Question 1

Which of the following is true?

Accepted Answer

A) ​The quantity of money demanded varies inversely with the nominal rate of interest. 
B) ​Money market equilibrium occurs at that nominal interest rate where the quantity of money demanded equals the quantity of money supplied. 
C) ​Rising national income will shift the demand for money to the right, leading to a new higher equilibrium nominal interest rate. 
D) ​All of the above are true. 
A) ​The quantity of money demanded varies inversely with the nominal rate of interest. 
B) ​Money market equilibrium occurs at that nominal interest rate where the quantity of money demanded equals the quantity of money supplied. 
C) ​Rising national income will shift the demand for money to the right, leading to a new higher equilibrium nominal interest rate. 
D) ​All of the above are true.

Question 2

The lag before the full effects of monetary policy on inflation are felt is longer than the lag before its effects on real output and unemployment are felt.

Accepted Answer

A) True 
 B)False

Question 3

In order to determine the velocity of money, we need to know:

Accepted Answer

A) ​the money supply and the price level. 
B) ​nominal GDP and real GDP. 
C) ​the money supply and nominal GDP. 
D) ​the interest rate and nominal GDP. 
A) ​the money supply and the price level. 
B) ​nominal GDP and real GDP. 
C) ​the money supply and nominal GDP. 
D) ​the interest rate and nominal GDP.

Question 4

The supply and demand for money intersect at the equilibrium real interest rate, while the supply and demand curves for loanable funds intersect at the equilibrium real interest rate.​

Accepted Answer

A) True 
 B)False

Question 5

In a liquidity trap situation:​

Accepted Answer

A) ​The Fed could not appreciably lower short term interest rates. 
B) ​If the Fed added reserves to the banking system, it would have little effect on investment. 
C) ​Traditional monetary policy would be relatively weak in its effects on aggregate demand. 
D) ​All of the above are true. 
A) ​The Fed could not appreciably lower short term interest rates. 
B) ​If the Fed added reserves to the banking system, it would have little effect on investment. 
C) ​Traditional monetary policy would be relatively weak in its effects on aggregate demand. 
D) ​All of the above are true.

Question 6

If money supply and money demand both increased:

Accepted Answer

A) ​nominal interest rates would increase and investment would increase. 
B) ​nominal interest rates would increase and investment would decrease. 
C) ​nominal interest rates would decrease and investment would increase. 
D) ​the change in nominal interest rates and investment would be indeterminate. 
A) ​nominal interest rates would increase and investment would increase. 
B) ​nominal interest rates would increase and investment would decrease. 
C) ​nominal interest rates would decrease and investment would increase. 
D) ​the change in nominal interest rates and investment would be indeterminate.

Question 7

Which of the following pairs of policies shift aggregate demand in the same direction?

Accepted Answer

A) ​A tax increase and an increase in the money supply. 
B) ​A transfer payment decrease and an increase in the money supply. 
C) ​A reduction in government purchases and decline in the money supply. 
D) ​An increase in government purchases and a decline in the money supply. 
A) ​A tax increase and an increase in the money supply. 
B) ​A transfer payment decrease and an increase in the money supply. 
C) ​A reduction in government purchases and decline in the money supply. 
D) ​An increase in government purchases and a decline in the money supply.

Question 8

By changing its regulations, the Fed ___ force the banking system to increase the money supply; by changing its regulations, the Fed ____ force the banking system to decrease the money supply:

Accepted Answer

A) ​Can; can 
B) ​Can; cannot 
C) ​Cannot; can 
D) ​Cannot; cannot. 
A) ​Can; can 
B) ​Can; cannot 
C) ​Cannot; can 
D) ​Cannot; cannot.

Question 9

If the money supply grew by 6 percent and velocity fell by 2 percent, nominal GDP would:

Accepted Answer

A) ​fall by 4 percent. 
B) ​rise by 4 percent. 
C) ​rise by 8 percent. 
D) ​rise by 12 percent. 
A) ​fall by 4 percent. 
B) ​rise by 4 percent. 
C) ​rise by 8 percent. 
D) ​rise by 12 percent.

Question 10

If unemployment is the major problem in the economy, which of the following would be an appropriate monetary policy response?

Accepted Answer

A) ​decrease taxes 
B) ​decrease the discount rate 
C) ​sell government bonds 
D) ​all of the above 
A) ​decrease taxes 
B) ​decrease the discount rate 
C) ​sell government bonds 
D) ​all of the above

Question 11

When interest rates are higher:

Accepted Answer

A) ​the opportunity cost of holding monetary assets is higher, and the quantity of money demanded, but not the demand for money, is lower. 
B) ​the opportunity cost of holding monetary assets is higher, and the demand for money increases. 
C) ​the opportunity cost of holding monetary assets is lower, and the quantity of money demanded, but not the demand for money, is greater. 
D) ​the opportunity cost of holding monetary assets is lower, and the demand for money increases. 
A) ​the opportunity cost of holding monetary assets is higher, and the quantity of money demanded, but not the demand for money, is lower. 
B) ​the opportunity cost of holding monetary assets is higher, and the demand for money increases. 
C) ​the opportunity cost of holding monetary assets is lower, and the quantity of money demanded, but not the demand for money, is greater. 
D) ​the opportunity cost of holding monetary assets is lower, and the demand for money increases.

Question 12

The ________ interest is the relevant interest rate in the money market; the __________ interest rate is the relevant interest rate in the loanable funds market.​

Accepted Answer

A) ​Nominal; nominal. 
B) ​Nominal; real 
C) ​Real; nominal 
D) ​Real; real 
A) ​Nominal; nominal. 
B) ​Nominal; real 
C) ​Real; nominal 
D) ​Real; real

Question 13

If the Fed wanted to reduce the federal funds interest rate, it might:

Accepted Answer

A) ​increase the discount rate. 
B) ​increase the required reserve ratio. 
C) ​buy government securities. 
D) ​sell government securities. 
A) ​increase the discount rate. 
B) ​increase the required reserve ratio. 
C) ​buy government securities. 
D) ​sell government securities.

Question 14

Starting at full employment (RGDPNR),

Accepted Answer

A) ​expansionary monetary policy can potentially result in increased real output, but only in the short run. 
B) ​expansionary monetary policy can potentially result in increased real output in both the short run and long run. 
C) ​contractionary monetary policy can potentially result in increased real output, but only in the short run. 
D) ​contractionary monetary policy can potentially result in increased real output in both the short run and long run. 
A) ​expansionary monetary policy can potentially result in increased real output, but only in the short run. 
B) ​expansionary monetary policy can potentially result in increased real output in both the short run and long run. 
C) ​contractionary monetary policy can potentially result in increased real output, but only in the short run. 
D) ​contractionary monetary policy can potentially result in increased real output in both the short run and long run.

Question 15

Which of the following is true?

Accepted Answer

A) ​When increased government purchases or expansionary monetary policy does give the economy a boost, no one knows precisely how long it will take to do so. 
B) ​Given the difficulties of timing stabilization policy, an expansionary monetary policy intended to reduce the severity of a recession may instead add inflationary pressures to an economy that is already overheating. 
C) ​If velocity changes, but it moves in a fairly predictable pattern, the connection between money supply and GDP is still fairly predictable. 
D) ​All of the above are true. 
A) ​When increased government purchases or expansionary monetary policy does give the economy a boost, no one knows precisely how long it will take to do so. 
B) ​Given the difficulties of timing stabilization policy, an expansionary monetary policy intended to reduce the severity of a recession may instead add inflationary pressures to an economy that is already overheating. 
C) ​If velocity changes, but it moves in a fairly predictable pattern, the connection between money supply and GDP is still fairly predictable. 
D) ​All of the above are true.

Question 16

Which of the following would cause the U.S. money supply to expand?

Accepted Answer

A) ​a commercial bank using excess reserves to extend a loan to a customer 
B) ​a commercial bank purchasing U.S.securities from the Fed as an investment 
C) ​an increase in reserve requirements 
D) ​an increase in the discount rate 
A) ​a commercial bank using excess reserves to extend a loan to a customer 
B) ​a commercial bank purchasing U.S.securities from the Fed as an investment 
C) ​an increase in reserve requirements 
D) ​an increase in the discount rate

Question 17

Higher rates of interest increase the opportunity cost of holding money balances.

Accepted Answer

A) True 
 B)False

Question 18

If M increases, and V remains constant:

Accepted Answer

A) ​P must rise. 
B) ​Q must rise. 
C) ​P and Q must each rise. 
D) ​Any of the above may happen, but none of the above must happen. 
A) ​P must rise. 
B) ​Q must rise. 
C) ​P and Q must each rise. 
D) ​Any of the above may happen, but none of the above must happen.

Question 19

Below the equilibrium level of nominal interest rates, there is a _______ of money and money interest rates will tend to _____ as a result.

Accepted Answer

A) ​Shortage; fall. 
B) ​Shortage; rise. 
C) ​Surplus, fall. 
D) ​Surplus; rise. 
A) ​Shortage; fall. 
B) ​Shortage; rise. 
C) ​Surplus, fall. 
D) ​Surplus; rise.

Question 20

Monetary policy can influence interest rates, which in turn can change spending.

Accepted Answer

A) True 
 B)False

Exam 18: Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Which of the following is true?

The lag before the full effects of monetary policy on inflation are felt is longer than the lag before its effects on real output and unemployment are felt.

In order to determine the velocity of money, we need to know:

The supply and demand for money intersect at the equilibrium real interest rate, while the supply and demand curves for loanable funds intersect at the equilibrium real interest rate.​

In a liquidity trap situation:​

If money supply and money demand both increased:

Which of the following pairs of policies shift aggregate demand in the same direction?

By changing its regulations, the Fed ___ force the banking system to increase the money supply; by changing its regulations, the Fed ____ force the banking system to decrease the money supply:

If the money supply grew by 6 percent and velocity fell by 2 percent, nominal GDP would:

If unemployment is the major problem in the economy, which of the following would be an appropriate monetary policy response?

When interest rates are higher:

The ________ interest is the relevant interest rate in the money market; the __________ interest rate is the relevant interest rate in the loanable funds market.​

If the Fed wanted to reduce the federal funds interest rate, it might:

Starting at full employment (RGDPNR),

Which of the following is true?

Which of the following would cause the U.S. money supply to expand?

Higher rates of interest increase the opportunity cost of holding money balances.

If M increases, and V remains constant:

Below the equilibrium level of nominal interest rates, there is a _______ of money and money interest rates will tend to _____ as a result.

Monetary policy can influence interest rates, which in turn can change spending.

The Role and Method of Economics

Eight Powerful Ideas

Scarcity, Trade-Offs, and Production Possibilities

Demand, Supply, and Market Equilibrium

Market in Motion and Price Controls

Elasticities

Market Efficiency and Welfare

Market Failure

Public Finance and Public Choice

Consumer Choice Theory

The Firm: Production and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Product Differentiation

Oligopoly and Strategic Behavior

The Markets for Labor, Capital, and Land

Income, Poverty and Health Care

Measuring Economic Performance

Economic Growth in the Global Economy

Financial Markets, Saving, and Investment

Filters

The supply and demand for money intersect at the equilibrium real interest rate, while the supply and demand curves for loanable funds intersect at the equilibrium real interest rate.

In a liquidity trap situation:

By changing its regulations, the Fed _ force the banking system to increase the money supply; by changing its regulations, the Fed __ force the banking system to decrease the money supply:

The interest is the relevant interest rate in the money market; the __ interest rate is the relevant interest rate in the loanable funds market.

Below the equilibrium level of nominal interest rates, there is a ___ of money and money interest rates will tend to _ as a result.