetary policy, and how does it work in the short run?

Accepted Answer

Contractionary monetary policy is design

Question 11

The loanable funds model focuses on interest rates in the short run.

Accepted Answer

A) True 
 B)False

Question 12

Contractionary monetary policy:

Accepted Answer

A) increases aggregate demand. 
B) increases aggregate supply. 
C) works by discouraging investment spending. 
D) decreases interest rates. 
A) increases aggregate demand. 
B) increases aggregate supply. 
C) works by discouraging investment spending. 
D) decreases interest rates.

Question 13

Expansionary monetary policy decreases interest rates and increases aggregate demand.

Accepted Answer

A) True 
 B)False

Question 14

Contractionary monetary policy will, holding everything else constant, _____ the interest rate and shift the AD curve to the _____.

Accepted Answer

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

Question 15

Contractionary monetary policy causes a short-run _____ in interest rates in the short run and _____ in interest rates in the long run.

Accepted Answer

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

Question 16

Usually there is an inverse relationship between the federal funds rate and the output gap.

Accepted Answer

A) True 
 B)False

Question 17

Use the following to answer questions :
Scenario: Taylor Rule
Suppose the Federal Reserve is following the Taylor rule, which takes both inflation and business cycles into account when setting the federal funds rate. Also suppose that the inflation rate in the economy is 3% and the unemployment gap is -2%.
-(Scenario: Taylor Rule) Look at the scenario Taylor Rule. The economy has:

Accepted Answer

A) an inflationary gap, since the inflation rate is high. 
B) a recessionary gap, since the economy is not producing potential GDP. 
C) an inflationary gap, since actual real GDP exceeds potential real GDP. 
D) a recessionary gap, since potential real GDP exceeds actual real GDP. 
A) an inflationary gap, since the inflation rate is high. 
B) a recessionary gap, since the economy is not producing potential GDP. 
C) an inflationary gap, since actual real GDP exceeds potential real GDP. 
D) a recessionary gap, since potential real GDP exceeds actual real GDP.

Question 18

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 _____ illustrates what happens when the Fed decides to _____ Treasury bills and _____ the money supply.

Accepted Answer

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

Question 19

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. If the economy is in a recessionary gap at point f, it could move to point g as a result of:

Accepted Answer

A) a decrease in government spending. 
B) an increase in the discount rate. 
C) a decrease in the money supply. 
D) purchases of government securities in the open market. 
A) a decrease in government spending. 
B) an increase in the discount rate. 
C) a decrease in the money supply. 
D) purchases of government securities in the open market.

Question 20

U.S. banks did not offer interest on checking accounts until the beginning of the 1980s. Then banking regulations changed, allowing banks to pay interest on checking account funds. As a result, the _____ money _____ and shifted the money demand curve to the _____.

Accepted Answer

A) supply of; fell; left 
B) demand for; fell; left 
C) demand for; rose; right 
D) supply of; rose; right 
A) supply of; fell; left 
B) demand for; fell; left 
C) demand for; rose; right 
D) supply of; rose; right

Monetary policy affects aggregate demand through changes in:

If the interest rate is too low, it is possible that:

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

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

How does an increase in the money supply affect interest rates if the economy is operating at potential output?

Expansionary monetary policy may decrease investment spending.

In the long run changes in the money supply will change prices, real GDP, and interest rates.

Which of the following statements is FALSE? In the long run, monetary policy:

What is the goal of contractionary monetary policy, and how does it work in the short run?

The loanable funds model focuses on interest rates in the short run.

Contractionary monetary policy:

Expansionary monetary policy decreases interest rates and increases aggregate demand.

Contractionary monetary policy will, holding everything else constant, _ the interest rate and shift the AD curve to the _.

Contractionary monetary policy causes a short-run _ in interest rates in the short run and _ in interest rates in the long run.

Usually there is an inverse relationship between the federal funds rate and the output gap.

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 ___ illustrates what happens when the Fed decides to _ Treasury bills and ___ the money 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. If the economy is in a recessionary gap at point f, it could move to point g as a result of:

U.S. banks did not offer interest on checking accounts until the beginning of the 1980s. Then banking regulations changed, allowing banks to pay interest on checking account funds. As a result, the ___ money _ and shifted the money demand curve to 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

Monetary policy affects aggregate demand through changes in:

If the interest rate is too low, it is possible that:

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

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

How does an increase in the money supply affect interest rates if the economy is operating at potential output?

Expansionary monetary policy may decrease investment spending.

In the long run changes in the money supply will change prices, real GDP, and interest rates.

Which of the following statements is FALSE? In the long run, monetary policy:

What is the goal of contractionary monetary policy, and how does it work in the short run?

The loanable funds model focuses on interest rates in the short run.

Contractionary monetary policy:

Expansionary monetary policy decreases interest rates and increases aggregate demand.

Contractionary monetary policy will, holding everything else constant, _____ the interest rate and shift the AD curve to the _____.

Contractionary monetary policy causes a short-run _____ in interest rates in the short run and _____ in interest rates in the long run.

Usually there is an inverse relationship between the federal funds rate and the output gap.

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. If the economy is in a recessionary gap at point f, it could move to point g as a result of:

U.S. banks did not offer interest on checking accounts until the beginning of the 1980s. Then banking regulations changed, allowing banks to pay interest on checking account funds. As a result, the _____ money _____ and shifted the money demand curve to 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

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

Contractionary monetary policy will, holding everything else constant, _ the interest rate and shift the AD curve to the _.

Contractionary monetary policy causes a short-run _ in interest rates in the short run and _ in interest rates in the long run.

U.S. banks did not offer interest on checking accounts until the beginning of the 1980s. Then banking regulations changed, allowing banks to pay interest on checking account funds. As a result, the ___ money _ and shifted the money demand curve to the ___.