Question 1

According to the interest-rate-based perspective on the monetary policy transmission mechanism

Accepted Answer

A)  key channels of monetary policy indirectly ultimately relate money supply changes to total planned spending through indirect effects on planned investment. 
B)  changes in the money supply have little influence on macroeconomic variables. 
C)  monetary policy leads to increases in the price level but will have no effect on the rate of output. 
D)  inflation is always caused by excessive monetary growth and changes in the money supply offset aggregate demand only directly. 
A)  key channels of monetary policy indirectly ultimately relate money supply changes to total planned spending through indirect effects on planned investment. 
B)  changes in the money supply have little influence on macroeconomic variables. 
C)  monetary policy leads to increases in the price level but will have no effect on the rate of output. 
D)  inflation is always caused by excessive monetary growth and changes in the money supply offset aggregate demand only directly. A

Question 2

Empirical evidence across numerous countries indicates that changes in the ________ are associated with nearly equiproportional changes in ________.

Accepted Answer

A)  money supply, real GDP per year 
B)  money supply, price level 
C)  price level, money supply 
D)  real GDP per year, income velocity of money 
A)  money supply, real GDP per year 
B)  money supply, price level 
C)  price level, money supply 
D)  real GDP per year, income velocity of money B

Question 3

To close a recessionary gap, the Fed would

Accepted Answer

A)  decrease the money supply. 
B)  increase interest rates. 
C)  sell bonds. 
D)  increase the money supply. 
A)  decrease the money supply. 
B)  increase interest rates. 
C)  sell bonds. 
D)  increase the money supply. D

Question 4

As a result of contractionary monetary policy

Accepted Answer

A)  interest rates fall, the dollar depreciates, and domestic goods become cheaper, thereby reducing net exports. 
B)  interest rates rise, the dollar appreciates, and domestic goods become more expensive, thereby reducing net exports. 
C)  interest rates rise, the dollar appreciates, and domestic goods become cheaper, thereby reducing net exports. 
D)  interest rates rise, the dollar appreciates, and domestic goods become cheaper, thereby increasing net exports. 
A)  interest rates fall, the dollar depreciates, and domestic goods become cheaper, thereby reducing net exports. 
B)  interest rates rise, the dollar appreciates, and domestic goods become more expensive, thereby reducing net exports. 
C)  interest rates rise, the dollar appreciates, and domestic goods become cheaper, thereby reducing net exports. 
D)  interest rates rise, the dollar appreciates, and domestic goods become cheaper, thereby increasing net exports.

Question 5

The Taylor rule implies that the Fed should set the federal funds target based on which of the following?

Accepted Answer

A)  an estimated long-run real interest rate 
B)  the current deviation of the actual inflation rate from the Fed's inflation objective 
C)  the proportionate gap between actual real GDP and a measure of potential real GDP 
D)  all of the above 
A)  an estimated long-run real interest rate 
B)  the current deviation of the actual inflation rate from the Fed's inflation objective 
C)  the proportionate gap between actual real GDP and a measure of potential real GDP 
D)  all of the above

Question 6

According to the quantity theory of money, an excess quantity of money supplied will lead to

Accepted Answer

A)  a reduction in spending and higher interest rates. 
B)  a reduced level of real Gross Domestic Product (GDP). 
C)  a higher level of employment. 
D)  a higher price level. 
A)  a reduction in spending and higher interest rates. 
B)  a reduced level of real Gross Domestic Product (GDP). 
C)  a higher level of employment. 
D)  a higher price level.

Question 7

The demand for money curve is drawn

Accepted Answer

A)  holding several things constant, including GDP and interest rates. 
B)  holding several things constant, including the price level and interest rates. 
C)  with interest rates on the horizontal axis, and the curve sloping up since the "price" of holding money varies directly with the interest rate. 
D)  with interest rates on the vertical axis and the curve sloping down since lower interest rates mean the "price" of holding money has fallen. 
A)  holding several things constant, including GDP and interest rates. 
B)  holding several things constant, including the price level and interest rates. 
C)  with interest rates on the horizontal axis, and the curve sloping up since the "price" of holding money varies directly with the interest rate. 
D)  with interest rates on the vertical axis and the curve sloping down since lower interest rates mean the "price" of holding money has fallen.

Question 8

One of the economic costs of holding currency is that

Accepted Answer

A)  it fulfills no precautionary role. 
B)  it fulfills no transactions role. 
C)  it earns no interest income. 
D)  its real value always increases. 
A)  it fulfills no precautionary role. 
B)  it fulfills no transactions role. 
C)  it earns no interest income. 
D)  its real value always increases.

Question 9

The interest rate that the Fed charges banks to borrow funds from the Fed is the

Accepted Answer

A)  discount rate. 
B)  federal funds rate. 
C)  money market rate. 
D)  nominal interest rate. 
A)  discount rate. 
B)  federal funds rate. 
C)  money market rate. 
D)  nominal interest rate.

Question 10

Which of the following has been the most likely effect of the Fed's credit policy?

Accepted Answer

A)  Banks and other financial institutions have taken more time to recover from the 2008-2009 financial meltdown. 
B)  The federal funds rate and the discount rate have dropped to negative levels. 
C)  The money multiplier and the link between the money supply and the economy have become unstable. 
D)  The scope of asymmetric information problems in the banking industry has reduced. 
A)  Banks and other financial institutions have taken more time to recover from the 2008-2009 financial meltdown. 
B)  The federal funds rate and the discount rate have dropped to negative levels. 
C)  The money multiplier and the link between the money supply and the economy have become unstable. 
D)  The scope of asymmetric information problems in the banking industry has reduced.

Question 11

The asset demand for money is related to the function of money called

Accepted Answer

A)  medium of exchange. 
B)  unit of account. 
C)  store of value. 
D)  standard of deferred payment. 
A)  medium of exchange. 
B)  unit of account. 
C)  store of value. 
D)  standard of deferred payment.

Question 12

According to the simple quantity theory of money, which of the following variables are considered either constant or relatively stable?

Accepted Answer

A)  V and Y 
B)  Y and Ms 
C)  P and Ms 
D)  P and Y 
A)  V and Y 
B)  Y and Ms 
C)  P and Ms 
D)  P and Y

Question 13

Suppose the Fed increases the money supply. As a result of this, people go out and spend more money on consumer goods, increasing aggregate spending. This is known as a(n)

Accepted Answer

A)  direct effect of monetary policy. 
B)  indirect effect of monetary policy. 
C)  direct effect of fiscal policy. 
D)  indirect effect of fiscal policy. 
A)  direct effect of monetary policy. 
B)  indirect effect of monetary policy. 
C)  direct effect of fiscal policy. 
D)  indirect effect of fiscal policy.

Question 14

Which of the following represents the opportunity cost of holding money?

Accepted Answer

A)  liquidity 
B)  the interest rate 
C)  the rate of inflation 
D)  none of the above 
A)  liquidity 
B)  the interest rate 
C)  the rate of inflation 
D)  none of the above

Question 15

Money's use in non-barter transactions relates to its role as a

Accepted Answer

A)  store of value. 
B)  medium of exchange. 
C)  unit of accounting. 
D)  standard of deferred payment. 
A)  store of value. 
B)  medium of exchange. 
C)  unit of accounting. 
D)  standard of deferred payment.

Question 16

The short-run effect of an increase in the money supply is to

Accepted Answer

A)  increase real GDP only. 
B)  increase the price level only. 
C)  increase both real GDP and the price level. 
D)  increase nominal GDP but decrease the price level. 
A)  increase real GDP only. 
B)  increase the price level only. 
C)  increase both real GDP and the price level. 
D)  increase nominal GDP but decrease the price level.

Question 17

In the market for bank reserves, the supply of reserves is

Accepted Answer

A)  an upward sloping curve. 
B)  a downward sloping curve. 
C)  a vertical curve. 
D)  none of the above. 
A)  an upward sloping curve. 
B)  a downward sloping curve. 
C)  a vertical curve. 
D)  none of the above.

Question 18

According to proponents of the interest-rate-based monetary policy transmission mechanism, any increase in the money supply

Accepted Answer

A)  is effective in increasing Gross Domestic Product (GDP) only if it causes an outward shift of the aggregate supply curve. 
B)  will increase Gross Domestic Product (GDP) only if interest rates fall and investment is sensitive to decreasing interest rates. 
C)  causes velocity to increase, and so in the short run nominal Gross Domestic Product (GDP) must increase. 
D)  will move the economy from the "liquidity trap" during times of recession if interest rates fall enough to stimulate private investment. 
A)  is effective in increasing Gross Domestic Product (GDP) only if it causes an outward shift of the aggregate supply curve. 
B)  will increase Gross Domestic Product (GDP) only if interest rates fall and investment is sensitive to decreasing interest rates. 
C)  causes velocity to increase, and so in the short run nominal Gross Domestic Product (GDP) must increase. 
D)  will move the economy from the "liquidity trap" during times of recession if interest rates fall enough to stimulate private investment.

Question 19

Holding money to meet unplanned expenditures and emergencies is known as

Accepted Answer

A)  transactions demand. 
B)  precautionary demand. 
C)  asset demand. 
D)  aggregate demand. 
A)  transactions demand. 
B)  precautionary demand. 
C)  asset demand. 
D)  aggregate demand.

Question 20

According to the text, the main reason for people to hold money is

Accepted Answer

A)  that they have money illusion. 
B)  to tell other people how rich they are. 
C)  because they are irrational. 
D)  to use it to buy goods and services. 
A)  that they have money illusion. 
B)  to tell other people how rich they are. 
C)  because they are irrational. 
D)  to use it to buy goods and services.

Exam 16: Domestic and International Dimensions of Monetary Policy

According to the interest-rate-based perspective on the monetary policy transmission mechanism

Empirical evidence across numerous countries indicates that changes in the ________ are associated with nearly equiproportional changes in ________.

To close a recessionary gap, the Fed would

As a result of contractionary monetary policy

The Taylor rule implies that the Fed should set the federal funds target based on which of the following?

According to the quantity theory of money, an excess quantity of money supplied will lead to

The demand for money curve is drawn

One of the economic costs of holding currency is that

The interest rate that the Fed charges banks to borrow funds from the Fed is the

Which of the following has been the most likely effect of the Fed's credit policy?

The asset demand for money is related to the function of money called

According to the simple quantity theory of money, which of the following variables are considered either constant or relatively stable?

Suppose the Fed increases the money supply. As a result of this, people go out and spend more money on consumer goods, increasing aggregate spending. This is known as a(n)

Which of the following represents the opportunity cost of holding money?

Money's use in non-barter transactions relates to its role as a

The short-run effect of an increase in the money supply is to

In the market for bank reserves, the supply of reserves is

According to proponents of the interest-rate-based monetary policy transmission mechanism, any increase in the money supply

Holding money to meet unplanned expenditures and emergencies is known as

According to the text, the main reason for people to hold money is

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money, Banking, and Central Banking

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Demand and Supply Elasticity

Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

Filters

Empirical evidence across numerous countries indicates that changes in the are associated with nearly equiproportional changes in .