Question 1

The prices of all fixed-income assets (bonds)

Accepted Answer

A)  vary directly with the interest rate. 
B)  are independent of the interest rate. 
C)  vary inversely with the interest rate. 
D)  are determined by the U.S. Treasury. 
A)  vary directly with the interest rate. 
B)  are independent of the interest rate. 
C)  vary inversely with the interest rate. 
D)  are determined by the U.S. Treasury.

Question 2

According to the quantity theory of money

Accepted Answer

A)  real Gross Domestic Product (GDP) is directly related to changes in the money supply in the long run. 
B)  velocity varies indirectly with the rate of growth of the money supply. 
C)  a proportionate increase in the money supply leads to a less than proportionate increase in real Gross Domestic Product (GDP), at least in the long run. 
D)  a given proportionate increase in the money supply leads to an equal proportionate increase in the price level. 
A)  real Gross Domestic Product (GDP) is directly related to changes in the money supply in the long run. 
B)  velocity varies indirectly with the rate of growth of the money supply. 
C)  a proportionate increase in the money supply leads to a less than proportionate increase in real Gross Domestic Product (GDP), at least in the long run. 
D)  a given proportionate increase in the money supply leads to an equal proportionate increase in the price level.

Question 3

If a bond sells for $1,000 and pays $100 per year in interest, the interest rate on the bond is

Accepted Answer

A)  20 percent. 
B)  10 percent. 
C)  5 percent. 
D)  100 percent. 
A)  20 percent. 
B)  10 percent. 
C)  5 percent. 
D)  100 percent.

Question 4

Both the precautionary and asset demand for money are influenced by

Accepted Answer

A)  the U.S. Treasury. 
B)  the interest rate. 
C)  gold prices. 
D)  none of the above. 
A)  the U.S. Treasury. 
B)  the interest rate. 
C)  gold prices. 
D)  none of the above.

Question 5

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

Accepted Answer

A)  monetary policy will tend to produce that inflation rate. 
B)  monetary policy is contractionary. 
C)  monetary policy is expansionary. 
D)  fiscal policy will result in a balanced budget. 
A)  monetary policy will tend to produce that inflation rate. 
B)  monetary policy is contractionary. 
C)  monetary policy is expansionary. 
D)  fiscal policy will result in a balanced budget.

Question 6

Suppose the economy has a recessionary gap. By using an expansionary monetary policy, the Fed can

Accepted Answer

A)  raise real GDP without increasing the price level. 
B)  raise real GDP and the price level. 
C)  raise real GDP and decrease the price level. 
D)  raise the price level alone, but cannot increase real GDP. 
A)  raise real GDP without increasing the price level. 
B)  raise real GDP and the price level. 
C)  raise real GDP and decrease the price level. 
D)  raise the price level alone, but cannot increase real GDP.

Question 7

Something that affects the amount of money in existence will

Accepted Answer

A)  have no particular effect. 
B)  not affect the economy as a whole but may affect certain key markets such as the market for loans. 
C)  have an effect only if the change in money is large. 
D)  affect all markets. 
A)  have no particular effect. 
B)  not affect the economy as a whole but may affect certain key markets such as the market for loans. 
C)  have an effect only if the change in money is large. 
D)  affect all markets.

Question 8

If both nominal and real GDP are increasing when the money supply is constant, than we can conclude that

Accepted Answer

A)  velocity has increased. 
B)  velocity has decreased. 
C)  interest rate has fallen. 
D)  interest rate has increased. 
A)  velocity has increased. 
B)  velocity has decreased. 
C)  interest rate has fallen. 
D)  interest rate has increased.

Question 9

What is a primary determinant of the asset demand for money? I. the interest rate
II) the opportunity cost of holding money
III) the supply of money

Accepted Answer

A)  I only 
B)  III only 
C)  both I and II 
D)  both II and III 
A)  I only 
B)  III only 
C)  both I and II 
D)  both II and III

Question 10

-In the above figure, assume the economy starts out in equilibrium at point d. If the Fed increases the money supply so that the new aggregate demand curve is AD3, then the long-run equilibrium will be at point

Accepted Answer

A)  a. 
B)  b. 
C)  c. 
D)  i. 
A)  a. 
B)  b. 
C)  c. 
D)  i.

Question 11

Which of the following is NOT a reason the Fed changes the rate of growth of the money supply?

Accepted Answer

A)  to influence aggregate demand 
B)  to shift the demand for money curve 
C)  to influence the amount of consumption 
D)  to influence the amount of investment 
A)  to influence aggregate demand 
B)  to shift the demand for money curve 
C)  to influence the amount of consumption 
D)  to influence the amount of investment

Question 12

When people want to hold money to make regular planned expenditures, this is

Accepted Answer

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

Question 13

According to traditional Keynesians, monetary policy as a tool to fight a recession

Accepted Answer

A)  has an uncertain effect on the economy, depending on the direction of fiscal policy. 
B)  is very effective because interest rates will fall immediately. 
C)  is ineffective because interest rates will not fall. 
D)  cannot be determined because traditional Keynesians do not consider monetary policy at all. 
A)  has an uncertain effect on the economy, depending on the direction of fiscal policy. 
B)  is very effective because interest rates will fall immediately. 
C)  is ineffective because interest rates will not fall. 
D)  cannot be determined because traditional Keynesians do not consider monetary policy at all.

Question 14

The interest-rate-based approach to the monetary policy transmission mechanism says that a change in the money supply influences aggregate demand by

Accepted Answer

A)  a change in interest rates, which changes investment. 
B)  a change in interest rates, which changes the money supply. 
C)  changing consumer consumption behavior as they adjust to a change in the number of dollars available. 
D)  leading to shifts of the short-run aggregate supply curve. 
A)  a change in interest rates, which changes investment. 
B)  a change in interest rates, which changes the money supply. 
C)  changing consumer consumption behavior as they adjust to a change in the number of dollars available. 
D)  leading to shifts of the short-run aggregate supply curve.

Question 15

As nominal Gross Domestic Product (GDP) rises, the transactions demand for money

Accepted Answer

A)  increases, and the money demand curve shifts to the left. 
B)  decreases, and the money demand curve shifts to the left. 
C)  increases, and the money demand curve shifts to the right. 
D)  remains constant, and the money demand curve remains the same. 
A)  increases, and the money demand curve shifts to the left. 
B)  decreases, and the money demand curve shifts to the left. 
C)  increases, and the money demand curve shifts to the right. 
D)  remains constant, and the money demand curve remains the same.

Question 16

Suppose the Fed conducts an open market sale of bonds. This monetary policy action will tend to cause

Accepted Answer

A)  the price of bonds to increase and the interest rate to increase. 
B)  the price of bonds to increase and the interest rate to decrease. 
C)  the price of bonds to decrease and the interest rate to increase. 
D)  the price of bonds to decrease and the interest rate to decrease. 
A)  the price of bonds to increase and the interest rate to increase. 
B)  the price of bonds to increase and the interest rate to decrease. 
C)  the price of bonds to decrease and the interest rate to increase. 
D)  the price of bonds to decrease and the interest rate to decrease.

Question 17

Suppose the economy currently has an inflationary gap. The Fed engages in contractionary monetary policy. The impact of contractionary monetary policy will be to

Accepted Answer

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

Question 18

The Federal Reserve finances its credit policy with

Accepted Answer

A)  reserve deposits that private banks hold with the Fed. 
B)  borrowing from the federal government. 
C)  the insurance premiums collected by the FDIC. 
D)  funding from the U.S. Treasury Department. 
A)  reserve deposits that private banks hold with the Fed. 
B)  borrowing from the federal government. 
C)  the insurance premiums collected by the FDIC. 
D)  funding from the U.S. Treasury Department.

Question 19

The "direct effect" of an increase in the money supply is to

Accepted Answer

A)  increase aggregate demand as people spend their excess money balances. 
B)  increase aggregate demand as interest rates fall and investment spending increases. 
C)  increase aggregate supply as producers anticipate higher future profits. 
D)  decrease the rate of inflation. 
A)  increase aggregate demand as people spend their excess money balances. 
B)  increase aggregate demand as interest rates fall and investment spending increases. 
C)  increase aggregate supply as producers anticipate higher future profits. 
D)  decrease the rate of inflation.

Question 20

An expansionary monetary policy is one that

Accepted Answer

A)  stimulates aggregate supply. 
B)  reduces aggregate supply and aggregate demand. 
C)  stimulates aggregate demand. 
D)  reduces aggregate demand while stimulating aggregate supply. 
A)  stimulates aggregate supply. 
B)  reduces aggregate supply and aggregate demand. 
C)  stimulates aggregate demand. 
D)  reduces aggregate demand while stimulating aggregate supply.

Exam 16: Domestic and International Dimensions of Monetary Policy

The prices of all fixed-income assets (bonds)

According to the quantity theory of money

If a bond sells for $1,000 and pays $100 per year in interest, the interest rate on the bond is

Both the precautionary and asset demand for money are influenced by

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

Suppose the economy has a recessionary gap. By using an expansionary monetary policy, the Fed can

Something that affects the amount of money in existence will

If both nominal and real GDP are increasing when the money supply is constant, than we can conclude that

What is a primary determinant of the asset demand for money? I. the interest rate II) the opportunity cost of holding money III) the supply of money

-In the above figure, assume the economy starts out in equilibrium at point d. If the Fed increases the money supply so that the new aggregate demand curve is AD3, then the long-run equilibrium will be at point

Which of the following is NOT a reason the Fed changes the rate of growth of the money supply?

When people want to hold money to make regular planned expenditures, this is

According to traditional Keynesians, monetary policy as a tool to fight a recession

The interest-rate-based approach to the monetary policy transmission mechanism says that a change in the money supply influences aggregate demand by

As nominal Gross Domestic Product (GDP) rises, the transactions demand for money

Suppose the Fed conducts an open market sale of bonds. This monetary policy action will tend to cause

Suppose the economy currently has an inflationary gap. The Fed engages in contractionary monetary policy. The impact of contractionary monetary policy will be to

The Federal Reserve finances its credit policy with

The "direct effect" of an increase in the money supply is to

An expansionary monetary policy is one that

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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