Question 1

A change in the interest rate does not affect the quantity of money supplied.This means that:

Accepted Answer

A) the money supply curve is negatively sloped. 
B) the money supply curve is vertical. 
C) the money supply curve is horizontal. 
D) the money supply curve is a 45 degree line drawn from the origin. 
E) the money supply curve is kinked. 
A) the money supply curve is negatively sloped. 
B) the money supply curve is vertical. 
C) the money supply curve is horizontal. 
D) the money supply curve is a 45 degree line drawn from the origin. 
E) the money supply curve is kinked.

Question 2

A decrease in the discount rate:

Accepted Answer

A) increases reserve holdings of the commercial banks. 
B) leads to an increase in the interbank rate charged by commercial banks. 
C) lowers the cost of borrowing from the Fed. 
D) causes an increase in the federal funds rate. 
E) decreases the money supply. 
A) increases reserve holdings of the commercial banks. 
B) leads to an increase in the interbank rate charged by commercial banks. 
C) lowers the cost of borrowing from the Fed. 
D) causes an increase in the federal funds rate. 
E) decreases the money supply.

Question 3

Identify the correct statement.

Accepted Answer

A) District banks of the Fed hold reserves in the form of deposits at the Fed. 
B) Commercial banks in each district make loans to the Fed. 
C) The Fed sells U.S.government securities for the U.S.Treasury. 
D) The district banks of the Fed print money and supply currency to the Fed. 
E) The Fed holds the reserves of the commercial banks but it does not issues checks. 
A) District banks of the Fed hold reserves in the form of deposits at the Fed. 
B) Commercial banks in each district make loans to the Fed. 
C) The Fed sells U.S.government securities for the U.S.Treasury. 
D) The district banks of the Fed print money and supply currency to the Fed. 
E) The Fed holds the reserves of the commercial banks but it does not issues checks.

Question 4

According to the equation of exchange, if the money supply is $800 million, real GDP is $3, 000 million, and nominal GDP is $4, 000 million, then the velocity of money is equal to:

Accepted Answer

A) 3.5. 
B) 1.7. 
C) 10.3. 
D) 5. 
E) 2. 
A) 3.5. 
B) 1.7. 
C) 10.3. 
D) 5. 
E) 2.

Question 5

In the figure given below panel A represents money market equilibrium, panel B represents investment demand, and panel C represents equilibrium real GDP. Figure 13.3   Refer to Figure 13.3.Starting from the equilibrium illustrated in the graphs, if the Federal Reserve purchases government bonds in the open market, then:

Accepted Answer

A) investment spending will decline. 
B) bond prices will decline. 
C) equilibrium real GDP will fall. 
D) interest rates will fall. 
E) money demand will decline. 
A) investment spending will decline. 
B) bond prices will decline. 
C) equilibrium real GDP will fall. 
D) interest rates will fall. 
E) money demand will decline.

Question 6

An increase in the money supply will:

Accepted Answer

A) decrease both investment spending and aggregate demand. 
B) decrease investment spending and increase aggregate demand. 
C) decrease both consumption spending and aggregate demand. 
D) increase both investment spending and aggregate demand. 
E) increase investment spending and decrease aggregate demand 
A) decrease both investment spending and aggregate demand. 
B) decrease investment spending and increase aggregate demand. 
C) decrease both consumption spending and aggregate demand. 
D) increase both investment spending and aggregate demand. 
E) increase investment spending and decrease aggregate demand

Question 7

If the aggregate supply curve is positively sloped, an increase in the money supply will result in an increase in both equilibrium national income and the equilibrium price level.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is a function of the Fed?

Accepted Answer

A) Printing foreign currency 
B) Determining the level of government spending 
C) Distributing welfare benefits 
D) Administrating the Social Security fund 
E) Ensuring that banks operate in a sound and prudent manner 
A) Printing foreign currency 
B) Determining the level of government spending 
C) Distributing welfare benefits 
D) Administrating the Social Security fund 
E) Ensuring that banks operate in a sound and prudent manner

Question 9

The quantity theory of money asserts that:

Accepted Answer

A) changes in nominal GDP are inversely related to changes in the velocity of money. 
B) changes in money supply are positively related to changes in the velocity of money. 
C) changes in the money supply are unrelated to changes in the price level. 
D) changes in the output level are unrelated to changes in the price level. 
E) changes in the money supply are directly related to changes in nominal GDP. 
A) changes in nominal GDP are inversely related to changes in the velocity of money. 
B) changes in money supply are positively related to changes in the velocity of money. 
C) changes in the money supply are unrelated to changes in the price level. 
D) changes in the output level are unrelated to changes in the price level. 
E) changes in the money supply are directly related to changes in nominal GDP.

Question 10

Suppose the U.S.dollar appreciates in value against the Australian dollar, and the Fed intervenes in the foreign exchange market by using U.S.dollars to buy Australian dollars.The Fed could sterilize the expansionary effect of this intervention by:

Accepted Answer

A) buying U.S.dollars in the foreign exchange market. 
B) buying U.S.government bonds in the domestic open market. 
C) selling Australian dollars in the foreign exchange market. 
D) selling U.S.government bonds in the domestic open market. 
E) buying Australian dollars in the foreign exchange market. 
A) buying U.S.dollars in the foreign exchange market. 
B) buying U.S.government bonds in the domestic open market. 
C) selling Australian dollars in the foreign exchange market. 
D) selling U.S.government bonds in the domestic open market. 
E) buying Australian dollars in the foreign exchange market.

Question 11

The aggregate demand curve will shift outward and to the right when the Federal Reserve undertakes which of the following monetary policies?

Accepted Answer

A) Open market purchases of government securities 
B) An increase in the discount rate 
C) An increase in the reserve requirement 
D) A reduction in loans to the U.S.Treasury 
E) A more lenient supervision of savings and loan institutions 
A) Open market purchases of government securities 
B) An increase in the discount rate 
C) An increase in the reserve requirement 
D) A reduction in loans to the U.S.Treasury 
E) A more lenient supervision of savings and loan institutions

Question 12

When the Fed uses money growth rates as an intermediate target, it implicitly assumes that the velocity of money is constant over time, at least in the short run.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following actions of the Fed will increase money supply in the U.S.directly?

Accepted Answer

A) Purchase U.S.government bonds 
B) Increase the federal funds rate 
C) Increase the reserve requirement 
D) Increase the discount rate 
E) Ban sales of private mutual funds 
A) Purchase U.S.government bonds 
B) Increase the federal funds rate 
C) Increase the reserve requirement 
D) Increase the discount rate 
E) Ban sales of private mutual funds

Question 14

A leftward shift in the money demand function would result from:

Accepted Answer

A) a decrease in the money supply. 
B) a decrease in the price level. 
C) an increase in real income. 
D) a decrease in the interest rate. 
E) an increase in the interest rate 
A) a decrease in the money supply. 
B) a decrease in the price level. 
C) an increase in real income. 
D) a decrease in the interest rate. 
E) an increase in the interest rate

Question 15

The President of which of the following district banks of the Fed is perpetually present on the Federal Open Market Committee?

Accepted Answer

A) The New York Fed 
B) The Seattle Fed 
C) The Boston Fed 
D) The Chicago Fed 
E) The Atlanta Fed 
A) The New York Fed 
B) The Seattle Fed 
C) The Boston Fed 
D) The Chicago Fed 
E) The Atlanta Fed

Question 16

The transactions demand for money exists because:

Accepted Answer

A) people want to maintain a speculative cash reserve. 
B) people are insensitive to interest rate fluctuations and prefer to hoard money. 
C) people want to be prepared for unplanned emergency expenditures. 
D) people prefer cash over bank deposits. 
E) people do not receive their income at the same time they spend it. 
A) people want to maintain a speculative cash reserve. 
B) people are insensitive to interest rate fluctuations and prefer to hoard money. 
C) people want to be prepared for unplanned emergency expenditures. 
D) people prefer cash over bank deposits. 
E) people do not receive their income at the same time they spend it.

Question 17

The monetary policy decisions made by the Federal Reserve must be approved by the Congress before they are enacted.

Accepted Answer

A) True 
 B)False

Question 18

The table given below shows the assets and liabilities of the National Bank.Assume that this is the only bank in the economy. Table 13.2
  Refer to Table 13.2.If the reserve requirement is 10 percent, calculate the maximum amount of loanable funds available with the bank.

Accepted Answer

A) $1, 605 
B) $1, 180 
C) $545 
D) $5, 450 
E) $2, 150 
A) $1, 605 
B) $1, 180 
C) $545 
D) $5, 450 
E) $2, 150

Question 19

Which of the following is most likely to lead to an increase in the demand for U.S.dollars in the foreign exchange market?

Accepted Answer

A) U.S.firms purchasing raw materials from Japan 
B) U.S.speculators expecting the value of the German mark to rise 
C) The Fed intervening in the foreign exchange market and devaluing the dollar 
D) Speculative outflows of money from the United States to Britain because of higher interest rates in Britain 
E) Japanese cars becoming more popular in the United States 
A) U.S.firms purchasing raw materials from Japan 
B) U.S.speculators expecting the value of the German mark to rise 
C) The Fed intervening in the foreign exchange market and devaluing the dollar 
D) Speculative outflows of money from the United States to Britain because of higher interest rates in Britain 
E) Japanese cars becoming more popular in the United States

Question 20

An increase in the money supply will lead to an increase in equilibrium real GDP only if:

Accepted Answer

A) the aggregate demand curve is horizontal. 
B) the aggregate supply curve is vertical. 
C) the investment function is horizontal. 
D) the aggregate supply curve is not vertical. 
E) the investment function is upward-sloping. 
A) the aggregate demand curve is horizontal. 
B) the aggregate supply curve is vertical. 
C) the investment function is horizontal. 
D) the aggregate supply curve is not vertical. 
E) the investment function is upward-sloping.

Exam 22: Monetary Policy

A change in the interest rate does not affect the quantity of money supplied.This means that:

A decrease in the discount rate:

Identify the correct statement.

According to the equation of exchange, if the money supply is $800 million, real GDP is $3, 000 million, and nominal GDP is $4, 000 million, then the velocity of money is equal to:

An increase in the money supply will:

If the aggregate supply curve is positively sloped, an increase in the money supply will result in an increase in both equilibrium national income and the equilibrium price level.

Which of the following is a function of the Fed?

The quantity theory of money asserts that:

Suppose the U.S.dollar appreciates in value against the Australian dollar, and the Fed intervenes in the foreign exchange market by using U.S.dollars to buy Australian dollars.The Fed could sterilize the expansionary effect of this intervention by:

The aggregate demand curve will shift outward and to the right when the Federal Reserve undertakes which of the following monetary policies?

When the Fed uses money growth rates as an intermediate target, it implicitly assumes that the velocity of money is constant over time, at least in the short run.

Which of the following actions of the Fed will increase money supply in the U.S.directly?

A leftward shift in the money demand function would result from:

The President of which of the following district banks of the Fed is perpetually present on the Federal Open Market Committee?

The transactions demand for money exists because:

The monetary policy decisions made by the Federal Reserve must be approved by the Congress before they are enacted.

The table given below shows the assets and liabilities of the National Bank.Assume that this is the only bank in the economy. Table 13.2 Refer to Table 13.2.If the reserve requirement is 10 percent, calculate the maximum amount of loanable funds available with the bank.

Which of the following is most likely to lead to an increase in the demand for U.S.dollars in the foreign exchange market?

An increase in the money supply will lead to an increase in equilibrium real GDP only if:

Economics: The World Around You

Choice, Opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

Elasticity: Demand and Supply

National Income Accounting

an Introduction to the Foreign Exchange Market and the Balance of Payments

Consumer Choice

Supply: The Costs of Doing Business

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Profit Maximization

Aggregate Expenditures

Perfect Competition

Income and Expenditures Equilibrium

Monopoly

Fiscal Policy

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Money and Banking

Market Failures, Government Failures, and Rent Seeking

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Resource Markets

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

The Labor Market

Capital Markets

Economic Growth

Development Economics

the Land Market and Natural Resources

Aging, Social Security and Health Care

Globalization

Elasticity: Demand and Supply

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

Consumer Choice

International Trade Restrictions

World Trade Equilibrium

Exchange Rates and Financial Links Between Countries

International Trade Restrictions

Supply: the Costs of Doing Business

Exchange Rates and Financial Links Between Countries

Profit Maximization

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Market Failures, Government Failures, and Rent Seeking

Resource Markets

The Labor Market

Capital Markets

The Land Market and Natural Resources

Aging, Social Security and Health Care

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

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