Question 1

The money demand curve is _____ because the opportunity cost of holding money is _____ related to the interest rate.

Accepted Answer

A) downward-sloping; inversely 
B) downward-sloping; directly 
C) upward-sloping; inversely 
D) upward-sloping; directly 
A) downward-sloping; inversely 
B) downward-sloping; directly 
C) upward-sloping; inversely 
D) upward-sloping; directly

Question 2

Assume the money supply doubles, followed by a doubling of the wage rate and the price level. Under these circumstances, we can safely conclude that:

Accepted Answer

A) real aggregate output will double. 
B) real aggregate output will fall in half. 
C) nominal output will double, but real output will fall. 
D) nominal output will double, but real output will remain unchanged. 
A) real aggregate output will double. 
B) real aggregate output will fall in half. 
C) nominal output will double, but real output will fall. 
D) nominal output will double, but real output will remain unchanged.

Question 3

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 E1 and the central bank chooses to buy Treasury bills, _____ shift to _____ a(n) _____ gap.

Accepted Answer

A) AD1 may; AD2, closing; recessionary 
B) AD1 will; left, increasing; recessionary 
C) SRAS1 will immediately; left, closing; inflationary 
D) SRAS2 will immediately; right, increasing; inflationary 
A) AD1 may; AD2, closing; recessionary 
B) AD1 will; left, increasing; recessionary 
C) SRAS1 will immediately; left, closing; inflationary 
D) SRAS2 will immediately; right, increasing; inflationary

Question 4

Changes in the money supply have no long-run effects on the interest rate because when the price level changes, the demand for money changes to offset the short-run changes in the money supply.

Accepted Answer

A) True 
 B)False

Question 5

A decrease in the demand for money would result from:

Accepted Answer

A) an increase in income. 
B) a decrease in real GDP. 
C) an increase in the price level. 
D) an increase in nominal GDP. 
A) an increase in income. 
B) a decrease in real GDP. 
C) an increase in the price level. 
D) an increase in nominal GDP.

Question 6

Between 1970 and 2010, in general, the money supply grew more rapidly in poorer countries than in wealthy ones.

Accepted Answer

A) True 
 B)False

Question 7

Monetary policy affects both the aggregate price level and output in the long run.

Accepted Answer

A) True 
 B)False

Question 8

U.S. banks did not offer interest on checking accounts until the beginning of the 1980s. As a result, before the early 1980s:

Accepted Answer

A) the opportunity costs of keeping funds in checking accounts was zero. 
B) the opportunity costs of keeping funds in checking accounts was lower. 
C) the opportunity costs of keeping funds in checking accounts was higher. 
D) people kept money under their mattress. 
A) the opportunity costs of keeping funds in checking accounts was zero. 
B) the opportunity costs of keeping funds in checking accounts was lower. 
C) the opportunity costs of keeping funds in checking accounts was higher. 
D) people kept money under their mattress.

Question 9

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

Accepted Answer

A) telecommunications and information technology is more advanced in the United States than in Japan. 
B) Japanese consumers use credit cards more than people in the United States. 
C) Japanese interest rates are higher than those in the United States. 
D) Japanese interest rates are lower than those in the United States. 
A) telecommunications and information technology is more advanced in the United States than in Japan. 
B) Japanese consumers use credit cards more than people in the United States. 
C) Japanese interest rates are higher than those in the United States. 
D) Japanese interest rates are lower than those in the United States.

Question 10

If the actual interest rate is 6% and the target rate is 4%, the Fed should decrease the money supply.

Accepted Answer

A) True 
 B)False

Question 11

The idea that the interest rate is determined by the supply and demand for money is known as:

Accepted Answer

A) the liquidity preference model. 
B) the quantity theory of money. 
C) the monetarist theory. 
D) the loanable funds theory. 
A) the liquidity preference model. 
B) the quantity theory of money. 
C) the monetarist theory. 
D) the loanable funds theory.

Question 12

If the economy is at potential output and the Fed increases the money supply, in the LONG run real GDP will likely:

Accepted Answer

A) fluctuate randomly. 
B) remain the same. 
C) decrease. 
D) increase. 
A) fluctuate randomly. 
B) remain the same. 
C) decrease. 
D) increase.

Question 13

If the demand for money is $300 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 14

To decrease interest rates, the Fed should make an open-market sale of Treasury bills.

Accepted Answer

A) True 
 B)False

Question 15

Given a recessionary gap, the Federal Reserve will use monetary policy to _____ interest rates and _____ aggregate demand.

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 16

Contractionary monetary policy entails _____ the money supply, _____ interest rates, and _____ aggregate demand.

Accepted Answer

A) increasing; increasing; increasing 
B) increasing; decreasing; decreasing 
C) decreasing; decreasing; decreasing 
D) decreasing; increasing; decreasing 
A) increasing; increasing; increasing 
B) increasing; decreasing; decreasing 
C) decreasing; decreasing; decreasing 
D) decreasing; increasing; decreasing

Question 17

If the interest rate is below equilibrium, then the quantity demanded of interest-bearing financial assets is less than the quantity supplied, so people selling interest-bearing financial assets have to offer higher interest rates to get people to buy them, thus raising interest rates back to the equilibrium level.

Accepted Answer

A) True 
 B)False

Question 18

To close a recessionary gap, the central bank could adopt an expansionary economic policy.

Accepted Answer

A) True 
 B)False

Question 19

If the economy is at potential output and the Fed decreases the money supply, in the long run the price level will likely:

Accepted Answer

A) fluctuate randomly. 
B) remain the same. 
C) decrease. 
D) increase. 
A) fluctuate randomly. 
B) remain the same. 
C) decrease. 
D) increase.

Question 20

In the short run changes in the money supply change interest rates but not real output and prices.

Accepted Answer

A) True 
 B)False

The money demand curve is _ because the opportunity cost of holding money is _ related to the interest rate.

Assume the money supply doubles, followed by a doubling of the wage rate and the price level. Under these circumstances, we can safely conclude that:

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 E₁ and the central bank chooses to buy Treasury bills, ___ shift to _ a(n) ___ gap.

Changes in the money supply have no long-run effects on the interest rate because when the price level changes, the demand for money changes to offset the short-run changes in the money supply.

A decrease in the demand for money would result from:

Between 1970 and 2010, in general, the money supply grew more rapidly in poorer countries than in wealthy ones.

Monetary policy affects both the aggregate price level and output in the long run.

U.S. banks did not offer interest on checking accounts until the beginning of the 1980s. As a result, before the early 1980s:

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

If the actual interest rate is 6% and the target rate is 4%, the Fed should decrease the money supply.

The idea that the interest rate is determined by the supply and demand for money is known as:

If the economy is at potential output and the Fed increases the money supply, in the LONG run real GDP will likely:

If the demand for money is $300 billion and the supply of money is $200 billion, then the interest rate will:

To decrease interest rates, the Fed should make an open-market sale of Treasury bills.

Given a recessionary gap, the Federal Reserve will use monetary policy to _ interest rates and _ aggregate demand.

Contractionary monetary policy entails ___ the money supply, _ interest rates, and ___ aggregate demand.

To close a recessionary gap, the central bank could adopt an expansionary economic policy.

If the economy is at potential output and the Fed decreases the money supply, in the long run the price level will likely:

In the short run changes in the money supply change interest rates but not real output and prices.

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

The money demand curve is _____ because the opportunity cost of holding money is _____ related to the interest rate.

Assume the money supply doubles, followed by a doubling of the wage rate and the price level. Under these circumstances, we can safely conclude that:

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 E1 and the central bank chooses to buy Treasury bills, _____ shift to _____ a(n) _____ gap.

Changes in the money supply have no long-run effects on the interest rate because when the price level changes, the demand for money changes to offset the short-run changes in the money supply.

A decrease in the demand for money would result from:

Between 1970 and 2010, in general, the money supply grew more rapidly in poorer countries than in wealthy ones.

Monetary policy affects both the aggregate price level and output in the long run.

U.S. banks did not offer interest on checking accounts until the beginning of the 1980s. As a result, before the early 1980s:

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

If the actual interest rate is 6% and the target rate is 4%, the Fed should decrease the money supply.

The idea that the interest rate is determined by the supply and demand for money is known as:

If the economy is at potential output and the Fed increases the money supply, in the LONG run real GDP will likely:

If the demand for money is $300 billion and the supply of money is $200 billion, then the interest rate will:

To decrease interest rates, the Fed should make an open-market sale of Treasury bills.

Given a recessionary gap, the Federal Reserve will use monetary policy to _____ interest rates and _____ aggregate demand.

Contractionary monetary policy entails _____ the money supply, _____ interest rates, and _____ aggregate demand.

To close a recessionary gap, the central bank could adopt an expansionary economic policy.

If the economy is at potential output and the Fed decreases the money supply, in the long run the price level will likely:

In the short run changes in the money supply change interest rates but not real output and prices.

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

The money demand curve is _ because the opportunity cost of holding money is _ related to the interest rate.

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 E₁ and the central bank chooses to buy Treasury bills, ___ shift to _ a(n) ___ gap.

Given a recessionary gap, the Federal Reserve will use monetary policy to _ interest rates and _ aggregate demand.

Contractionary monetary policy entails ___ the money supply, _ interest rates, and ___ aggregate demand.