Question 1

The transactions demand for money is related to money functioning as a

Accepted Answer

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

Question 2

According to the interest-rate-based monetary policy transmission mechanism, an increase 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 an increase 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 an increase 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 an increase 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 an increase in real GDP which is greater than the increase in investment spending.

Question 3

The amount of money that people wish to hold to use in transactions varies directly with

Accepted Answer

A)  their planned near-term purchases. 
B)  the money supply. 
C)  the income tax rate. 
D)  the interest rate. 
A)  their planned near-term purchases. 
B)  the money supply. 
C)  the income tax rate. 
D)  the interest rate.

Question 4

How would expansionary monetary policy affect the AD curve?

Accepted Answer

A)  It would shift to the right. 
B)  It would shift to the left. 
C)  It would become more static. 
D)  It would fall. 
A)  It would shift to the right. 
B)  It would shift to the left. 
C)  It would become more static. 
D)  It would fall.

Question 5

In the equation of exchange, if the money supply is $3 billion, the price level is 2, and the real GDP is $6 billion, the velocity is

Accepted Answer

A)  1. 
B)  2. 
C)  4. 
D)  36. 
A)  1. 
B)  2. 
C)  4. 
D)  36.

Question 6

According to Keynes, the effect on planned real investment spending resulting from the interest-rate impact of an increase in the money supply

Accepted Answer

A)  impacts the economy through the multiplier. 
B)  impacts the economy by increasing the amount of government spending. 
C)  impacts the economy by reducing the deficit. 
D)  does not impact the economy. 
A)  impacts the economy through the multiplier. 
B)  impacts the economy by increasing the amount of government spending. 
C)  impacts the economy by reducing the deficit. 
D)  does not impact the economy.

Question 7

A bond is selling for $1000 and it pays $150 in interest a year. If the interest rate changes to 20 percent, then

Accepted Answer

A)  the interest payment rises to $175. 
B)  the interest payment falls to $75. 
C)  the price of the bond falls to $750. 
D)  the price of the bond rises to $1250. 
A)  the interest payment rises to $175. 
B)  the interest payment falls to $75. 
C)  the price of the bond falls to $750. 
D)  the price of the bond rises to $1250.

Question 8

An open market purchase of government securities by the Fed will cause which of the following?

Accepted Answer

A)  an excess quantity of reserves supplied and an increase in the federal funds rate 
B)  an excess quantity of reserves supplied and a reduction in the federal funds rate 
C)  an excess quantity of reserves demanded and an increase in the federal funds rate 
D)  an excess quantity of reserves demanded and a reduction in the federal funds rate 
A)  an excess quantity of reserves supplied and an increase in the federal funds rate 
B)  an excess quantity of reserves supplied and a reduction in the federal funds rate 
C)  an excess quantity of reserves demanded and an increase in the federal funds rate 
D)  an excess quantity of reserves demanded and a reduction in the federal funds rate

Question 9

How is the effect of expansionary monetary policy depicted in an aggregate supply-aggregate demand graph?

Accepted Answer

A)  The aggregate supply curve shifts leftward. 
B)  The aggregate supply curve shifts rightward. 
C)  The aggregate demand curve shifts rightward. 
D)  The equilibrium level of income increases, but neither curve shifts. 
A)  The aggregate supply curve shifts leftward. 
B)  The aggregate supply curve shifts rightward. 
C)  The aggregate demand curve shifts rightward. 
D)  The equilibrium level of income increases, but neither curve shifts.

Question 10

Which of the following will tend to occur when the interest rate increases?

Accepted Answer

A)  The demand for money curve shifts leftward. 
B)  The demand for money curve shifts rightward. 
C)  There is a rightward movement along the demand for money curve. 
D)  There is a leftward movement along the demand for money curve. 
A)  The demand for money curve shifts leftward. 
B)  The demand for money curve shifts rightward. 
C)  There is a rightward movement along the demand for money curve. 
D)  There is a leftward movement along the demand for money curve.

Question 11

An appreciation of the U.S. dollar is most likely a result that

Accepted Answer

A)  the Fed has pursued an expansionary monetary policy. 
B)  U.S. interest rates have increased. 
C)  U.S. bond prices have increased. 
D)  more dollars are required to obtain foreign currencies. 
A)  the Fed has pursued an expansionary monetary policy. 
B)  U.S. interest rates have increased. 
C)  U.S. bond prices have increased. 
D)  more dollars are required to obtain foreign currencies.

Question 12

According to traditional Keynesians, when the central bank increases the money supply during a recession

Accepted Answer

A)  people will spend all of the money on goods and services. 
B)  people will borrow more from banks. 
C)  people will keep most of it in their bank accounts. 
D)  people will refuse to use the money. 
A)  people will spend all of the money on goods and services. 
B)  people will borrow more from banks. 
C)  people will keep most of it in their bank accounts. 
D)  people will refuse to use the money.

Question 13

According to both the equation of exchange and the quantity theory of money

Accepted Answer

A)  an increase in the money supply will increase real Gross Domestic Product (GDP). 
B)  an increase in the money supply will decrease real Gross Domestic Product (GDP). 
C)  a decrease in the money supply will decrease the velocity of money. 
D)  a decrease in the money supply will decrease the price level. 
A)  an increase in the money supply will increase real Gross Domestic Product (GDP). 
B)  an increase in the money supply will decrease real Gross Domestic Product (GDP). 
C)  a decrease in the money supply will decrease the velocity of money. 
D)  a decrease in the money supply will decrease the price level.

Question 14

A person keeps $500 in his home in order to be prepared for some unforeseen future event. This reflects his

Accepted Answer

A)  speculative demand for money. 
B)  asset demand for money. 
C)  precautionary demand for money. 
D)  liquidity demand for money. 
A)  speculative demand for money. 
B)  asset demand for money. 
C)  precautionary demand for money. 
D)  liquidity demand for money.

Question 15

The interest-rate-based monetary policy transmission mechanism argues that an increase in the money supply

Accepted Answer

A)  has no effect on aggregate demand but reduces long-run aggregate supply. 
B)  has no effect on aggregate demand but increases short-run aggregate supply. 
C)  causes interest rates to fall, which causes an increase in planned investment, and an increase in aggregate demand. 
D)  causes the inflation rate to decline, which causes an increase in household consumption spending and an increase in aggregate demand. 
A)  has no effect on aggregate demand but reduces long-run aggregate supply. 
B)  has no effect on aggregate demand but increases short-run aggregate supply. 
C)  causes interest rates to fall, which causes an increase in planned investment, and an increase in aggregate demand. 
D)  causes the inflation rate to decline, which causes an increase in household consumption spending and an increase in aggregate demand.

Question 16

The income velocity of money is

Accepted Answer

A)  the time it takes to produce money. 
B)  the time lag from when the Fed decides to increase the money supply until the effect takes place. 
C)  the number of times per year a dollar is spent on final goods and services. 
D)  the time it takes for monetary policy to have an effect on world financial markets. 
A)  the time it takes to produce money. 
B)  the time lag from when the Fed decides to increase the money supply until the effect takes place. 
C)  the number of times per year a dollar is spent on final goods and services. 
D)  the time it takes for monetary policy to have an effect on world financial markets.

Question 17

The interest-rate-based transmission mechanism for monetary policy in the Keynesian system indicates that

Accepted Answer

A)  increases in the money supply lead to decreases in the interest rate, which decreases investment, which decreases the level of real GDP. 
B)  decreases in the money supply lead to increases in the interest rate, which increases investment, which increases the level of real GDP. 
C)  increases in the money supply cause people to spend more, leading to increases in real GDP. 
D)  increases in the money supply lead to decreases in the interest rate, which increases investment, which increases the level of real GDP. 
A)  increases in the money supply lead to decreases in the interest rate, which decreases investment, which decreases the level of real GDP. 
B)  decreases in the money supply lead to increases in the interest rate, which increases investment, which increases the level of real GDP. 
C)  increases in the money supply cause people to spend more, leading to increases in real GDP. 
D)  increases in the money supply lead to decreases in the interest rate, which increases investment, which increases the level of real GDP.

Question 18

Asset demand for money is holding money

Accepted Answer

A)  to meet unplanned expenditures and emergencies. 
B)  as a medium of exchange to make payments. 
C)  as a store of value instead of other assets. 
D)  to speculate on the stock market and bonds. 
A)  to meet unplanned expenditures and emergencies. 
B)  as a medium of exchange to make payments. 
C)  as a store of value instead of other assets. 
D)  to speculate on the stock market and bonds.

Question 19

What is the equation of exchange? How can the equation of exchange be converted into the quantity theory of money?

Accepted Answer

The equation of exchange is MSV = PY, wh

Question 20

The interest rate is the opportunity cost

Accepted Answer

A)  of investing in stocks. 
B)  of investing in Treasury securities. 
C)  of using credit cards. 
D)  of holding money. 
A)  of investing in stocks. 
B)  of investing in Treasury securities. 
C)  of using credit cards. 
D)  of holding money.

Exam 16: Domestic and International Dimensions of Monetary Policy

The transactions demand for money is related to money functioning as a

According to the interest-rate-based monetary policy transmission mechanism, an increase in the money supply will

The amount of money that people wish to hold to use in transactions varies directly with

How would expansionary monetary policy affect the AD curve?

In the equation of exchange, if the money supply is $3 billion, the price level is 2, and the real GDP is $6 billion, the velocity is

According to Keynes, the effect on planned real investment spending resulting from the interest-rate impact of an increase in the money supply

A bond is selling for $1000 and it pays $150 in interest a year. If the interest rate changes to 20 percent, then

An open market purchase of government securities by the Fed will cause which of the following?

How is the effect of expansionary monetary policy depicted in an aggregate supply-aggregate demand graph?

Which of the following will tend to occur when the interest rate increases?

An appreciation of the U.S. dollar is most likely a result that

According to traditional Keynesians, when the central bank increases the money supply during a recession

According to both the equation of exchange and the quantity theory of money

A person keeps $500 in his home in order to be prepared for some unforeseen future event. This reflects his

The interest-rate-based monetary policy transmission mechanism argues that an increase in the money supply

The income velocity of money is

The interest-rate-based transmission mechanism for monetary policy in the Keynesian system indicates that

Asset demand for money is holding money

What is the equation of exchange? How can the equation of exchange be converted into the quantity theory of money?

The interest rate is the opportunity cost

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