Question 1

Interest rates typically rise when

Accepted Answer

A)  bond prices increase. 
B)  bond prices decrease. 
C)  the coupon payout on existing bonds increase. 
D)  the maturity date on existing bonds extends farther into the future. 
A)  bond prices increase. 
B)  bond prices decrease. 
C)  the coupon payout on existing bonds increase. 
D)  the maturity date on existing bonds extends farther into the future.

Question 2

The equation of exchange is

Accepted Answer

A)  an assumption that is not always true. 
B)  true in the short run but not always in the long run. 
C)  an accounting identity and therefore is always true. 
D)  a theory developed at the Federal Reserve. 
A)  an assumption that is not always true. 
B)  true in the short run but not always in the long run. 
C)  an accounting identity and therefore is always true. 
D)  a theory developed at the Federal Reserve.

Question 3

Proponents of the interest-rate-based monetary policy transmission mechanism argue that when the Federal Reserve buys bonds, there will be

Accepted Answer

A)  an increase in investment spending. 
B)  a decrease in the money supply. 
C)  a decrease in nominal Gross Domestic Product (GDP), but not in real income. 
D)  a decrease in the price of outstanding bonds. 
A)  an increase in investment spending. 
B)  a decrease in the money supply. 
C)  a decrease in nominal Gross Domestic Product (GDP), but not in real income. 
D)  a decrease in the price of outstanding bonds.

Question 4

If nominal GDP is $5 trillion and velocity is 5, then

Accepted Answer

A)  actual money balances held by the nonbanking public are $5 trillion. 
B)  actual money balances held by the nonbanking public are $1 trillion. 
C)  real GDP equals $100 trillion. 
D)  real GDP equals $500 trillion. 
A)  actual money balances held by the nonbanking public are $5 trillion. 
B)  actual money balances held by the nonbanking public are $1 trillion. 
C)  real GDP equals $100 trillion. 
D)  real GDP equals $500 trillion.

Question 5

The net-export effect of contractionary monetary policy is a(n)

Accepted Answer

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

Question 6

What effect does an expansionary 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 7

-In the above figure, if the economy is initially at an equilibrium output at point A and the interest rate is r1, then an open market purchase of bonds by the Fed will

Accepted Answer

A)  cause interest rates to increase and output to decline. 
B)  cause interest rates to decline to r2, investment to increase to I2, and the AD curve to shift upward to the right. 
C)  cause interest rates to decline to r2, investment to decline, and aggregate demand to shift inward to the left. 
D)  not have any impact on short- or long-run equilibrium real Gross Domestic Product (GDP). 
A)  cause interest rates to increase and output to decline. 
B)  cause interest rates to decline to r2, investment to increase to I2, and the AD curve to shift upward to the right. 
C)  cause interest rates to decline to r2, investment to decline, and aggregate demand to shift inward to the left. 
D)  not have any impact on short- or long-run equilibrium real Gross Domestic Product (GDP).

Question 8

The relationship between the interest rate and the precautionary demand for money is

Accepted Answer

A)  positive. 
B)  inverse. 
C)  positive sometimes and inverse other times. 
D)  nonexistent. 
A)  positive. 
B)  inverse. 
C)  positive sometimes and inverse other times. 
D)  nonexistent.

Question 9

Which of the following is NOT part of the FOMC directive?

Accepted Answer

A)  It lays out the FOMC's general economic objectives. 
B)  It establishes short-term federal funds rate objectives. 
C)  It specifies target ranges for money supply growth. 
D)  It specifies who the chair of the Fed is. 
A)  It lays out the FOMC's general economic objectives. 
B)  It establishes short-term federal funds rate objectives. 
C)  It specifies target ranges for money supply growth. 
D)  It specifies who the chair of the Fed is.

Question 10

Suppose there is an increase in the money supply, but that people's demand for money balances increases by a greater amount at the same time. The net effect would be

Accepted Answer

A)  a lower price level in the long run. 
B)  no change in aggregate demand or aggregate supply. 
C)  an increase in aggregate demand due to the increase in the money supply, but a decrease in aggregate supply due to the increase in the demand for money. 
D)  lower interest rates, greater real GDP, and a higher price level as aggregate demand increases because of the indirect effect of the increase in the money supply. 
A)  a lower price level in the long run. 
B)  no change in aggregate demand or aggregate supply. 
C)  an increase in aggregate demand due to the increase in the money supply, but a decrease in aggregate supply due to the increase in the demand for money. 
D)  lower interest rates, greater real GDP, and a higher price level as aggregate demand increases because of the indirect effect of the increase in the money supply.

Question 11

An increase in the money supply, other things being constant

Accepted Answer

A)  causes interest rates to rise. 
B)  generates an increase in the demand for money. 
C)  causes the price level to increase. 
D)  causes the purchasing power of money to increase. 
A)  causes interest rates to rise. 
B)  generates an increase in the demand for money. 
C)  causes the price level to increase. 
D)  causes the purchasing power of money to increase.

Question 12

The transactions demand for money

Accepted Answer

A)  varies inversely with the precautionary demand for money. 
B)  varies directly with the rate of interest. 
C)  is a function of nominal Gross Domestic Product (GDP). 
D)  is determined by the Federal Reserve System. 
A)  varies inversely with the precautionary demand for money. 
B)  varies directly with the rate of interest. 
C)  is a function of nominal Gross Domestic Product (GDP). 
D)  is determined by the Federal Reserve System.

Question 13

During a period of contractionary monetary policy

Accepted Answer

A)  the price level is increased, which leads to an increase in the money supply. 
B)  the price level is decreased, which leads to a decrease in the money supply. 
C)  the rate of growth of the money supply is increased, leading to an increase in the price level. 
D)  the rate of growth of the money supply is reduced, leading to a decrease in the price level. 
A)  the price level is increased, which leads to an increase in the money supply. 
B)  the price level is decreased, which leads to a decrease in the money supply. 
C)  the rate of growth of the money supply is increased, leading to an increase in the price level. 
D)  the rate of growth of the money supply is reduced, leading to a decrease in the price level.

Question 14

A key causal link in the interest-rate-based transmission mechanism for monetary policy is from

Accepted Answer

A)  investment to the interest rate. 
B)  the money supply to excess reserves. 
C)  a monetary policy action to excess reserves. 
D)  real GDP to investment. 
A)  investment to the interest rate. 
B)  the money supply to excess reserves. 
C)  a monetary policy action to excess reserves. 
D)  real GDP to investment.

Question 15

The opportunity cost of holding money is

Accepted Answer

A)  the interest income foregone. 
B)  the transactions demand for money. 
C)  contractionary monetary policy. 
D)  the monetary rule. 
A)  the interest income foregone. 
B)  the transactions demand for money. 
C)  contractionary monetary policy. 
D)  the monetary rule.

Question 16

Alberto purchases ten cups of coffee a week. The amount of money that he holds to purchase ten cups of coffee is the

Accepted Answer

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

Question 17

The quantity theory of money and prices assumes

Accepted Answer

A)  velocity is constant. 
B)  real output is constant. 
C)  the price level is constant. 
D)  the price level is increasing at a constant rate. 
A)  velocity is constant. 
B)  real output is constant. 
C)  the price level is constant. 
D)  the price level is increasing at a constant rate.

Question 18

People hold money because it is liquid and lacks risk under the

Accepted Answer

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

Question 19

Which of the following is NOT a reason the Fed alters 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 20

According to the quantity theory of money and prices, a 2 percent increase in the money supply ultimately leads to

Accepted Answer

A)  a 2 percent increase in real GDP. 
B)  a 2 percent increase in wages. 
C)  a 2 percent increase in the price level. 
D)  a 2 percent increase in velocity. 
A)  a 2 percent increase in real GDP. 
B)  a 2 percent increase in wages. 
C)  a 2 percent increase in the price level. 
D)  a 2 percent increase in velocity.

Exam 16: Domestic and International Dimensions of Monetary Policy

Interest rates typically rise when

The equation of exchange is

Proponents of the interest-rate-based monetary policy transmission mechanism argue that when the Federal Reserve buys bonds, there will be

If nominal GDP is $5 trillion and velocity is 5, then

The net-export effect of contractionary monetary policy is a(n)

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

-In the above figure, if the economy is initially at an equilibrium output at point A and the interest rate is r1, then an open market purchase of bonds by the Fed will

The relationship between the interest rate and the precautionary demand for money is

Which of the following is NOT part of the FOMC directive?

Suppose there is an increase in the money supply, but that people's demand for money balances increases by a greater amount at the same time. The net effect would be

An increase in the money supply, other things being constant

The transactions demand for money

During a period of contractionary monetary policy

A key causal link in the interest-rate-based transmission mechanism for monetary policy is from

The opportunity cost of holding money is

Alberto purchases ten cups of coffee a week. The amount of money that he holds to purchase ten cups of coffee is the

The quantity theory of money and prices assumes

People hold money because it is liquid and lacks risk under the

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

According to the quantity theory of money and prices, a 2 percent increase in the money supply ultimately leads to

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

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The Macroeconomy: Unemployment, Inflation, and Deflation

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