Question 1

Other things equal, if there is an excess demand for money, the interest rate may rise.

Accepted Answer

A) True 
 B)False

Question 2

To decrease interest rates, the Fed should increase the money supply.

Accepted Answer

A) True 
 B)False

Question 3

The chair of the Board of Governors during the 2008 financial crisis was:

Accepted Answer

A) Barack Obama. 
B) Ben Bernanke. 
C) J. P. Morgan. 
D) John McCain. 
A) Barack Obama. 
B) Ben Bernanke. 
C) J. P. Morgan. 
D) John McCain.

Question 4

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) 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 5

The theory of monetary neutrality means that monetary policy is completely irrelevant.

Accepted Answer

A) True 
 B)False

Question 6

When the central bank announces the desired inflation rate and sets policy to reach that rate, it is using:

Accepted Answer

A) monetary neutrality policy. 
B) the Taylor rule. 
C) inflation targeting. 
D) fiscal policy. 
A) monetary neutrality policy. 
B) the Taylor rule. 
C) inflation targeting. 
D) fiscal policy.

Question 7

Use the following to answer questions :
Figure: Monetary Policy III  
-(Figure: Monetary Policy III) Look at the figure Monetary Policy III. The central bank should adopt policies to move the economy to:

Accepted Answer

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

Question 8

If the economy is at potential output and the Fed increases the money supply, in the short run interest rates will likely increase.

Accepted Answer

A) True 
 B)False

Question 9

When actual output is above potential output over time:

Accepted Answer

A) nominal wages will increase, and the short-run supply curve will shift to the right. 
B) nominal wages will increase, and the short-run supply curve will shift to the left. 
C) the aggregate demand curve will shift to the right. 
D) the short-run aggregate supply curve will shift to the right. 
A) nominal wages will increase, and the short-run supply curve will shift to the right. 
B) nominal wages will increase, and the short-run supply curve will shift to the left. 
C) the aggregate demand curve will shift to the right. 
D) the short-run aggregate supply curve will shift to the right.

Question 10

If the economy is at potential output and the Fed decreases the money supply, in the SHORT run the price level will likely_____ and real GDP will likely_____ .

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 11

According to the liquidity preference model:

Accepted Answer

A) an increase in the money supply lowers the equilibrium rate of interest. 
B) a decrease in the money supply lowers the equilibrium rate of interest. 
C) the money supply curve is a horizontal line. 
D) the demand for money curve is a vertical line. 
A) an increase in the money supply lowers the equilibrium rate of interest. 
B) a decrease in the money supply lowers the equilibrium rate of interest. 
C) the money supply curve is a horizontal line. 
D) the demand for money curve is a vertical line.

Question 12

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

Question 13

An increase in the supply of money will lead to a(n) _____ in the equilibrium interest rate and a(n) _____ in real GDP.

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 14

If the Federal Reserve sets the federal funds rate on the basis of inflation and the output gap, then the Federal Reserve is following:

Accepted Answer

A) inflation targeting. 
B) the Taylor rule. 
C) money illusion. 
D) the quantity theory. 
A) inflation targeting. 
B) the Taylor rule. 
C) money illusion. 
D) the quantity theory.

Question 15

Which of the following describes the difference between the Taylor rule and inflation targeting?

Accepted Answer

A) The Federal Reserve uses inflation targeting, and the Bank of England uses the Taylor rule. 
B) The Taylor rule responds to past inflation, and inflation targeting is based on a forecast of inflation. 
C) Inflation targeting responds to past inflation, and the Taylor rule is based on a forecast of inflation. 
D) Inflation targeting is used in conducting fiscal policy, while the Taylor rule is used in monetary policy. 
A) The Federal Reserve uses inflation targeting, and the Bank of England uses the Taylor rule. 
B) The Taylor rule responds to past inflation, and inflation targeting is based on a forecast of inflation. 
C) Inflation targeting responds to past inflation, and the Taylor rule is based on a forecast of inflation. 
D) Inflation targeting is used in conducting fiscal policy, while the Taylor rule is used in monetary policy.

Question 16

The amount of money that people demand is:

Accepted Answer

A) positively related to the interest rate. 
B) independent the interest rate. 
C) negatively related to the interest rate. 
D) positively or negatively related to the interest rate depending on the state of the economy. 
A) positively related to the interest rate. 
B) independent the interest rate. 
C) negatively related to the interest rate. 
D) positively or negatively related to the interest rate depending on the state of the economy.

Question 17

Monetary neutrality implies that in the long run:

Accepted Answer

A) monetary policy does not affect the level of economic activity. 
B) long-run aggregate supply depends on monetary policy. 
C) changing the money supply does not affect the aggregate price level. 
D) aggregate demand is independent from monetary policy. 
A) monetary policy does not affect the level of economic activity. 
B) long-run aggregate supply depends on monetary policy. 
C) changing the money supply does not affect the aggregate price level. 
D) aggregate demand is independent from monetary policy.

Question 18

Monetary policy affects GDP and the price level by:

Accepted Answer

A) changing aggregate supply. 
B) changing aggregate demand. 
C) changing the aggregate amount of labor supplied. 
D) changing exports. 
A) changing aggregate supply. 
B) changing aggregate demand. 
C) changing the aggregate amount of labor supplied. 
D) changing exports.

Question 19

The difference between the interest rate on assets that are not money and the interest rate on assets that are money is:

Accepted Answer

A) the opportunity cost of holding money. 
B) the rate of return of holding money. 
C) short-term interest rates. 
D) long-term interest rates. 
A) the opportunity cost of holding money. 
B) the rate of return of holding money. 
C) short-term interest rates. 
D) long-term interest rates.

Question 20

Every year more and more purchases are made with credit cards on the Internet. Given this trend, all else equal, we would expect:

Accepted Answer

A) the money demand curve to shift outward. 
B) the money demand curve to shift inward. 
C) a downward movement along a fixed money demand curve. 
D) an upward movement along a fixed money demand curve. 
A) the money demand curve to shift outward. 
B) the money demand curve to shift inward. 
C) a downward movement along a fixed money demand curve. 
D) an upward movement along a fixed money demand curve.

Other things equal, if there is an excess demand for money, the interest rate may rise.

To decrease interest rates, the Fed should increase the money supply.

The chair of the Board of Governors during the 2008 financial crisis was:

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.

The theory of monetary neutrality means that monetary policy is completely irrelevant.

When the central bank announces the desired inflation rate and sets policy to reach that rate, it is using:

Use the following to answer questions : Figure: Monetary Policy III -(Figure: Monetary Policy III) Look at the figure Monetary Policy III. The central bank should adopt policies to move the economy to:

If the economy is at potential output and the Fed increases the money supply, in the short run interest rates will likely increase.

When actual output is above potential output over time:

If the economy is at potential output and the Fed decreases the money supply, in the SHORT run the price level will likely_ and real GDP will likely_ .

According to the liquidity preference model:

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:

An increase in the supply of money will lead to a(n) _ in the equilibrium interest rate and a(n) _ in real GDP.

If the Federal Reserve sets the federal funds rate on the basis of inflation and the output gap, then the Federal Reserve is following:

Which of the following describes the difference between the Taylor rule and inflation targeting?

The amount of money that people demand is:

Monetary neutrality implies that in the long run:

Monetary policy affects GDP and the price level by:

The difference between the interest rate on assets that are not money and the interest rate on assets that are money is:

Every year more and more purchases are made with credit cards on the Internet. Given this trend, all else equal, we would expect:

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

Other things equal, if there is an excess demand for money, the interest rate may rise.

To decrease interest rates, the Fed should increase the money supply.

The chair of the Board of Governors during the 2008 financial crisis was:

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.

The theory of monetary neutrality means that monetary policy is completely irrelevant.

When the central bank announces the desired inflation rate and sets policy to reach that rate, it is using:

Use the following to answer questions : Figure: Monetary Policy III -(Figure: Monetary Policy III) Look at the figure Monetary Policy III. The central bank should adopt policies to move the economy to:

If the economy is at potential output and the Fed increases the money supply, in the short run interest rates will likely increase.

When actual output is above potential output over time:

If the economy is at potential output and the Fed decreases the money supply, in the SHORT run the price level will likely_____ and real GDP will likely_____ .

According to the liquidity preference model:

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:

An increase in the supply of money will lead to a(n) _____ in the equilibrium interest rate and a(n) _____ in real GDP.

If the Federal Reserve sets the federal funds rate on the basis of inflation and the output gap, then the Federal Reserve is following:

Which of the following describes the difference between the Taylor rule and inflation targeting?

The amount of money that people demand is:

Monetary neutrality implies that in the long run:

Monetary policy affects GDP and the price level by:

The difference between the interest rate on assets that are not money and the interest rate on assets that are money is:

Every year more and more purchases are made with credit cards on the Internet. Given this trend, all else equal, we would expect:

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: 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.

If the economy is at potential output and the Fed decreases the money supply, in the SHORT run the price level will likely_ and real GDP will likely_ .

An increase in the supply of money will lead to a(n) _ in the equilibrium interest rate and a(n) _ in real GDP.