Question 1

Holding money as a medium of exchange to make payments 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 2

Holding money to meet unplanned expenditures 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

Suppose the economy is operating below its full employment level. The Fed

Accepted Answer

A)  is powerless to affect either aggregate demand or aggregate supply. Fiscal policy is needed. 
B)  can move the economy toward the full employment level by expanding the money supply to increase aggregate supply. 
C)  can move the economy toward the full employment level by expanding the money supply to increase aggregate demand and to hold prices constant. 
D)  can move the economy toward the full employment level by expanding the money supply to increase aggregate demand through both its direct and its indirect effects. 
A)  is powerless to affect either aggregate demand or aggregate supply. Fiscal policy is needed. 
B)  can move the economy toward the full employment level by expanding the money supply to increase aggregate supply. 
C)  can move the economy toward the full employment level by expanding the money supply to increase aggregate demand and to hold prices constant. 
D)  can move the economy toward the full employment level by expanding the money supply to increase aggregate demand through both its direct and its indirect effects.

Question 4

What effect does a contractionary monetary policy in the U.S. have on the foreign trade sector?

Accepted Answer

A)  The lower value of the dollar will decrease exports and increase imports. 
B)  The lower value of the dollar will decrease imports and increase exports. 
C)  The higher value of the dollar will decrease exports and increase imports. 
D)  The higher value of the dollar will decrease imports and increase exports. 
A)  The lower value of the dollar will decrease exports and increase imports. 
B)  The lower value of the dollar will decrease imports and increase exports. 
C)  The higher value of the dollar will decrease exports and increase imports. 
D)  The higher value of the dollar will decrease imports and increase exports.

Question 5

The Fed engages in open market operations and sells government securities. The result is

Accepted Answer

A)  lower interest rates. 
B)  higher interest rates. 
C)  interest rates remain unchanged since there is no reason to think bond prices changed. 
D)  uncertain since more information is needed. 
A)  lower interest rates. 
B)  higher interest rates. 
C)  interest rates remain unchanged since there is no reason to think bond prices changed. 
D)  uncertain since more information is needed.

Question 6

An increase in the money supply typically leads to

Accepted Answer

A)  a reduction in the rate of interest. 
B)  a decrease in the price level. 
C)  a reduction in the velocity of money. 
D)  an inward shift in money demand. 
A)  a reduction in the rate of interest. 
B)  a decrease in the price level. 
C)  a reduction in the velocity of money. 
D)  an inward shift in money demand.

Question 7

Suppose the Fed increases the money supply. As a result of this, people deposit excess funds into their bank accounts, causing banks to have excess reserves. As a result, the banks lower the interest rates that they charge on loans, and investment rises, causing an increase in aggregate spending. This is known as a(n)

Accepted Answer

A)  direct effect of monetary policy. 
B)  indirect effect of monetary policy. 
C)  direct effect of fiscal policy. 
D)  indirect effect of fiscal policy. 
A)  direct effect of monetary policy. 
B)  indirect effect of monetary policy. 
C)  direct effect of fiscal policy. 
D)  indirect effect of fiscal policy.

Question 8

According to the equation of exchange, if M = $500, V = 4, and Y = $200, then P equals

Accepted Answer

A)  100. 
B)  62.5. 
C)  10. 
D)  25. 
A)  100. 
B)  62.5. 
C)  10. 
D)  25.

Question 9

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

Accepted Answer

A)  an increase in the federal funds rate 
B)  an increase in the equilibrium quantity of reserves 
C)  all of the above 
D)  none of the above 
A)  an increase in the federal funds rate 
B)  an increase in the equilibrium quantity of reserves 
C)  all of the above 
D)  none of the above

Question 10

An indirect effect of monetary policy is that as the money supply

Accepted Answer

A)  increases, interest rates fall, and borrowing and spending increase. 
B)  increases, interest rates rise, and borrowing and spending decrease. 
C)  decreases, interest rates fall, and borrowing and spending increase. 
D)  decreases, interest rates rise, and borrowing and spending increase. 
A)  increases, interest rates fall, and borrowing and spending increase. 
B)  increases, interest rates rise, and borrowing and spending decrease. 
C)  decreases, interest rates fall, and borrowing and spending increase. 
D)  decreases, interest rates rise, and borrowing and spending increase.

Question 11

If the interest rate increases, there is a(n)

Accepted Answer

A)  increase in the demand for money. 
B)  decrease in the demand for money. 
C)  increase in the quantity of money demanded. 
D)  decrease in the quantity of money demanded. 
A)  increase in the demand for money. 
B)  decrease in the demand for money. 
C)  increase in the quantity of money demanded. 
D)  decrease in the quantity of money demanded.

Question 12

Suppose the actual federal funds rate is below 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 contractionary. 
A)  monetary policy is expansionary. 
B)  monetary policy is contractionary. 
C)  monetary policy is neither expansionary or contractionary. 
D)  fiscal policy is contractionary.

Question 13

According to the Taylor rule, the Fed will set the federal funds rate target based on which of the following?

Accepted Answer

A)  an estimated long-run real interest rate 
B)  the current deviation of the actual inflation rate from the Fed's inflation objective 
C)  the proportionate gap between actual real GDP and a measure of potential real GDP 
D)  all of the above 
A)  an estimated long-run real interest rate 
B)  the current deviation of the actual inflation rate from the Fed's inflation objective 
C)  the proportionate gap between actual real GDP and a measure of potential real GDP 
D)  all of the above

Question 14

Suppose the economy is in long-run and short-run equilibrium. The Fed changes its policy by raising the difference between the discount rate and the federal funds rate. In the long run we would expect to observe

Accepted Answer

A)  a lower price level. 
B)  a higher price level. 
C)  a lower real national income. 
D)  a higher real national income. 
A)  a lower price level. 
B)  a higher price level. 
C)  a lower real national income. 
D)  a higher real national income.

Question 15

If the Fed has announced that it plans on increasing 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 16

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

Accepted Answer

A)  interest rate to fall, causing planned real investment spending to rise and leading to a decrease in aggregate demand. 
B)  interest rate to rise, causing planned real investment spending to rise and leading to a decrease in aggregate demand. 
C)  interest rate to fall, causing planned real investment spending to rise and leading to an increase in aggregate demand. 
D)  interest rate to fall, causing planned real investment spending to fall and leading to an increase in aggregate demand. 
A)  interest rate to fall, causing planned real investment spending to rise and leading to a decrease in aggregate demand. 
B)  interest rate to rise, causing planned real investment spending to rise and leading to a decrease in aggregate demand. 
C)  interest rate to fall, causing planned real investment spending to rise and leading to an increase in aggregate demand. 
D)  interest rate to fall, causing planned real investment spending to fall and leading to an increase in aggregate demand.

Question 17

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

Accepted Answer

A)  lower interest rates, which causes an increase in planned real investment spending and an increase in aggregate demand. 
B)  increased spending on consumer goods and services directly, which causes an increase in aggregate demand. 
C)  an increase in nominal GDP and a change in the price level, but no change in real GDP. 
D)  an increase in aggregate supply since the supply of money is part of aggregate supply. 
A)  lower interest rates, which causes an increase in planned real investment spending and an increase in aggregate demand. 
B)  increased spending on consumer goods and services directly, which causes an increase in aggregate demand. 
C)  an increase in nominal GDP and a change in the price level, but no change in real GDP. 
D)  an increase in aggregate supply since the supply of money is part of aggregate supply.

Exam 16: Domestic and International Dimensions of Monetary Policy

Holding money as a medium of exchange to make payments is

Holding money to meet unplanned expenditures is

Suppose the economy is operating below its full employment level. The Fed

What effect does a contractionary monetary policy in the U.S. have on the foreign trade sector?

The Fed engages in open market operations and sells government securities. The result is

An increase in the money supply typically leads to

According to the equation of exchange, if M = $500, V = 4, and Y = $200, then P equals

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

An indirect effect of monetary policy is that as the money supply

If the interest rate increases, there is a(n)

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

According to the Taylor rule, the Fed will set the federal funds rate target based on which of the following?

Suppose the economy is in long-run and short-run equilibrium. The Fed changes its policy by raising the difference between the discount rate and the federal funds rate. In the long run we would expect to observe

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

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

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

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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