Question 1

If the Fed has announced that it plans on lowering the interest rate it will

Accepted Answer

A)  engage in expansionary open market operations, thereby decreasing the money supply. 
B)  engage in expansionary open market operations, thereby increasing the money supply. 
C)  engage in contractionary open market operations, thereby decreasing the money supply. 
D)  engage in contractionary open market operations, thereby increasing the money supply. 
A)  engage in expansionary open market operations, thereby decreasing the money supply. 
B)  engage in expansionary open market operations, thereby increasing the money supply. 
C)  engage in contractionary open market operations, thereby decreasing the money supply. 
D)  engage in contractionary open market operations, thereby increasing the money supply.

Question 2

The transactions demand for money refers to

Accepted Answer

A)  the desire for wealth. 
B)  the demand to hold money for use in planned purchases. 
C)  the desire for income. 
D)  the demand to hold money as a long-term store of value. 
A)  the desire for wealth. 
B)  the demand to hold money for use in planned purchases. 
C)  the desire for income. 
D)  the demand to hold money as a long-term store of value.

Question 3

The reason that people may not want to hold money is

Accepted Answer

A)  the precautionary demand for money and the risk of being robbed. 
B)  the opportunity cost. 
C)  the transactions demand makes it unnecessary. 
D)  due to the direct relationship between money demand and the interest rate. 
A)  the precautionary demand for money and the risk of being robbed. 
B)  the opportunity cost. 
C)  the transactions demand makes it unnecessary. 
D)  due to the direct relationship between money demand and the interest rate.

Question 4

The demand for money curve is drawn with

Accepted Answer

A)  the interest rate on the vertical axis and the curve sloping down. 
B)  the interest rate on the vertical axis and the curve sloping up. 
C)  nominal Gross Domestic Product (GDP) on the vertical axis and the curve sloping up. 
D)  nominal Gross Domestic Product (GDP) on the horizontal axis and the curve sloping down. 
A)  the interest rate on the vertical axis and the curve sloping down. 
B)  the interest rate on the vertical axis and the curve sloping up. 
C)  nominal Gross Domestic Product (GDP) on the vertical axis and the curve sloping up. 
D)  nominal Gross Domestic Product (GDP) on the horizontal axis and the curve sloping down.

Question 5

When the Fed purchases federal government bonds in the open market

Accepted Answer

A)  there is no change in the money supply. 
B)  the money supply expands. 
C)  the money supply contracts. 
D)  the demand for money expands. 
A)  there is no change in the money supply. 
B)  the money supply expands. 
C)  the money supply contracts. 
D)  the demand for money expands.

Question 6

If the Fed sells U.S. government securities, the

Accepted Answer

A)  money supply increases, and the money supply curve shifts to the right. 
B)  money supply increases, and the money supply curve shifts to the left. 
C)  money supply decreases, and the money supply curve shifts to the right. 
D)  money supply decreases, and the money supply curve shifts to the left. 
A)  money supply increases, and the money supply curve shifts to the right. 
B)  money supply increases, and the money supply curve shifts to the left. 
C)  money supply decreases, and the money supply curve shifts to the right. 
D)  money supply decreases, and the money supply curve shifts to the left.

Question 7

An appreciation of the U.S. dollar

Accepted Answer

A)  makes our exports more expensive in terms of foreign currency and imports cheaper in terms of the dollar, increasing net exports. 
B)  makes our exports less expensive in terms of foreign currency and imports cheaper in terms of the dollar, increasing net exports. 
C)  makes our exports less expensive in terms of foreign currency and imports cheaper in terms of the dollar, decreasing net exports. 
D)  makes our exports more expensive in terms of foreign currency and imports cheaper in terms of the dollar, decreasing net exports. 
A)  makes our exports more expensive in terms of foreign currency and imports cheaper in terms of the dollar, increasing net exports. 
B)  makes our exports less expensive in terms of foreign currency and imports cheaper in terms of the dollar, increasing net exports. 
C)  makes our exports less expensive in terms of foreign currency and imports cheaper in terms of the dollar, decreasing net exports. 
D)  makes our exports more expensive in terms of foreign currency and imports cheaper in terms of the dollar, decreasing net exports.

Question 8

According to the interest-rate-based monetary policy 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 9

If the Fed's credit policies induces banks to hold substantial excess reserves at the Fed, then

Accepted Answer

A)  financial markets will become more illiquid. 
B)  the money multiplier will fall. 
C)  the money supply will rise. 
D)  the scope of asymmetric-information problem for banks will improve. 
A)  financial markets will become more illiquid. 
B)  the money multiplier will fall. 
C)  the money supply will rise. 
D)  the scope of asymmetric-information problem for banks will improve.

Question 10

Which of the following is a factor influencing the demand for money?

Accepted Answer

A)  transactions demand 
B)  precautionary demand 
C)  asset demand 
D)  All of the above are correct. 
A)  transactions demand 
B)  precautionary demand 
C)  asset demand 
D)  All of the above are correct.

Question 11

The identity stating that the total amount spent on final output equals the amount received for final output is known as the

Accepted Answer

A)  fundamental law of economics. 
B)  circular flow identity. 
C)  equation of exchange. 
D)  identity equation. 
A)  fundamental law of economics. 
B)  circular flow identity. 
C)  equation of exchange. 
D)  identity equation.

Question 12

The transactions demand for money is the demand to hold money to

Accepted Answer

A)  make regular, expected purchases. 
B)  meet unplanned expenditures. 
C)  store one's wealth. 
D)  purchase bonds when interest rates increase. 
A)  make regular, expected purchases. 
B)  meet unplanned expenditures. 
C)  store one's wealth. 
D)  purchase bonds when interest rates increase.

Question 13

Suppose the economy currently has some underutilized resources. The Fed engages in expansionary monetary policy. The impact of expansionary monetary policy will be to

Accepted Answer

A)  increase aggregate demand, increase prices and increase real GDP. 
B)  increase aggregate demand, increase prices and decrease real GDP. 
C)  increase short-run aggregate supply, decrease in prices and decrease in real GDP. 
D)  increase short-run aggregate supply, decrease prices and increase real GDP. 
A)  increase aggregate demand, increase prices and increase real GDP. 
B)  increase aggregate demand, increase prices and decrease real GDP. 
C)  increase short-run aggregate supply, decrease in prices and decrease in real GDP. 
D)  increase short-run aggregate supply, decrease prices and increase real GDP.

Question 14

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

Accepted Answer

A)  an increase in money supply will increase interest rates. 
B)  an increase in money supply will decrease interest rates. 
C)  a decrease in money supply will decrease interest rates. 
D)  a decrease in money supply will not change interest rates. 
A)  an increase in money supply will increase interest rates. 
B)  an increase in money supply will decrease interest rates. 
C)  a decrease in money supply will decrease interest rates. 
D)  a decrease in money supply will not change interest rates.

Question 15

Which of the following will cause a reduction in the amount of money individuals wish to hold?

Accepted Answer

A)  an increase in the interest rate 
B)  an increase in income 
C)  an increase in the price level 
D)  all of the above 
A)  an increase in the interest rate 
B)  an increase in income 
C)  an increase in the price level 
D)  all of the above

Question 16

The purchase of government bonds by the Fed leads to a(n)

Accepted Answer

A)  increase in the supply of bonds and a decrease in bond prices. 
B)  decrease in the supply of bonds and an increase in bond prices. 
C)  increase in the demand of bonds and a decrease in the price of bonds. 
D)  decrease in the demand of bonds and an increase in the price of bonds. 
A)  increase in the supply of bonds and a decrease in bond prices. 
B)  decrease in the supply of bonds and an increase in bond prices. 
C)  increase in the demand of bonds and a decrease in the price of bonds. 
D)  decrease in the demand of bonds and an increase in the price of bonds.

Question 17

A person puts a $10 bill in the glove compartment of his car in case of an emergency. This is an example of

Accepted Answer

A)  the precautionary demand for money. 
B)  the transaction demand for money. 
C)  the emergency investment demand for money. 
D)  the asset demand for money. 
A)  the precautionary demand for money. 
B)  the transaction demand for money. 
C)  the emergency investment demand for money. 
D)  the asset demand for money.

Question 18

Other things being equal, if the Fed raises the interest rate paid on excess reserves

Accepted Answer

A)  the supply of reserves in the federal funds market will increase. 
B)  the supply of reserves in the federal funds market will decrease. 
C)  both the demand for reserves and the supply of reserves in the federal funds market will increase. 
D)  both the demand for reserves and the supply of reserves in the federal funds market will decrease. 
A)  the supply of reserves in the federal funds market will increase. 
B)  the supply of reserves in the federal funds market will decrease. 
C)  both the demand for reserves and the supply of reserves in the federal funds market will increase. 
D)  both the demand for reserves and the supply of reserves in the federal funds market will decrease.

Question 19

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

Question 20

An open market sale 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

Exam 16: Domestic and International Dimensions of Monetary Policy

If the Fed has announced that it plans on lowering the interest rate it will

The transactions demand for money refers to

The reason that people may not want to hold money is

The demand for money curve is drawn with

When the Fed purchases federal government bonds in the open market

If the Fed sells U.S. government securities, the

An appreciation of the U.S. dollar

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

If the Fed's credit policies induces banks to hold substantial excess reserves at the Fed, then

Which of the following is a factor influencing the demand for money?

The identity stating that the total amount spent on final output equals the amount received for final output is known as the

The transactions demand for money is the demand to hold money to

Suppose the economy currently has some underutilized resources. The Fed engages in expansionary monetary policy. The impact of expansionary monetary policy will be to

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

Which of the following will cause a reduction in the amount of money individuals wish to hold?

The purchase of government bonds by the Fed leads to a(n)

A person puts a $10 bill in the glove compartment of his car in case of an emergency. This is an example of

Other things being equal, if the Fed raises the interest rate paid on excess reserves

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

An open market sale of government securities by the Fed will cause which 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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