Question 1

People demand money for all of the following reasons EXCEPT

Accepted Answer

A)  it is a medium of exchange to make payments. 
B)  it generates a rate of return. 
C)  it can meet unplanned expenditures. 
D)  it is a store of value. 
A)  it is a medium of exchange to make payments. 
B)  it generates a rate of return. 
C)  it can meet unplanned expenditures. 
D)  it is a store of value.

Question 2

The demand for money curve

Accepted Answer

A)  shows the relationship between money demanded and open market operations. 
B)  shows the relationship between the quantity of money balances demanded and the interest rate. 
C)  is positively related to the interest rate. 
D)  varies inversely with the supply of money. 
A)  shows the relationship between money demanded and open market operations. 
B)  shows the relationship between the quantity of money balances demanded and the interest rate. 
C)  is positively related to the interest rate. 
D)  varies inversely with the supply of money.

Question 3

When considering the demand for money curve, the interest rate

Accepted Answer

A)  will have a positive relationship with the quantity of money demanded. 
B)  varies negatively with the transactions demand for money. 
C)  is the price of holding money. 
D)  is independent of the opportunity cost of money. 
A)  will have a positive relationship with the quantity of money demanded. 
B)  varies negatively with the transactions demand for money. 
C)  is the price of holding money. 
D)  is independent of the opportunity cost of money.

Question 4

-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 new short-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 5

Why is it more difficult for the Fed to control the money supply today than it was fifty years ago?

Accepted Answer

The international financial markets are

Question 6

By saying that the equation of exchange is an accounting identity, we mean that

Accepted Answer

A)  it is useful for accountants, but not for economists. 
B)  it identifies the key national income accounts. 
C)  it is always true. 
D)  it explains the effect of questionable accounting practices on macroeconomic performance. 
A)  it is useful for accountants, but not for economists. 
B)  it identifies the key national income accounts. 
C)  it is always true. 
D)  it explains the effect of questionable accounting practices on macroeconomic performance.

Question 7

The demand for money is based on

Accepted Answer

A)  the transactions demand, asset demand, and precautionary demand. 
B)  the demand for cash, demand for securities, and the demand for real estate. 
C)  the demand for consumption, demand for investment, and demand by government. 
D)  a demand for liquidity and wealth. 
A)  the transactions demand, asset demand, and precautionary demand. 
B)  the demand for cash, demand for securities, and the demand for real estate. 
C)  the demand for consumption, demand for investment, and demand by government. 
D)  a demand for liquidity and wealth.

Question 8

The relationship between the quantity of money balances demanded and the interest rate is

Accepted Answer

A)  determined by open market operations. 
B)  negative. 
C)  contractionary monetary policy. 
D)  the reserve requirements. 
A)  determined by open market operations. 
B)  negative. 
C)  contractionary monetary policy. 
D)  the reserve requirements.

Question 9

What does the demand curve for money look like? Why?

Accepted Answer

If the quantity of money is on the horiz

Question 10

The asset demand for money is related to which function of money?

Accepted Answer

A)  medium of exchange 
B)  unit of accounting 
C)  store of value 
D)  standard of deferred payment 
A)  medium of exchange 
B)  unit of accounting 
C)  store of value 
D)  standard of deferred payment

Question 11

Which of the following actions by the Fed would lead to an increase in the money supply?

Accepted Answer

A)  an increase in the required reserve ratio 
B)  an increase in the differential between the discount rate and the federal funds rate 
C)  an increase in tax rates 
D)  the purchase of government securities 
A)  an increase in the required reserve ratio 
B)  an increase in the differential between the discount rate and the federal funds rate 
C)  an increase in tax rates 
D)  the purchase of government securities

Question 12

The opportunity cost of holding excess reserves is equal to

Accepted Answer

A)  the discount rate. 
B)  the federal funds rate. 
C)  the federal funds rate minus the discount rate. 
D)  none of the above. 
A)  the discount rate. 
B)  the federal funds rate. 
C)  the federal funds rate minus the discount rate. 
D)  none of the above.

Question 13

A major difference between the transactions demand for money and the precautionary demand is that the

Accepted Answer

A)  transactions demand means that people are foregoing interest but they are not foregoing interest in the precautionary demand. 
B)  transactions demand leads to the purchase of assets while the precautionary demand does not. 
C)  transactions demand involves expected expenditures while the precautionary demand involves unexpected expenditures. 
D)  transactions demand is for emergencies while the precautionary demand is for every day expenditures. 
A)  transactions demand means that people are foregoing interest but they are not foregoing interest in the precautionary demand. 
B)  transactions demand leads to the purchase of assets while the precautionary demand does not. 
C)  transactions demand involves expected expenditures while the precautionary demand involves unexpected expenditures. 
D)  transactions demand is for emergencies while the precautionary demand is for every day expenditures.

Question 14

George makes $250 a week working as a student aid. When he cashes his check he takes $100 to the cashiers office to pay part of his tuition. $25 goes to paying off his books, $75 goes for entertainment and $50 he keeps for unexpected expenditures. Which of the following statements is TRUE?

Accepted Answer

A)  The transactions demand for money is $125, the precautionary demand is $75 and the asset demand is $50. 
B)  The transactions demand for money is $0, the precautionary demand is $250 and the asset demand is $0. 
C)  The transactions demand for money is $250, the precautionary demand is $0 and the asset demand is $0. 
D)  The transactions demand for money is $200, the precautionary demand is $50 and the asset demand is $0. 
A)  The transactions demand for money is $125, the precautionary demand is $75 and the asset demand is $50. 
B)  The transactions demand for money is $0, the precautionary demand is $250 and the asset demand is $0. 
C)  The transactions demand for money is $250, the precautionary demand is $0 and the asset demand is $0. 
D)  The transactions demand for money is $200, the precautionary demand is $50 and the asset demand is $0.

Question 15

As nominal Gross Domestic Product (GDP) decreases, people hold

Accepted Answer

A)  more money because they will want to increase the amount of savings. 
B)  less money because they will want to collect interest. 
C)  about the same amount of money since that has been enough in the past. 
D)  less money since they will make fewer purchases. 
A)  more money because they will want to increase the amount of savings. 
B)  less money because they will want to collect interest. 
C)  about the same amount of money since that has been enough in the past. 
D)  less money since they will make fewer purchases.

Question 16

According to the interest-rate-based transmission mechanism for monetary policy, a decrease 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 rise, causing planned real investment spending to fall and leading to a decrease 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 rise, causing planned real investment spending to fall and leading to a decrease in aggregate demand.

Question 17

The quantity theory of money and prices

Accepted Answer

A)  is derived from the equation of exchange assuming that prices remain constant. 
B)  shows how a change in the price level leads to a change in the money supply. 
C)  shows how the demand for money is inversely related to the price level. 
D)  is the hypothesis that changes in the money supply leads to proportional changes in the price level. 
A)  is derived from the equation of exchange assuming that prices remain constant. 
B)  shows how a change in the price level leads to a change in the money supply. 
C)  shows how the demand for money is inversely related to the price level. 
D)  is the hypothesis that changes in the money supply leads to proportional changes in the price level.

Question 18

Briefly describe the effects of an open market sale by the Federal Reserve, according to the interest-rate-based approach to the monetary policy transmission mechanism.

Accepted Answer

If the Fed decreases the money supply th

Question 19

Which of the following is NOT a reason why people are motivated to hold money?

Accepted Answer

A)  asset demand 
B)  precautionary demand 
C)  liability demand 
D)  transactions demand 
A)  asset demand 
B)  precautionary demand 
C)  liability demand 
D)  transactions demand

Question 20

Using the interest rate as a measure of the opportunity cost of holding money, the demand for money curve

Accepted Answer

A)  slopes upward with respect to the rate of interest. 
B)  is not affected by the price level. 
C)  slopes downward with respect to the rate of interest. 
D)  is vertical. 
A)  slopes upward with respect to the rate of interest. 
B)  is not affected by the price level. 
C)  slopes downward with respect to the rate of interest. 
D)  is vertical.

Exam 16: Domestic and International Dimensions of Monetary Policy

People demand money for all of the following reasons EXCEPT

The demand for money curve

When considering the demand for money curve, the interest rate

-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 new short-run equilibrium will be at point

Why is it more difficult for the Fed to control the money supply today than it was fifty years ago?

By saying that the equation of exchange is an accounting identity, we mean that

The demand for money is based on

The relationship between the quantity of money balances demanded and the interest rate is

What does the demand curve for money look like? Why?

The asset demand for money is related to which function of money?

Which of the following actions by the Fed would lead to an increase in the money supply?

The opportunity cost of holding excess reserves is equal to

A major difference between the transactions demand for money and the precautionary demand is that the

George makes $250 a week working as a student aid. When he cashes his check he takes $100 to the cashiers office to pay part of his tuition. $25 goes to paying off his books, $75 goes for entertainment and $50 he keeps for unexpected expenditures. Which of the following statements is TRUE?

As nominal Gross Domestic Product (GDP) decreases, people hold

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

The quantity theory of money and prices

Briefly describe the effects of an open market sale by the Federal Reserve, according to the interest-rate-based approach to the monetary policy transmission mechanism.

Which of the following is NOT a reason why people are motivated to hold money?

Using the interest rate as a measure of the opportunity cost of holding money, the demand for money curve

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

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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

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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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