Question 1

The Fed would be pursuing a contractionary monetary policy if it was

Accepted Answer

A)  lowering the differential between the discount rate and the federal funds rate. 
B)  lowering the reserve requirement. 
C)  selling dollars in foreign exchange markets. 
D)  selling bonds in the open market. 
A)  lowering the differential between the discount rate and the federal funds rate. 
B)  lowering the reserve requirement. 
C)  selling dollars in foreign exchange markets. 
D)  selling bonds in the open market.

Question 2

The "V" in the equation of exchange MsV = PY refers to

Accepted Answer

A)  a variable. 
B)  income velocity of money. 
C)  the velocity of inflation. 
D)  a vector that links P to Y. 
A)  a variable. 
B)  income velocity of money. 
C)  the velocity of inflation. 
D)  a vector that links P to Y.

Question 3

The appropriate monetary policy in the event of a recessionary gap would be to

Accepted Answer

A)  increase the difference between the discount rate and the federal funds rate. 
B)  engage in an open market purchase of U.S. government securities. 
C)  increase the difference between the federal funds rate and the required reserve ratio. 
D)  raise the required reserve ratio. 
A)  increase the difference between the discount rate and the federal funds rate. 
B)  engage in an open market purchase of U.S. government securities. 
C)  increase the difference between the federal funds rate and the required reserve ratio. 
D)  raise the required reserve ratio.

Question 4

The rate at which banks can borrow excess reserves from other banks is equal to

Accepted Answer

A)  the discount rate. 
B)  the required reserve ratio. 
C)  the interest rate paid on reserves held with the Fed. 
D)  none of the above. 
A)  the discount rate. 
B)  the required reserve ratio. 
C)  the interest rate paid on reserves held with the Fed. 
D)  none of the above.

Question 5

The number of times per year that a dollar is spent on final goods and services defines

Accepted Answer

A)  the money supply. 
B)  the income velocity of money. 
C)  the price index. 
D)  GDP. 
A)  the money supply. 
B)  the income velocity of money. 
C)  the price index. 
D)  GDP.

Question 6

According to the equation of exchange, if M = $800, P = 8, and Y = $200, then V equals

Accepted Answer

A)  100. 
B)  2. 
C)  32. 
D)  4. 
A)  100. 
B)  2. 
C)  32. 
D)  4.

Question 7

In the interest-rate-based transmission mechanism, a decrease in the money supply will

Accepted Answer

A)  increase the price level. 
B)  reduce the rate of interest and the level of investment. 
C)  reduce investment, shift the aggregate demand function inward, and lower real Gross Domestic Product (GDP). 
D)  shift the aggregate supply function inward and increase real Gross Domestic Product (GDP). 
A)  increase the price level. 
B)  reduce the rate of interest and the level of investment. 
C)  reduce investment, shift the aggregate demand function inward, and lower real Gross Domestic Product (GDP). 
D)  shift the aggregate supply function inward and increase real Gross Domestic Product (GDP).

Question 8

When the U.S. dollar appreciates

Accepted Answer

A)  foreign residents demand more of U.S. goods, and U.S. residents desire to purchase more foreign goods. 
B)  foreign residents demand more of U.S. goods, and U.S. residents desire to purchase fewer foreign goods. 
C)  foreign residents demand fewer of U.S. goods, and U.S. residents desire to purchase more foreign goods. 
D)  foreign residents demand fewer of U.S. goods, and U.S. residents desire to purchase fewer foreign goods. 
A)  foreign residents demand more of U.S. goods, and U.S. residents desire to purchase more foreign goods. 
B)  foreign residents demand more of U.S. goods, and U.S. residents desire to purchase fewer foreign goods. 
C)  foreign residents demand fewer of U.S. goods, and U.S. residents desire to purchase more foreign goods. 
D)  foreign residents demand fewer of U.S. goods, and U.S. residents desire to purchase fewer foreign goods.

Question 9

Which of the following policy tools is directly controlled by the Trading Desk at the Federal Reserve Bank of New York?

Accepted Answer

A)  the spread between the discount rate and the federal funds rate 
B)  the spread between the federal funds rate and the interest rate on banks' required reserves 
C)  the required reserve ratio 
D)  open market sales and purchases 
A)  the spread between the discount rate and the federal funds rate 
B)  the spread between the federal funds rate and the interest rate on banks' required reserves 
C)  the required reserve ratio 
D)  open market sales and purchases

Question 10

Bertha holds some of her savings as currency and coins placed in her sewing basket. This is an example of

Accepted Answer

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

Question 11

In the long run, the effect of a reduction in the money supply is to

Accepted Answer

A)  decrease the price level only. 
B)  decrease real Gross Domestic Product (GDP) only. 
C)  decrease both the price level and real Gross Domestic Product (GDP). 
D)  decrease the price level and increase real Gross Domestic Product (GDP). 
A)  decrease the price level only. 
B)  decrease real Gross Domestic Product (GDP) only. 
C)  decrease both the price level and real Gross Domestic Product (GDP). 
D)  decrease the price level and increase real Gross Domestic Product (GDP).

Question 12

According to the interest-rate-based transmission mechanism, a decrease in the money supply will

Accepted Answer

A)  lead to a decrease in investment spending and an increase in real GDP that is equal to the decrease in investment spending. 
B)  lead to a decrease in investment spending and a decrease in real GDP which is greater than the decrease in investment spending. 
C)  lead to an increase in investment spending and a decrease in real GDP that is equal to the increase in investment spending. 
D)  lead to an increase in investment spending and a decrease in real GDP which is greater than the increase in investment spending. 
A)  lead to a decrease in investment spending and an increase in real GDP that is equal to the decrease in investment spending. 
B)  lead to a decrease in investment spending and a decrease in real GDP which is greater than the decrease in investment spending. 
C)  lead to an increase in investment spending and a decrease in real GDP that is equal to the increase in investment spending. 
D)  lead to an increase in investment spending and a decrease in real GDP which is greater than the increase in investment spending.

Question 13

What are the direct and indirect effects of an increase in the money supply?

Accepted Answer

The direct effect of more money in the e

Question 14

Suppose the actual federal funds rate is above the rate implied by a particular inflation goal. In this situation, the Taylor rule implies that

Accepted Answer

A)  monetary policy is expansionary. 
B)  monetary policy is contractionary. 
C)  monetary policy is neither expansionary or contractionary. 
D)  fiscal policy is expansionary. 
A)  monetary policy is expansionary. 
B)  monetary policy is contractionary. 
C)  monetary policy is neither expansionary or contractionary. 
D)  fiscal policy is expansionary.

Question 15

An appreciation of the U.S. dollar occurs when

Accepted Answer

A)  the international price of the dollar falls. 
B)  the international price of the dollar rises. 
C)  the U.S. demand for foreign currencies increases. 
D)  the supply of dollars in international markets increases. 
A)  the international price of the dollar falls. 
B)  the international price of the dollar rises. 
C)  the U.S. demand for foreign currencies increases. 
D)  the supply of dollars in international markets increases.

Question 16

Suppose Tim has $1,000 in cash on hand to buy collectable baseball cards at a swap meet. Tim often sells these cards at a profit. This is an example of the

Accepted Answer

A)  asset demand for money. 
B)  transaction demand for money 
C)  precautionary demand for money. 
D)  wealth demand for money. 
A)  asset demand for money. 
B)  transaction demand for money 
C)  precautionary demand for money. 
D)  wealth demand for money.

Question 17

The net-export effect of expansionary monetary policy is a(n)

Accepted Answer

A)  depreciation of the value of the dollar and the increase of U.S. net exports. 
B)  depreciation of the value of the dollar and the decrease of U.S. net exports. 
C)  appreciation of the value of the dollar and the increase of U.S. net exports. 
D)  appreciation of the value of the dollar and the decrease of U.S. net exports. 
A)  depreciation of the value of the dollar and the increase of U.S. net exports. 
B)  depreciation of the value of the dollar and the decrease of U.S. net exports. 
C)  appreciation of the value of the dollar and the increase of U.S. net exports. 
D)  appreciation of the value of the dollar and the decrease of U.S. net exports.

Question 18

In the long run, an increase in the money supply will

Accepted Answer

A)  decrease real Gross Domestic Product (GDP). 
B)  increase real Gross Domestic Product (GDP). 
C)  increase the price level. 
D)  decrease the price level. 
A)  decrease real Gross Domestic Product (GDP). 
B)  increase real Gross Domestic Product (GDP). 
C)  increase the price level. 
D)  decrease the price level.

Question 19

Describe and explain the relationship between the price of bonds and the interest rate.

Accepted Answer

There is an inverse relationship between

Question 20

The transactions demand for money

Accepted Answer

A)  varies directly with nominal Gross Domestic Product (GDP). 
B)  varies inversely with nominal Gross Domestic Product (GDP). 
C)  sometimes directly and sometimes inversely with nominal Gross Domestic Product (GDP). 
D)  has no relationship with nominal Gross Domestic Product (GDP). 
A)  varies directly with nominal Gross Domestic Product (GDP). 
B)  varies inversely with nominal Gross Domestic Product (GDP). 
C)  sometimes directly and sometimes inversely with nominal Gross Domestic Product (GDP). 
D)  has no relationship with nominal Gross Domestic Product (GDP).

Exam 16: Domestic and International Dimensions of Monetary Policy

The Fed would be pursuing a contractionary monetary policy if it was

The "V" in the equation of exchange MsV = PY refers to

The appropriate monetary policy in the event of a recessionary gap would be to

The rate at which banks can borrow excess reserves from other banks is equal to

The number of times per year that a dollar is spent on final goods and services defines

According to the equation of exchange, if M = $800, P = 8, and Y = $200, then V equals

In the interest-rate-based transmission mechanism, a decrease in the money supply will

When the U.S. dollar appreciates

Which of the following policy tools is directly controlled by the Trading Desk at the Federal Reserve Bank of New York?

Bertha holds some of her savings as currency and coins placed in her sewing basket. This is an example of

In the long run, the effect of a reduction in the money supply is to

According to the interest-rate-based transmission mechanism, a decrease in the money supply will

What are the direct and indirect effects of an increase in the money supply?

Suppose the actual federal funds rate is above the rate implied by a particular inflation goal. In this situation, the Taylor rule implies that

An appreciation of the U.S. dollar occurs when

Suppose Tim has $1,000 in cash on hand to buy collectable baseball cards at a swap meet. Tim often sells these cards at a profit. This is an example of the

The net-export effect of expansionary monetary policy is a(n)

In the long run, an increase in the money supply will

Describe and explain the relationship between the price of bonds and the interest rate.

The transactions demand for money

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

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