Question 1

The short run sequence of events following an unanticipated shift to a more restrictive monetary policy would be

Accepted Answer

A)  lower interest rates, decrease in aggregate demand, and a reduction in output. 
B)  lower interest rates, increase in aggregate demand, and an expansion in output. 
C)  higher interest rates, decrease in aggregate demand, and a reduction in output. 
D)  higher interest rates, increase in aggregate demand, and an expansion in output.

Question 2

What has happened to the ratio of the population age 50 to 75 years divided by the population under age 50 in the high-income industrial countries in recent decades?

Accepted Answer

A)  This ratio has declined and some economists believe this change has pushed interest rates upward. 
B)  This ratio has increased and some economists believe this change has pushed interest rates downward. 
C)  This ratio has increased and some economists believe this change has increased aggregate demand and led to higher rates of inflation. 
D)  This ratio has been virtually unchanged in high-income countries during recent decades.

Question 3

Which of the following weakened the demand stimulus effects of the fed's low interest rate policy during the years following the 2008-2009 recession?

Accepted Answer

A)  Rising stock prices in response to the low-interest rate policy. 
B)  The lower cost of borrowing to undertake business investment. 
C)  An increase in the velocity of money. 
D)  A reduction in earnings of senior citizens and others from money market accounts, saving deposits, and similar forms of savings.

Question 4

If the economy is in an inflationary boom, the Fed would most likely

Accepted Answer

A)  encourage banks to provide loans by buying government securities. 
B)  encourage banks to provide loans by raising the discount rate. 
C)  encourage banks to provide loans by selling government securities. 
D)  restrict bank lending by selling government securities. 
E)  restrict bank lending by lowering the federal funds rate.

Question 5

What effect does restrictive monetary policy have on short-term real interest rates?

Accepted Answer

A)  Restrictive monetary policy tends to push short-term interest rates upward. 
B)  Restrictive monetary policy tends to push short-term interest rates downward. 
C)  The effect of restrictive monetary policy on short-term interest rates is unpredictable. 
D)  Restrictive monetary policy has no effect on short-term interest rates.

Question 6

The sharp increase in the excess reserves held by the commercial banking system since the second half of 2008 increases the potential for

Accepted Answer

A)  a sharp contraction in the money supply, which is likely to increase the length and severity of the recession. 
B)  a rapid increase in the money supply, potentially leading to inflation. 
C)  a gradual increase in the money supply, following the trend of the previous decade. 
D)  a reduction in the ability of banks to extend additional loans.

Question 7

A shift to a more  expansionary  monetary policy will generally  _________ in the short run, but if the rapid monetary expansion persists, the  long-run result will be  ______.(fill in the blanks.)

Accepted Answer

A)  expand output and employment; inflation 
B)  increase the general level of prices; expand  output and employment 
C)  increase the rate of unemployment; reduce the rate of inflation 
D)  reduce the rate of inflation;  increase the rate of unemployment

Question 8

Why do individuals choose to hold part of their wealth in money rather than in other types of assets? Discuss the benefits and costs of holding money.

Accepted Answer

The answer of Why do individuals choose to hold part...

Question 9

If the Federal Reserve increases its bond purchases, the short-run effects will be

Accepted Answer

A)  an increase in the money supply and lower real interest rates. 
B)  a decrease in the money supply and lower real interest rates. 
C)  an increase in the money supply and higher real interest rates. 
D)  a decrease in the money supply and higher real interest rates.

Question 10

Starting from a position of macroeconomic equilibrium at the full-employment level of real GDP, in the short run an unanticipated increase in the money supply will

Accepted Answer

A)  raise real interest rates, lower prices, and reduce real GDP. 
B)  raise real interest rates, lower prices, and leave real GDP unchanged. 
C)  raise nominal interest rates, lower prices, and leave real GDP unchanged. 
D)  lower real interest rates, raise prices, and increase real GDP.

Question 11

If the Fed unexpectedly shifts to a more expansionary monetary policy, which of the following will most likely occur in the short run?

Accepted Answer

A)  a decrease in the real interest rate 
B)  an increase in unemployment 
C)  a decrease in real GDP 
D)  an increase in the nominal interest rate

Question 12

The quantity of money that households and businesses will demand

Accepted Answer

A)  increases if income falls but decreases if interest rates rise. 
B)  increases if income falls and increases if interest rates rise. 
C)  decreases if income falls but increases if interest rates rise. 
D)  decreases if income falls and decreases if interest rates rise.

Question 13

In response to the severe recession of 2008-2009, the Fed

Accepted Answer

A)  expanded the monetary base and pushed  short-term interest rates sharply higher. 
B)  reduced the size of the monetary base and pushed short-term interest rates sharply higher. 
C)  more than doubled the size of the monetary base and pushed short-term interest rates  to near zero. 
D)  more than doubled the size of the monetary base and pushed short-term interest rates to a historic high.

Question 14

In the long run, the primary effect of rapid monetary growth is

Accepted Answer

A)  lower nominal interest rates. 
B)  reduced unemployment. 
C)  inflation. 
D)  an increase in real output.

Question 15

According to the quantity theory of money, which one of the following economic variables would change in response to an increase in the money supply?

Accepted Answer

A)  prices 
B)  real income 
C)  velocity 
D)  employment

Question 16

Suppose the economy is in long-run equilibrium at the level of potential output. What will be the long-run effect of an expansionary monetary policy?

Accepted Answer

A)  a higher price level 
B)  a higher level of real output 
C)  both a higher price level and a higher level of real output 
D)  a lower price level 
E)  a lower level of real output

Question 17

If the Federal Reserve wanted to expand the money supply in order to increase output, it should

Accepted Answer

A)  sell government bonds, which will increase the money supply; this will cause interest rates to fall and aggregate demand to rise. 
B)  buy government bonds, which will increase the money supply; this will cause interest rates to fall and aggregate demand to rise. 
C)  increase the discount rate, which will raise the market rate of interest; this will cause both costs and prices to rise. 
D)  decrease taxes, which will reduce costs and cause prices to fall.

Question 18

If the Federal Reserve unexpectedly increases the money supply, which of the following will most likely happen in the short run?

Accepted Answer

A)  real GDP will rise. 
B)  real GDP will fall. 
C)  real interest rates will rise. 
D)  the budget deficit will rise.

Question 19

Which one of the following factors would reduce the quantity of money balances that households would want to hold?

Accepted Answer

A)  higher prices 
B)  a rise in inflation 
C)  higher nominal interest rates 
D)  an expansion in nominal income (nominal GDP)

Question 20

Given the strict quantity theory of money, if the quantity of money were decreased by 50 percent, prices would

Accepted Answer

A)  fall by 50 percent. 
B)  rise by 50 percent. 
C)  increase by 100 percent. 
D)  decrease by 100 percent.

Exam 14: Modern Macroeconomics and Monetary Policy

The short run sequence of events following an unanticipated shift to a more restrictive monetary policy would be

What has happened to the ratio of the population age 50 to 75 years divided by the population under age 50 in the high-income industrial countries in recent decades?

Which of the following weakened the demand stimulus effects of the fed's low interest rate policy during the years following the 2008-2009 recession?

If the economy is in an inflationary boom, the Fed would most likely

What effect does restrictive monetary policy have on short-term real interest rates?

The sharp increase in the excess reserves held by the commercial banking system since the second half of 2008 increases the potential for

A shift to a more expansionary monetary policy will generally ___ in the short run, but if the rapid monetary expansion persists, the long-run result will be .(fill in the blanks.)

Why do individuals choose to hold part of their wealth in money rather than in other types of assets? Discuss the benefits and costs of holding money.

If the Federal Reserve increases its bond purchases, the short-run effects will be

Starting from a position of macroeconomic equilibrium at the full-employment level of real GDP, in the short run an unanticipated increase in the money supply will

If the Fed unexpectedly shifts to a more expansionary monetary policy, which of the following will most likely occur in the short run?

The quantity of money that households and businesses will demand

In response to the severe recession of 2008-2009, the Fed

In the long run, the primary effect of rapid monetary growth is

According to the quantity theory of money, which one of the following economic variables would change in response to an increase in the money supply?

Suppose the economy is in long-run equilibrium at the level of potential output. What will be the long-run effect of an expansionary monetary policy?

If the Federal Reserve wanted to expand the money supply in order to increase output, it should

If the Federal Reserve unexpectedly increases the money supply, which of the following will most likely happen in the short run?

Which one of the following factors would reduce the quantity of money balances that households would want to hold?

Given the strict quantity theory of money, if the quantity of money were decreased by 50 percent, prices would

Exam 14: Modern Macroeconomics and Monetary Policy

The short run sequence of events following an unanticipated shift to a more restrictive monetary policy would be

What has happened to the ratio of the population age 50 to 75 years divided by the population under age 50 in the high-income industrial countries in recent decades?

Which of the following weakened the demand stimulus effects of the fed's low interest rate policy during the years following the 2008-2009 recession?

If the economy is in an inflationary boom, the Fed would most likely

What effect does restrictive monetary policy have on short-term real interest rates?

The sharp increase in the excess reserves held by the commercial banking system since the second half of 2008 increases the potential for

A shift to a more expansionary monetary policy will generally _________ in the short run, but if the rapid monetary expansion persists, the long-run result will be ______.(fill in the blanks.)

Why do individuals choose to hold part of their wealth in money rather than in other types of assets? Discuss the benefits and costs of holding money.

If the Federal Reserve increases its bond purchases, the short-run effects will be

Starting from a position of macroeconomic equilibrium at the full-employment level of real GDP, in the short run an unanticipated increase in the money supply will

If the Fed unexpectedly shifts to a more expansionary monetary policy, which of the following will most likely occur in the short run?

The quantity of money that households and businesses will demand

In response to the severe recession of 2008-2009, the Fed

In the long run, the primary effect of rapid monetary growth is

According to the quantity theory of money, which one of the following economic variables would change in response to an increase in the money supply?

Suppose the economy is in long-run equilibrium at the level of potential output. What will be the long-run effect of an expansionary monetary policy?

If the Federal Reserve wanted to expand the money supply in order to increase output, it should

If the Federal Reserve unexpectedly increases the money supply, which of the following will most likely happen in the short run?

Which one of the following factors would reduce the quantity of money balances that households would want to hold?

Given the strict quantity theory of money, if the quantity of money were decreased by 50 percent, prices would

A shift to a more expansionary monetary policy will generally ___ in the short run, but if the rapid monetary expansion persists, the long-run result will be .(fill in the blanks.)