Question 1

The tools of monetary policy are

Accepted Answer

A)  open market operations, differential between the discount rate and the federal funds rate, and tax rates. 
B)  open market operations, government spending, and the required reserve ratio. 
C)  open market operations, differential between the discount rate and the federal funds rate, and the required reserve ratio. 
D)  government spending, tax rates, and the required reserve ratio. 
A)  open market operations, differential between the discount rate and the federal funds rate, and tax rates. 
B)  open market operations, government spending, and the required reserve ratio. 
C)  open market operations, differential between the discount rate and the federal funds rate, and the required reserve ratio. 
D)  government spending, tax rates, and the required reserve ratio.

Question 2

Samia makes $8,000 a month. Samia spends $2,500 on rent and related household expenses, $500 on food, $200 on clothes, $500 on entertainment and $600 on transportation. She always keeps $200 for things like the car breaking down. $3,500 is invested in the stock market. Which of the following statements is TRUE?

Accepted Answer

A)  The transactions demand for money is $4,300, the precautionary demand is $200 and the asset demand is $3,500. 
B)  The transactions demand for money is $4,300, the precautionary demand is $3,500 and the asset demand is $200. 
C)  The transactions demand for money is $4,300, the precautionary demand is $200 and the asset demand is $0. 
D)  The transactions demand for money is $3,500, the precautionary demand is $200 and the asset demand is $4,300. 
A)  The transactions demand for money is $4,300, the precautionary demand is $200 and the asset demand is $3,500. 
B)  The transactions demand for money is $4,300, the precautionary demand is $3,500 and the asset demand is $200. 
C)  The transactions demand for money is $4,300, the precautionary demand is $200 and the asset demand is $0. 
D)  The transactions demand for money is $3,500, the precautionary demand is $200 and the asset demand is $4,300.

Question 3

The asset demand for money is

Accepted Answer

A)  greater at high interest rates as investors can earn more on their investments. 
B)  greater at low interest rates, because the opportunity cost of holding money is low. 
C)  greater at low interest rates, because the opportunity cost of holding money is high. 
D)  lower at low interest rates, because the opportunity cost of holding money is high. 
A)  greater at high interest rates as investors can earn more on their investments. 
B)  greater at low interest rates, because the opportunity cost of holding money is low. 
C)  greater at low interest rates, because the opportunity cost of holding money is high. 
D)  lower at low interest rates, because the opportunity cost of holding money is high.

Question 4

If you initially pay $1,000 for a bond with an annual interest rate of 5 percent, but then the market interest rate falls to 4 percent

Accepted Answer

A)  the market price of the bond is still $1,000. 
B)  the bond's annual interest payment remains equal to $50. 
C)  the market price of the bond has increased. 
D)  the market price of the bond has decreased. 
A)  the market price of the bond is still $1,000. 
B)  the bond's annual interest payment remains equal to $50. 
C)  the market price of the bond has increased. 
D)  the market price of the bond has decreased.

Question 5

The interest-rate-based monetary policy transmission mechanism emphasizes the

Accepted Answer

A)  indirect effect of a change in the money supply that operates via a change in total planned expenditures generated by a change in the interest rate. 
B)  direct effect of a change in the money supply that operates via a change in total planned production generated by a change in the price level. 
C)  direct effect of a change in the money supply that operates via a change in total planned expenditures generated by a change in the interest rate. 
D)  indirect effect of a change in the money supply that operates via a change in total planned production generated by a change in the price level. 
A)  indirect effect of a change in the money supply that operates via a change in total planned expenditures generated by a change in the interest rate. 
B)  direct effect of a change in the money supply that operates via a change in total planned production generated by a change in the price level. 
C)  direct effect of a change in the money supply that operates via a change in total planned expenditures generated by a change in the interest rate. 
D)  indirect effect of a change in the money supply that operates via a change in total planned production generated by a change in the price level.

Question 6

The rate at which banks can borrow excess reserves from other banks is equal to

Accepted Answer

A)  the discount rate. 
B)  the federal funds rate. 
C)  the interest rate paid on reserves held with the Fed. 
D)  the treasury bill rate. 
A)  the discount rate. 
B)  the federal funds rate. 
C)  the interest rate paid on reserves held with the Fed. 
D)  the treasury bill rate.

Question 7

If the Fed purchases U.S. government securities in the open market, all of the following would occur EXCEPT

Accepted Answer

A)  an expansion of the money supply. 
B)  an increase in investment. 
C)  a fall in bond prices. 
D)  an increase in real Gross Domestic Product (GDP). 
A)  an expansion of the money supply. 
B)  an increase in investment. 
C)  a fall in bond prices. 
D)  an increase in real Gross Domestic Product (GDP).

Question 8

The net-export effect of contractionary monetary policy is

Accepted Answer

A)  the depreciation of the value of the dollar and a resulting increase of U.S. net exports. 
B)  the depreciation of the value of the dollar and a resulting decrease of U.S. net exports. 
C)  the appreciation of the value of the dollar and a resulting increase of U.S. net exports. 
D)  the appreciation of the value of the dollar and a resulting decrease of U.S. net exports. 
A)  the depreciation of the value of the dollar and a resulting increase of U.S. net exports. 
B)  the depreciation of the value of the dollar and a resulting decrease of U.S. net exports. 
C)  the appreciation of the value of the dollar and a resulting increase of U.S. net exports. 
D)  the appreciation of the value of the dollar and a resulting decrease of U.S. net exports.

Question 9

According to the interest-rate-based monetary policy transmission mechanism, an increase 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 an increase 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 an increase 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 an increase 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 an increase in real GDP which is greater than the increase in investment spending.

Question 10

A bond that pays a yearly interest rate of $100 is for sale. The interest rate was 10 percent and now is 5 percent. The price of the bond has

Accepted Answer

A)  decreased from $1000 to $500. 
B)  increased from $1000 to $2000. 
C)  increased from $500 to $2000. 
D)  decreased from $2000 to $1000. 
A)  decreased from $1000 to $500. 
B)  increased from $1000 to $2000. 
C)  increased from $500 to $2000. 
D)  decreased from $2000 to $1000.

Question 11

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

Accepted Answer

A)  an increase in the required reserve ratio will lower interest rates. 
B)  a decrease in the required reserve ratio will lower interest rates. 
C)  a decrease in the required reserve ratio will not affect interest rates. 
D)  an increase in the required reserve ratio will not affect interest rates. 
A)  an increase in the required reserve ratio will lower interest rates. 
B)  a decrease in the required reserve ratio will lower interest rates. 
C)  a decrease in the required reserve ratio will not affect interest rates. 
D)  an increase in the required reserve ratio will not affect interest rates.

Question 12

In words, the equation of exchange says that

Accepted Answer

A)  the total amount spent on final output equals the amount received for final output. 
B)  the amount of money in circulation equals the velocity of the price level. 
C)  changes in the money supply will have no impact on the amount spent on final output. 
D)  when velocity equals 1, nominal GDP equals the price level. 
A)  the total amount spent on final output equals the amount received for final output. 
B)  the amount of money in circulation equals the velocity of the price level. 
C)  changes in the money supply will have no impact on the amount spent on final output. 
D)  when velocity equals 1, nominal GDP equals the price level.

Question 13

The Federal Reserve conducted the policy of quantitative easing primarily when

Accepted Answer

A)  the interest rate was close to zero. 
B)  the interest rate was relatively high. 
C)  the interest rate was too erratic to be controlled. 
D)  the interest rate was very sensitive to the change in the money supply. 
A)  the interest rate was close to zero. 
B)  the interest rate was relatively high. 
C)  the interest rate was too erratic to be controlled. 
D)  the interest rate was very sensitive to the change in the money supply.

Question 14

What are three reasons people want to hold money balances?

Accepted Answer

There are three reasons people hold mone

Question 15

What happens to the price of bonds when the Fed is selling bonds? What happens to the interest rate? What happens to the money supply?

Accepted Answer

If the Fed sells bonds, the supply of bo

Question 16

The official Federal Reserve strategy for implementing its monetary policy objectives is spelled out in the

Accepted Answer

A)  Federal Reserve Board (FR
B)  Decree. 
B)  Federal Reserve Bank Cooperative (FRB
C)  Proposal. 
C)  Federal Advisory Committee (FA
C)  Statement. 
D)  Federal Open Market Committee (FOM
C)  Directive. 
A)  Federal Reserve Board (FR
B)  Decree. 
B)  Federal Reserve Bank Cooperative (FRB
C)  Proposal. 
C)  Federal Advisory Committee (FA
C)  Statement. 
D)  Federal Open Market Committee (FOM
C)  Directive.

Question 17

If the economy is operating below its full employment level, the Fed can

Accepted Answer

A)  increase aggregate demand by increasing the rate of growth of the money supply. 
B)  increase aggregate demand by stimulating the demand for money. 
C)  increase aggregate demand by selling bonds and raising interest rates. 
D)  increase aggregate supply by raising the price level. 
A)  increase aggregate demand by increasing the rate of growth of the money supply. 
B)  increase aggregate demand by stimulating the demand for money. 
C)  increase aggregate demand by selling bonds and raising interest rates. 
D)  increase aggregate supply by raising the price level.

Question 18

According to the equation of exchange, if V = 10, P = 3, and Y = $100, then the money supply equals

Accepted Answer

A)  $10. 
B)  $15. 
C)  $30. 
D)  $150. 
A)  $10. 
B)  $15. 
C)  $30. 
D)  $150.

Question 19

Money is a ________ and a transaction is a ________.

Accepted Answer

A)  stock; stock 
B)  flow; flow 
C)  flow; stock 
D)  stock; flow 
A)  stock; stock 
B)  flow; flow 
C)  flow; stock 
D)  stock; flow

Question 20

How does the Fed increase the level of reserves in the banking system?

Accepted Answer

A)  by lowering interest rates 
B)  by raising interest rates 
C)  by selling bonds 
D)  by buying bonds 
A)  by lowering interest rates 
B)  by raising interest rates 
C)  by selling bonds 
D)  by buying bonds

Exam 16: Domestic and International Dimensions of Monetary Policy

The tools of monetary policy are

The asset demand for money is

If you initially pay $1,000 for a bond with an annual interest rate of 5 percent, but then the market interest rate falls to 4 percent

The interest-rate-based monetary policy transmission mechanism emphasizes the

The rate at which banks can borrow excess reserves from other banks is equal to

If the Fed purchases U.S. government securities in the open market, all of the following would occur EXCEPT

The net-export effect of contractionary monetary policy is

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

A bond that pays a yearly interest rate of $100 is for sale. The interest rate was 10 percent and now is 5 percent. The price of the bond has

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

In words, the equation of exchange says that

The Federal Reserve conducted the policy of quantitative easing primarily when

What are three reasons people want to hold money balances?

What happens to the price of bonds when the Fed is selling bonds? What happens to the interest rate? What happens to the money supply?

The official Federal Reserve strategy for implementing its monetary policy objectives is spelled out in the

If the economy is operating below its full employment level, the Fed can

According to the equation of exchange, if V = 10, P = 3, and Y = $100, then the money supply equals

Money is a ________ and a transaction is a ________.

How does the Fed increase the level of reserves in the banking system?

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

Filters

Money is a and a transaction is a .