Question 1

As people's income rises, they wish to

Accepted Answer

A)  hold less money for transactions. 
B)  hold more money for transactions. 
C)  spend less. 
D)  invest only in stocks. 
A)  hold less money for transactions. 
B)  hold more money for transactions. 
C)  spend less. 
D)  invest only in stocks.

Question 2

Quantitative easing refers to a policy action in which a central bank

Accepted Answer

A)  sells government securities to directly decrease bank reserves. 
B)  buys government securities to directly increase bank reserves. 
C)  increases interest rates directly without altering bank reserves. 
D)  decreases interest rates directly without altering bank reserves. 
A)  sells government securities to directly decrease bank reserves. 
B)  buys government securities to directly increase bank reserves. 
C)  increases interest rates directly without altering bank reserves. 
D)  decreases interest rates directly without altering bank reserves.

Question 3

-Refer to the above figure. Which panels could represent the situation if the Fed had engaged in open market operations?

Accepted Answer

A)  Panels A and B 
B)  Panels A and C 
C)  Panels B and C 
D)  Panels C and D 
A)  Panels A and B 
B)  Panels A and C 
C)  Panels B and C 
D)  Panels C and D

Question 4

Assume (other things constant) that the Fed increases the money supply. The mechanism through which aggregate demand increases is, according to interest-rate-based transmission mechanism, summarized as follows:

Accepted Answer

A)  the money supply increases → there is a drop in money balances held → interest rates increase → planned investment spending decreases → aggregate demand increases. 
B)  increase in money supply → increase in money balances held → decrease in interest rates → decrease in planned investment spending → increase in aggregate demand. 
C)  increase in money supply → decrease in money balances held → decrease in interest rates → increase in planned investment spending → increase in aggregate demand. 
D)  increase in money supply → decrease in interest rates → increase in planned investment spending → increase in aggregate demand. 
A)  the money supply increases → there is a drop in money balances held → interest rates increase → planned investment spending decreases → aggregate demand increases. 
B)  increase in money supply → increase in money balances held → decrease in interest rates → decrease in planned investment spending → increase in aggregate demand. 
C)  increase in money supply → decrease in money balances held → decrease in interest rates → increase in planned investment spending → increase in aggregate demand. 
D)  increase in money supply → decrease in interest rates → increase in planned investment spending → increase in aggregate demand.

Question 5

The transaction demand for money varies

Accepted Answer

A)  directly with the interest rate. 
B)  directly with nominal GDP. 
C)  inversely with nominal GDP and real GDP. 
D)  inversely with nominal GDP only. 
A)  directly with the interest rate. 
B)  directly with nominal GDP. 
C)  inversely with nominal GDP and real GDP. 
D)  inversely with nominal GDP only.

Question 6

Between 2003 and 2008, the actual federal funds rate

Accepted Answer

A)  tended to be lower than the rates predicted by the Taylor rule. 
B)  tended to higher than the rates predicted by the Taylor rule. 
C)  followed closely the rates predicted by the Taylor rule. 
D)  moved in directions opposite to the rates predicted by the Taylor rule. 
A)  tended to be lower than the rates predicted by the Taylor rule. 
B)  tended to higher than the rates predicted by the Taylor rule. 
C)  followed closely the rates predicted by the Taylor rule. 
D)  moved in directions opposite to the rates predicted by the Taylor rule.

Question 7

The equation of exchange can be written as

Accepted Answer

A)  MsP = VY. 
B)  MsV = PY. 
C)  MsY = VP. 
D)  None of the above are correct. 
A)  MsP = VY. 
B)  MsV = PY. 
C)  MsY = VP. 
D)  None of the above are correct.

Question 8

A person is preparing for a long automobile trip and cashes in a certificate of deposit for cash in case of emergencies along the way. This is an example of the

Accepted Answer

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

Question 9

If velocity is equal to 1, this means that

Accepted Answer

A)  the rate of growth of the money supply is 1. 
B)  each dollar of the money supply is spent on the average one time per year. 
C)  for every 2 dollars of the money supply, nominal GDP will increase by 1. 
D)  an increase in the money supply will lead to an increase in aggregate supply of 1. 
A)  the rate of growth of the money supply is 1. 
B)  each dollar of the money supply is spent on the average one time per year. 
C)  for every 2 dollars of the money supply, nominal GDP will increase by 1. 
D)  an increase in the money supply will lead to an increase in aggregate supply of 1.

Question 10

If the Fed decides to buy bonds, the result will be

Accepted Answer

A)  lower bond prices and lower interest rates. 
B)  lower bond prices and higher interest rates. 
C)  higher bond prices and lower interest rates. 
D)  higher bond prices and higher interest rates. 
A)  lower bond prices and lower interest rates. 
B)  lower bond prices and higher interest rates. 
C)  higher bond prices and lower interest rates. 
D)  higher bond prices and higher interest rates.

Question 11

The amount of money people wish to hold shows an inverse relationship to

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 12

The formula of the equation of exchange is

Accepted Answer

A)  MS = Y. 
B)  MS = V*P*Y. 
C)  MS*V = P*Y. 
D)  MS/P = Y. 
A)  MS = Y. 
B)  MS = V*P*Y. 
C)  MS*V = P*Y. 
D)  MS/P = Y.

Question 13

Travis always carries $100 in his wallet to pay for groceries. This is an example of the

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 14

John gets paid monthly and pays for everything with cash. When he cashes his check he keeps $200 for food, $100 for utilities, $900 for rent, $50 for transportation, $100 for entertainment and $300 for unexpected expenditures. Which of the following statements is TRUE?

Accepted Answer

A)  The transactions demand for money is $1,350, the precautionary demand is $300 and the asset demand is $0. 
B)  The transactions demand for money is $450, the precautionary demand is $300 and the asset demand is $900. 
C)  The transactions demand for money is $350, the precautionary demand is $1,150 and the asset demand is $150. 
D)  The transactions demand for money is $350, the precautionary demand is $950 and the asset demand is $0. 
A)  The transactions demand for money is $1,350, the precautionary demand is $300 and the asset demand is $0. 
B)  The transactions demand for money is $450, the precautionary demand is $300 and the asset demand is $900. 
C)  The transactions demand for money is $350, the precautionary demand is $1,150 and the asset demand is $150. 
D)  The transactions demand for money is $350, the precautionary demand is $950 and the asset demand is $0.

Question 15

Precautionary demand for money will fall when

Accepted Answer

A)  the interest rate rises. 
B)  the interest rate falls. 
C)  the money supply increases. 
D)  government spending falls. 
A)  the interest rate rises. 
B)  the interest rate falls. 
C)  the money supply increases. 
D)  government spending falls.

Question 16

The interest-rate-based transmission mechanism assumes that the Fed can stimulate investment by

Accepted Answer

A)  selling bonds. 
B)  buying bonds. 
C)  raising the discount rate relative to the federal funds rate. 
D)  raising the required reserve ratio. 
A)  selling bonds. 
B)  buying bonds. 
C)  raising the discount rate relative to the federal funds rate. 
D)  raising the required reserve ratio.

Question 17

Suppose that the Fed has decided to utilize the Taylor rule to implement monetary policy. If the actual federal funds rate target is presently below the level specified by the Taylor rule and has been lower then this level for several weeks, then this would be a signal that

Accepted Answer

A)  monetary policy is very expansionary. 
B)  monetary policy is very contractionary. 
C)  the Fed should halt efforts to target the money supply. 
D)  the Fed should switch to targeting the money supply instead of the federal funds rate. 
A)  monetary policy is very expansionary. 
B)  monetary policy is very contractionary. 
C)  the Fed should halt efforts to target the money supply. 
D)  the Fed should switch to targeting the money supply instead of the federal funds rate.

Question 18

If we assume that velocity is constant, and if the money supply increases by 2 percent, we would expect, ceteris paribus, that the price level would

Accepted Answer

A)  increase by 1 percent. 
B)  increase by 2 percent. 
C)  decrease by 1 percent. 
D)  decrease by 2 percent. 
A)  increase by 1 percent. 
B)  increase by 2 percent. 
C)  decrease by 1 percent. 
D)  decrease by 2 percent.

Question 19

The transactions demand for money exists because households

Accepted Answer

A)  are insensitive to interest rate changes. 
B)  must save for unexpected emergencies. 
C)  do not like the fact that money is a liquid asset. 
D)  do not receive their incomes at the same time they wish to make purchases. 
A)  are insensitive to interest rate changes. 
B)  must save for unexpected emergencies. 
C)  do not like the fact that money is a liquid asset. 
D)  do not receive their incomes at the same time they wish to make purchases.

Question 20

The precautionary demand for holding money arises because

Accepted Answer

A)  people want be able to make unexpected purchases or to meet emergencies. 
B)  credit cards charge low interest rates, which makes money more attractive than credit. 
C)  people would rather hold money in the form of time deposits than in the form of hard currency. 
D)  expected transactions are completed more easily with debit cards than with credit cards. 
A)  people want be able to make unexpected purchases or to meet emergencies. 
B)  credit cards charge low interest rates, which makes money more attractive than credit. 
C)  people would rather hold money in the form of time deposits than in the form of hard currency. 
D)  expected transactions are completed more easily with debit cards than with credit cards.

Exam 16: Domestic and International Dimensions of Monetary Policy

As people's income rises, they wish to

Quantitative easing refers to a policy action in which a central bank

-Refer to the above figure. Which panels could represent the situation if the Fed had engaged in open market operations?

Assume (other things constant) that the Fed increases the money supply. The mechanism through which aggregate demand increases is, according to interest-rate-based transmission mechanism, summarized as follows:

The transaction demand for money varies

Between 2003 and 2008, the actual federal funds rate

The equation of exchange can be written as

A person is preparing for a long automobile trip and cashes in a certificate of deposit for cash in case of emergencies along the way. This is an example of the

If velocity is equal to 1, this means that

If the Fed decides to buy bonds, the result will be

The amount of money people wish to hold shows an inverse relationship to

The formula of the equation of exchange is

Travis always carries $100 in his wallet to pay for groceries. This is an example of the

John gets paid monthly and pays for everything with cash. When he cashes his check he keeps $200 for food, $100 for utilities, $900 for rent, $50 for transportation, $100 for entertainment and $300 for unexpected expenditures. Which of the following statements is TRUE?

Precautionary demand for money will fall when

The interest-rate-based transmission mechanism assumes that the Fed can stimulate investment by

Suppose that the Fed has decided to utilize the Taylor rule to implement monetary policy. If the actual federal funds rate target is presently below the level specified by the Taylor rule and has been lower then this level for several weeks, then this would be a signal that

If we assume that velocity is constant, and if the money supply increases by 2 percent, we would expect, ceteris paribus, that the price level would

The transactions demand for money exists because households

The precautionary demand for holding money arises because

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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