Question 1

Which of the following would NOT be a result of a contractionary monetary policy?

Accepted Answer

A)  Interest rates would rise. 
B)  Foreign goods would become more expensive to U.S. residents. 
C)  Net exports would decline. 
D)  Imports would rise. 
A)  Interest rates would rise. 
B)  Foreign goods would become more expensive to U.S. residents. 
C)  Net exports would decline. 
D)  Imports would rise.

Question 2

Which of the following institutions within the Federal Reserve System determines how many government securities the Fed should buy or sell on a given day?

Accepted Answer

A)  the Board of Governors 
B)  Federal Advisory Committee 
C)  the Federal Reserve Bank of Chicago's Board of Trade 
D)  the Federal Reserve Bank of New York's Trading Desk 
A)  the Board of Governors 
B)  Federal Advisory Committee 
C)  the Federal Reserve Bank of Chicago's Board of Trade 
D)  the Federal Reserve Bank of New York's Trading Desk

Question 3

The demand for money to cover unexpected expenditures and to meet emergencies is known as

Accepted Answer

A)  the transactions demand for money. 
B)  the precautionary demand for money. 
C)  the asset demand for money. 
D)  the terminal demand for money. 
A)  the transactions demand for money. 
B)  the precautionary demand for money. 
C)  the asset demand for money. 
D)  the terminal demand for money.

Question 4

If the Fed raises the interest rate paid on excess reserves while holding the federal funds rate unchanged, then banks will

Accepted Answer

A)  lend more reserves in the federal funds market and keep more excess reserves. 
B)  lend fewer reserves in the federal funds market and keep more excess reserves. 
C)  not keep excess reserves or lend reserves in the federal funds market. 
D)  not react to it. 
A)  lend more reserves in the federal funds market and keep more excess reserves. 
B)  lend fewer reserves in the federal funds market and keep more excess reserves. 
C)  not keep excess reserves or lend reserves in the federal funds market. 
D)  not react to it.

Question 5

What is meant by the demand for money?

Accepted Answer

Money is used to buy goods and services.

Question 6

During a period of expansionary monetary policy

Accepted Answer

A)  the price level is increased, which leads to an increase in the money supply. 
B)  the price level is decreased, which leads to a decrease in the money supply. 
C)  the rate of growth of the money supply is increased, leading to an increase in the price level. 
D)  the rate of growth of the money supply is reduced, leading to a decrease in the price level. 
A)  the price level is increased, which leads to an increase in the money supply. 
B)  the price level is decreased, which leads to a decrease in the money supply. 
C)  the rate of growth of the money supply is increased, leading to an increase in the price level. 
D)  the rate of growth of the money supply is reduced, leading to a decrease in the price level.

Question 7

Other things being equal, an increase in the supply of money

Accepted Answer

A)  reduces the amount of money balances. 
B)  increases the price level. 
C)  reduces aggregate demand. 
D)  generates significant changes in relative prices. 
A)  reduces the amount of money balances. 
B)  increases the price level. 
C)  reduces aggregate demand. 
D)  generates significant changes in relative prices.

Question 8

As global financial markets become more intertwined, the Fed has

Accepted Answer

A)  less control over monetary policy. 
B)  more control over monetary policy. 
C)  more control over fiscal policy. 
D)  less control over fiscal policy. 
A)  less control over monetary policy. 
B)  more control over monetary policy. 
C)  more control over fiscal policy. 
D)  less control over fiscal policy.

Question 9

The direct effect of an increase in the money supply is

Accepted Answer

A)  people will spend the extra money, causing the aggregate demand curve to shift to the right and prices to rise, and causing the economy to go into recession. 
B)  people will save the money, causing an increase in bank deposits, causing interest rates to fall, and loans to expand. 
C)  people will save more money, causing a decrease in economic activity and a fall in prices. 
D)  people will spend the extra money, causing the aggregate demand curve to shift to the right, creating an increase in economic activity. 
A)  people will spend the extra money, causing the aggregate demand curve to shift to the right and prices to rise, and causing the economy to go into recession. 
B)  people will save the money, causing an increase in bank deposits, causing interest rates to fall, and loans to expand. 
C)  people will save more money, causing a decrease in economic activity and a fall in prices. 
D)  people will spend the extra money, causing the aggregate demand curve to shift to the right, creating an increase in economic activity.

Question 10

It has been observed that a change in monetary policy in the United States

Accepted Answer

A)  impacts net exports. 
B)  has little or no effect on foreign markets. 
C)  leads to corresponding changes in other countries. 
D)  has only short run influences. 
A)  impacts net exports. 
B)  has little or no effect on foreign markets. 
C)  leads to corresponding changes in other countries. 
D)  has only short run influences.

Question 11

Since 2008, the Fed has conducted a policy that involves direct lending to private firms. Those actions of the Fed are called

Accepted Answer

A)  open market operations. 
B)  federal funds rate targeting. 
C)  quantitative easing. 
D)  credit policies. 
A)  open market operations. 
B)  federal funds rate targeting. 
C)  quantitative easing. 
D)  credit policies.

Question 12

As interest rates rise, the quantity of money demanded

Accepted Answer

A)  falls. 
B)  rises. 
C)  stays the same. 
D)  does not react to interest rate changes. 
A)  falls. 
B)  rises. 
C)  stays the same. 
D)  does not react to interest rate changes.

Question 13

The precautionary demand for money is when people hold money

Accepted Answer

A)  for the interest it yields. 
B)  as a store of value. 
C)  as a medium of exchange. 
D)  to meet unplanned expenditures. 
A)  for the interest it yields. 
B)  as a store of value. 
C)  as a medium of exchange. 
D)  to meet unplanned expenditures.

Question 14

A decrease in the supply of money will, according to the quantity theory of money, lead to

Accepted Answer

A)  a higher price level. 
B)  a higher nominal Gross Domestic Product (GDP). 
C)  a lower real Gross Domestic Product (GDP). 
D)  a lower price level. 
A)  a higher price level. 
B)  a higher nominal Gross Domestic Product (GDP). 
C)  a lower real Gross Domestic Product (GDP). 
D)  a lower price level.

Question 15

Holding money as a medium of exchange to purchase goods and services and make payments is known as the

Accepted Answer

A)  spending demand for money. 
B)  transactions demand for money. 
C)  precautionary demand for money. 
D)  asset demand for money. 
A)  spending demand for money. 
B)  transactions demand for money. 
C)  precautionary demand for money. 
D)  asset demand for money.

Question 16

If the Fed thought the economy was experiencing a recessionary gap, and it wanted to correct this gap, it would

Accepted Answer

A)  sell bonds. 
B)  lower the differential between the discount rate and the federal funds rate. 
C)  raise the reserve requirement. 
D)  increase aggregate supply. 
A)  sell bonds. 
B)  lower the differential between the discount rate and the federal funds rate. 
C)  raise the reserve requirement. 
D)  increase aggregate supply.

Question 17

The equation of exchange specifies that

Accepted Answer

A)  MsV = PY. 
B)  velocity and money supply are directly related. 
C)  MsP = VY. 
D)  Ms = PVY. 
A)  MsV = PY. 
B)  velocity and money supply are directly related. 
C)  MsP = VY. 
D)  Ms = PVY.

Question 18

An expansionary monetary policy results in lower interest rates, which in turn

Accepted Answer

A)  increases foreign demand for U.S. financial instruments, raising the international price of the dollar and reducing net exports. 
B)  increases the foreign demand for U.S. financial instruments, lowering the international price of the dollar and decreasing net exports. 
C)  reduces the international price of the dollar and increases net exports. 
D)  reduces the foreign demand for U.S. financial instruments and reduce net exports. 
A)  increases foreign demand for U.S. financial instruments, raising the international price of the dollar and reducing net exports. 
B)  increases the foreign demand for U.S. financial instruments, lowering the international price of the dollar and decreasing net exports. 
C)  reduces the international price of the dollar and increases net exports. 
D)  reduces the foreign demand for U.S. financial instruments and reduce net exports.

Question 19

The transactions demand for money

Accepted Answer

A)  varies negatively with nominal Gross Domestic Product (GDP). 
B)  varies inversely with nominal Gross Domestic Product (GDP). 
C)  varies directly with nominal Gross Domestic Product (GDP). 
D)  is unrelated to nominal Gross Domestic Product (GDP). 
A)  varies negatively with nominal Gross Domestic Product (GDP). 
B)  varies inversely with nominal Gross Domestic Product (GDP). 
C)  varies directly with nominal Gross Domestic Product (GDP). 
D)  is unrelated to nominal Gross Domestic Product (GDP).

Question 20

A contractionary monetary policy causes

Accepted Answer

A)  higher interest rates, which increases the international price of the dollar and decreases net exports. 
B)  higher interest rates, which decreases the foreign demand for U.S. financial instruments, raising the international price of the dollar and increasing net exports. 
C)  lower interest rates, which decreases the foreign demand for U.S. financial instruments, raising the international price of the dollar and increasing net exports. 
D)  higher interest rates, which increases the foreign demand for U.S. financial instruments, which causes interest rates to decrease. There is no effect on net exports. 
A)  higher interest rates, which increases the international price of the dollar and decreases net exports. 
B)  higher interest rates, which decreases the foreign demand for U.S. financial instruments, raising the international price of the dollar and increasing net exports. 
C)  lower interest rates, which decreases the foreign demand for U.S. financial instruments, raising the international price of the dollar and increasing net exports. 
D)  higher interest rates, which increases the foreign demand for U.S. financial instruments, which causes interest rates to decrease. There is no effect on net exports.

Exam 16: Domestic and International Dimensions of Monetary Policy

Which of the following would NOT be a result of a contractionary monetary policy?

Which of the following institutions within the Federal Reserve System determines how many government securities the Fed should buy or sell on a given day?

The demand for money to cover unexpected expenditures and to meet emergencies is known as

If the Fed raises the interest rate paid on excess reserves while holding the federal funds rate unchanged, then banks will

What is meant by the demand for money?

During a period of expansionary monetary policy

Other things being equal, an increase in the supply of money

As global financial markets become more intertwined, the Fed has

The direct effect of an increase in the money supply is

It has been observed that a change in monetary policy in the United States

Since 2008, the Fed has conducted a policy that involves direct lending to private firms. Those actions of the Fed are called

As interest rates rise, the quantity of money demanded

The precautionary demand for money is when people hold money

A decrease in the supply of money will, according to the quantity theory of money, lead to

Holding money as a medium of exchange to purchase goods and services and make payments is known as the

If the Fed thought the economy was experiencing a recessionary gap, and it wanted to correct this gap, it would

The equation of exchange specifies that

An expansionary monetary policy results in lower interest rates, which in turn

The transactions demand for money

A contractionary monetary policy causes

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