Question 1

-In the above figure, if we begin at S1 and the Fed sells bonds

Accepted Answer

A)  the price of bonds falls, and the interest rate rises. 
B)  the price of bonds falls, and so does the interest rate. 
C)  the price of bonds rises, and so does the interest rate. 
D)  the price of bonds rises, and the interest rate falls. 
A)  the price of bonds falls, and the interest rate rises. 
B)  the price of bonds falls, and so does the interest rate. 
C)  the price of bonds rises, and so does the interest rate. 
D)  the price of bonds rises, and the interest rate falls.

Question 2

Holding money as a store of value instead of other assets is

Accepted Answer

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

Question 3

The quantity theory of money and prices rests on the assumption that

Accepted Answer

A)  the velocity of money is constant. 
B)  the minimum wage is constant. 
C)  the nominal interest rate is constant. 
D)  the foreign exchange rate is constant. 
A)  the velocity of money is constant. 
B)  the minimum wage is constant. 
C)  the nominal interest rate is constant. 
D)  the foreign exchange rate is constant.

Question 4

If the Fed sells bonds through its open market operations, then there is

Accepted Answer

A)  an increase in the demand for bonds and a rise in the price of existing bonds. 
B)  an increase in the supply of bonds and a fall in the price of existing bonds. 
C)  a decrease in interest rates because of the increase in the supply of bonds. 
D)  a decrease in interest rates because of the decrease in the demand for bonds. 
A)  an increase in the demand for bonds and a rise in the price of existing bonds. 
B)  an increase in the supply of bonds and a fall in the price of existing bonds. 
C)  a decrease in interest rates because of the increase in the supply of bonds. 
D)  a decrease in interest rates because of the decrease in the demand for bonds.

Question 5

If the source of economic instability is generally variations in spending, then the Fed should

Accepted Answer

A)  set money supply targets. 
B)  print more money. 
C)  buy gold. 
D)  raise taxes. 
A)  set money supply targets. 
B)  print more money. 
C)  buy gold. 
D)  raise taxes.

Question 6

Changes in which of the following will cause changes in the equilibrium federal funds rate?

Accepted Answer

A)  the demand for excess reserves by banks 
B)  the demand for required reserves by banks 
C)  the supply of reserves created through past open market operations 
D)  all of the above 
A)  the demand for excess reserves by banks 
B)  the demand for required reserves by banks 
C)  the supply of reserves created through past open market operations 
D)  all of the above

Question 7

The income velocity of money is the absolute number of times, on average, that

Accepted Answer

A)  people purchase goods and services during a year. 
B)  each monetary unit is spent on final goods and services. 
C)  each unit of real GDP is produced by business firms. 
D)  each one-unit increase in the price level occurs. 
A)  people purchase goods and services during a year. 
B)  each monetary unit is spent on final goods and services. 
C)  each unit of real GDP is produced by business firms. 
D)  each one-unit increase in the price level occurs.

Question 8

What is the most common reason people demand money?

Accepted Answer

A)  Each bill and coin is a reflection of important people and events in a nation's history. 
B)  People desire to use money as a medium of exchange when they buy goods and services. 
C)  Since very few of us engage in a flow of transactions, money is our financial safety net. 
D)  They demand money to ensure that the nation's government will not spend too much. 
A)  Each bill and coin is a reflection of important people and events in a nation's history. 
B)  People desire to use money as a medium of exchange when they buy goods and services. 
C)  Since very few of us engage in a flow of transactions, money is our financial safety net. 
D)  They demand money to ensure that the nation's government will not spend too much.

Question 9

The equation of exchange is a formula indicating that the number of monetary units times

Accepted Answer

A)  the number of times each monetary unit is spent on final goods and services is identical to the price level times real GDP. 
B)  the price level is identical to the number of times each monetary unit is spent on final goods and services times real GDP. 
C)  real GDP is identical to the price level times the number of times each monetary unit is spent on final goods and services. 
D)  nominal GDP is identical to the price level times the number of times each monetary unit is spent on final goods and services. 
A)  the number of times each monetary unit is spent on final goods and services is identical to the price level times real GDP. 
B)  the price level is identical to the number of times each monetary unit is spent on final goods and services times real GDP. 
C)  real GDP is identical to the price level times the number of times each monetary unit is spent on final goods and services. 
D)  nominal GDP is identical to the price level times the number of times each monetary unit is spent on final goods and services.

Question 10

When interest rates in the bond market go up

Accepted Answer

A)  there is no impact on the price of existing bonds. 
B)  the price of existing bonds goes up. 
C)  the price of stocks goes up. 
D)  the price of existing bonds goes down. 
A)  there is no impact on the price of existing bonds. 
B)  the price of existing bonds goes up. 
C)  the price of stocks goes up. 
D)  the price of existing bonds goes down.

Question 11

In addition to open market operations and the required reserve ratio, another tool of monetary policy available to the Fed is

Accepted Answer

A)  fiscal policy. 
B)  tax rates and the progressivity of the income-tax system. 
C)  government spending and various transfer-payment programs. 
D)  the difference between the discount rate and the federal funds rate. 
A)  fiscal policy. 
B)  tax rates and the progressivity of the income-tax system. 
C)  government spending and various transfer-payment programs. 
D)  the difference between the discount rate and the federal funds rate.

Question 12

Which of the following best describes the income velocity of money?

Accepted Answer

A)  V = PMs 
B)  V = Y 
C)  V = PY/Ms 
D)  V = Ms/PY 
A)  V = PMs 
B)  V = Y 
C)  V = PY/Ms 
D)  V = Ms/PY

Question 13

Expansionary monetary policy during periods of underutilized resources can cause

Accepted Answer

A)  real Gross Domestic Product (GDP) to increase without an increase in the price level. 
B)  real Gross Domestic Product (GDP) to increase with a decrease in the price level. 
C)  real Gross Domestic Product (GDP) to increase with an increase in the price level. 
D)  nominal Gross Domestic Product (GDP) to increase but cannot affect real Gross Domestic Product (GDP). 
A)  real Gross Domestic Product (GDP) to increase without an increase in the price level. 
B)  real Gross Domestic Product (GDP) to increase with a decrease in the price level. 
C)  real Gross Domestic Product (GDP) to increase with an increase in the price level. 
D)  nominal Gross Domestic Product (GDP) to increase but cannot affect real Gross Domestic Product (GDP).

Question 14

When the rate of interest in the economy falls, there will be

Accepted Answer

A)  an increase in the market price of existing bonds. 
B)  a decrease in the transaction demand for money. 
C)  less investment by businesses. 
D)  an increase in nominal Gross Domestic Product (GDP). 
A)  an increase in the market price of existing bonds. 
B)  a decrease in the transaction demand for money. 
C)  less investment by businesses. 
D)  an increase in nominal Gross Domestic Product (GDP).

Question 15

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 16

An increase in the interest rate will

Accepted Answer

A)  decrease the price of bonds. 
B)  increase the price of bonds. 
C)  increase or decrease the price of bonds depending upon whether the money supply has increased or decreased. 
D)  leave the price of bonds unchanged. 
A)  decrease the price of bonds. 
B)  increase the price of bonds. 
C)  increase or decrease the price of bonds depending upon whether the money supply has increased or decreased. 
D)  leave the price of bonds unchanged.

Question 17

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

Accepted Answer

A)  a reduction in the federal funds rate 
B)  an increase in the amount of excess reserves that banks will wish to hold 
C)  an increase in the equilibrium quantity of reserves 
D)  all of the above 
A)  a reduction in the federal funds rate 
B)  an increase in the amount of excess reserves that banks will wish to hold 
C)  an increase in the equilibrium quantity of reserves 
D)  all of the above

Question 18

The downward slope of the demand for money curve reflects the fact that

Accepted Answer

A)  people hold more of their wealth in the form of money as the price level rises. 
B)  people hold more of their wealth in the form of money as the price level falls. 
C)  people hold more of their wealth in the form of money as the interest rate rises. 
D)  people hold more of their wealth in the form of money as the interest rate falls. 
A)  people hold more of their wealth in the form of money as the price level rises. 
B)  people hold more of their wealth in the form of money as the price level falls. 
C)  people hold more of their wealth in the form of money as the interest rate rises. 
D)  people hold more of their wealth in the form of money as the interest rate falls.

Question 19

When the Federal Reserve conducts open market purchases to increase bank reserves without trying to alter the interest rate that is already close to zero, the policy action is called

Accepted Answer

A)  qualitative easing. 
B)  quantitative easing. 
C)  qualitative tightening. 
D)  quantitative tightening. 
A)  qualitative easing. 
B)  quantitative easing. 
C)  qualitative tightening. 
D)  quantitative tightening.

Question 20

To change the rate of growth of the money supply, the Fed can do all but which one of the following?

Accepted Answer

A)  Engage in open market operations. 
B)  Change the discount rate. 
C)  Shift the demand for money curve by changing the interest rate. 
D)  Change the required reserve ratio. 
A)  Engage in open market operations. 
B)  Change the discount rate. 
C)  Shift the demand for money curve by changing the interest rate. 
D)  Change the required reserve ratio.

Exam 16: Domestic and International Dimensions of Monetary Policy

-In the above figure, if we begin at S1 and the Fed sells bonds

Holding money as a store of value instead of other assets is

The quantity theory of money and prices rests on the assumption that

If the Fed sells bonds through its open market operations, then there is

If the source of economic instability is generally variations in spending, then the Fed should

Changes in which of the following will cause changes in the equilibrium federal funds rate?

The income velocity of money is the absolute number of times, on average, that

What is the most common reason people demand money?

The equation of exchange is a formula indicating that the number of monetary units times

When interest rates in the bond market go up

In addition to open market operations and the required reserve ratio, another tool of monetary policy available to the Fed is

Which of the following best describes the income velocity of money?

Expansionary monetary policy during periods of underutilized resources can cause

When the rate of interest in the economy falls, there will be

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

An increase in the interest rate will

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

The downward slope of the demand for money curve reflects the fact that

When the Federal Reserve conducts open market purchases to increase bank reserves without trying to alter the interest rate that is already close to zero, the policy action is called

To change the rate of growth of the money supply, the Fed can do all but which one of the following?

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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