Question 1

Policy makers have adequate information to know what appropriate monetary policies to adopt.

Accepted Answer

A) True 
 B)False

Question 2

The interest rate that the Fed currently targets is the federal funds rate.

Accepted Answer

A) True 
 B)False

Question 3

The supply-of-money curve is almost perfectly inelastic because:

Accepted Answer

A) ​as interest rates rise, people will want to be supplied with more loans. 
B) ​the Fed makes more money available in response to higher interest rates. 
C) ​banks generally find loans more profitable than keeping their assets as cash in their vaults or reserve deposits at the Fed, whether interest rates are 4% or 10%. 
D) ​the Fed lowers the discount rate as interest rates rise.

Question 4

In the long run, inflation results from increases in a nation's money supply that exceed increases in its output of goods and services.

Accepted Answer

A) True 
 B)False

Question 5

When Fed policy is being used to offset an inflationary gap, which of interest rates, investment, net exports and aggregate demand moves in the opposite direction from the others?​

Accepted Answer

A) ​Aggregate demand. 
B) ​Investment. 
C) ​Net Exports. 
D) ​Interest rates.

Question 6

When the Fed unexpectedly increases the money supply, it will cause an increase in aggregate demand because:​

Accepted Answer

A) ​real interest rates will fall, stimulating business investment and consumer purchases. 
B) ​the dollar will depreciate on the foreign exchange market, leading to an increase in net exports. 
C) ​lower interest rates will tend to increase asset prices, which increases wealth and thereby stimulates current consumption. 
D) ​of all the above reasons.

Question 7

If M increases faster than V decreases:

Accepted Answer

A) ​nominal GDP increases. 
B) ​nominal GDP decreases. 
C) ​nominal GDP stays the same. 
D) ​there is an indeterminate effect on nominal GDP.

Question 8

During the sixteenth century, Spanish conquistadors like Hernando Cortes overwhelmed the Aztecs and other indigenous peoples in America by pillaging their cities, and taking their gold and silver. The gold and silver was sent back to Spain, causing its money supply to increase tenfold. Assuming V remained stable and Q increased slightly, what do you think happened to prices in Spain during this period?

Accepted Answer

The answer of During the sixteenth century, Spanish conquistadors like...

Question 9

In the equation of exchange, an increase in M of 8 percent could be accompanied by changes in velocity, the price level and real GDP of:​

Accepted Answer

A) ​0%, 4%, 4%. 
B) ​0%, 8%, 0%. 
C) ​0%, 0%, 8%. 
D) ​all of the above

Question 10

If the monetary authorities persistently expand the money supply at a rapid rate, the probable result will be:​

Accepted Answer

A) ​inflation. 
B) ​low nominal interest rates. 
C) ​rapid growth of real GDP. 
D) ​all of the above.

Question 11

The Fed sometimes works to partly offset or even neutralize the effects of fiscal policy with monetary policy

Accepted Answer

A) True 
 B)False

Question 12

What effects does operating in an open economy add to expansionary monetary policy? To contractionary monetary policy?​

Accepted Answer

The answer of What effects does operating in an open...

Question 13

If there is currently a recessionary gap in the economy the Fed could work toward recovery by increasing the money supply and decreasing the interest rate.

Accepted Answer

A) True 
 B)False

Question 14

When the Fed is pursuing expansionary monetary policy it will tend to reduce the demand for the dollar and increase net exports, other things equal.​

Accepted Answer

A) True 
 B)False

Question 15

If the demand for money increases, but the Fed keeps the money supply the same:

Accepted Answer

A) ​nominal interest rates will rise and aggregate demand will fall. 
B) ​nominal interest rates will rise and aggregate demand will rise. 
C) ​nominal interest rates will fall and aggregate demand will fall. 
D) ​nominal interest rates will fall and aggregate demand will rise.

Question 16

The Fed would engage in ____ it wanted to address an inflationary gap.

Accepted Answer

A) ​expansionary monetary policy 
B) ​contractionary monetary policy 
C) ​contractionary fiscal policy 
D) ​expansionary fiscal policy

Question 17

Based on the situation depicted in the graph below, which of the following would be an appropriate monetary policy response?​

Accepted Answer

A) ​decrease reserve requirements 
B) ​decrease the discount rate 
C) ​buy government bonds 
D) ​none of the above

Question 18

The steeper the short-run aggregate supply curve over the relevant range, the more contractionary monetary policy will reduce prices and the less it will decrease real output.

Accepted Answer

A) True 
 B)False

Question 19

An expansionary monetary policy is likely to increase real output more than just temporarily:​

Accepted Answer

A) ​when actual output currently is beyond the economy's long-run capacity. 
B) ​when the economy currently is at full employment. 
C) ​when the economy currently operates at less than capacity. 
D) ​at virtually any output level.

Question 20

When the money supply decreases, other things being equal,​

Accepted Answer

A) ​real interest rates fall and investment spending rises. 
B) ​real interest rates fall and investment spending falls. 
C) ​real interest rates rise and investment spending falls. 
D) ​real interest rates rise and investment spending rises.

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

Policy makers have adequate information to know what appropriate monetary policies to adopt.

The interest rate that the Fed currently targets is the federal funds rate.

The supply-of-money curve is almost perfectly inelastic because:

In the long run, inflation results from increases in a nation's money supply that exceed increases in its output of goods and services.

When Fed policy is being used to offset an inflationary gap, which of interest rates, investment, net exports and aggregate demand moves in the opposite direction from the others?​

When the Fed unexpectedly increases the money supply, it will cause an increase in aggregate demand because:​

If M increases faster than V decreases:

In the equation of exchange, an increase in M of 8 percent could be accompanied by changes in velocity, the price level and real GDP of:​

If the monetary authorities persistently expand the money supply at a rapid rate, the probable result will be:​

The Fed sometimes works to partly offset or even neutralize the effects of fiscal policy with monetary policy

What effects does operating in an open economy add to expansionary monetary policy? To contractionary monetary policy?​

If there is currently a recessionary gap in the economy the Fed could work toward recovery by increasing the money supply and decreasing the interest rate.

When the Fed is pursuing expansionary monetary policy it will tend to reduce the demand for the dollar and increase net exports, other things equal.​

If the demand for money increases, but the Fed keeps the money supply the same:

The Fed would engage in ____ it wanted to address an inflationary gap.

Based on the situation depicted in the graph below, which of the following would be an appropriate monetary policy response?​

The steeper the short-run aggregate supply curve over the relevant range, the more contractionary monetary policy will reduce prices and the less it will decrease real output.

An expansionary monetary policy is likely to increase real output more than just temporarily:​

When the money supply decreases, other things being equal,​

When Fed policy is being used to offset an inflationary gap, which of interest rates, investment, net exports and aggregate demand moves in the opposite direction from the others?

When the Fed unexpectedly increases the money supply, it will cause an increase in aggregate demand because:

In the equation of exchange, an increase in M of 8 percent could be accompanied by changes in velocity, the price level and real GDP of:

If the monetary authorities persistently expand the money supply at a rapid rate, the probable result will be:

What effects does operating in an open economy add to expansionary monetary policy? To contractionary monetary policy?

When the Fed is pursuing expansionary monetary policy it will tend to reduce the demand for the dollar and increase net exports, other things equal.

Based on the situation depicted in the graph below, which of the following would be an appropriate monetary policy response?

An expansionary monetary policy is likely to increase real output more than just temporarily:

When the money supply decreases, other things being equal,