Question 1

If the Fed increases the money supply,GDP

Accepted Answer

A)  increases because the resulting increase in the interest rate leads to a decrease in investment
B)  increases because the resulting decrease in the interest rate leads to an increase in investment
C)  decreases because the resulting increase in the interest rate leads to a decrease in investment
D)  decreases because the resulting increase in the interest rate leads to an increase in investment
E)  decreases because the resulting decrease in the interest rate leads to an increase in investmentF) B) and D)
G) All of the above

Question 2

The demand for money is based primarily on money's role as a(n)

Accepted Answer

A)  store of wealth
B)  medium of exchange
C)  standard of value
D)  interest-bearing asset
E)  non-interest-bearing assetF) A) and B)
G) A) and C)

Question 3

A decrease in the interest rate will

Accepted Answer

A)  shift the money demand curve to the right
B)  shift the money demand curve to the left
C)  increase the quantity of money people want to hold
D)  decrease the quantity of money people want to hold
E)  have no impact on the money demand curveF) A) and D)
G) A) and C)

Question 4

When the demand for money is shown on a graph,the __________ is on the vertical axis,and the __________ is on the horizontal axis.

Accepted Answer

A)  quantity of money; interest rate
B)  interest rate; quantity of money
C)  real GDP; quantity of money
D)  nominal GDP; quantity of money
E)  price level; quantity of moneyF) D) and E)
G) A) and E)

Question 5

The extent to which a given increase in nominal income is the result of a price level change or a change in real income is primarily determined by

Accepted Answer

A)  the quantity theory of money
B)  the equation of exchange
C)  the slope of the aggregate demand curve
D)  the slope of the short-run aggregate supply curve
E)  none of the aboveF) A) and E)
G) D) and E)

Question 6

Which of the following is not assumed to be constant along the money demand curve?

Accepted Answer

A)  the price level
B)  the interest rate
C)  real GDP
D)  nominal GDP
E)  individual's tastes and preferencesF) B) and E)
G) None of the above

Question 7

As the interest rate decreases,

Accepted Answer

A)  the demand for investment curve shifts to the right
B)  the demand for investment curve shifts to the left
C)  there is a downward movement along the demand for investment curve
D)  there is an upward movement along the demand for investment curve
E)  GDP decreasesF) B) and E)
G) A) and D)

Question 8

The opportunity cost of holding money

Accepted Answer

A)  includes bank service charges
B)  is the interest foregone on potential interest-earning assets
C)  varies inversely with the rate of interest
D)  affects relatively few individuals
E)  is determined exclusively by the FedF) B) and E)
G) A) and B)

Question 9

If the Fed sells U.S.government securities to drain reserves from banks,which of the following will probably occur?

Accepted Answer

A)  The demand for money will increase and the interest rate will rise.
B)  The money supply will increase and the interest rate will fall.
C)  The interest rate will rise and the quantity of money demanded will fall.
D)  The money supply will decrease and the interest rate will fall.
E)  The interest rate will fall and the quantity of money demanded will increase.F) B) and E)
G) A) and B)

Question 10

The Fed's grip is tightest on the

Accepted Answer

A)  prime rate
B)  federal funds rate
C)  mortgage rate
D)  credit card rate
E)  student loan rateF) A) and D)
G) All of the above

Question 11

While monetary targets are important,also significant is what Fed officials have to say.Sometimes reassurance is all that's required to calm market jitters.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements best describes the historical relationship between increases in the money supply (M1) and inflation in the U.S.?

Accepted Answer

A)  All three major episodes of inflation since 1914 were preceded and accompanied by an increase in the growth rate of M1.
B)  There is no strong evidence of any relationship between inflation and increases in the money supply in the 20th century.
C)  Since the formation of the Fed in 1914,there have been no significant periods of inflation
D)  In all three major episodes of inflation since 1914,increases in the growth rate of M1 occurred after the inflation subsided.
E)  There were significant periods of inflation during each decade of the 20th century and each was preceded and accompanied by an increase in the growth rate of M1.F) B) and D)
G) C) and D)

Question 13

Exhibit 15-3 
-In the situation shown in Exhibit 15-3,how could the Fed return the economy to potential output?

Accepted Answer

A)  decrease government spending
B)  decrease excess reserves in the banking system
C)  sell U.S.government bonds to banks
D)  increase the discount rate
E)  lower the required reserve ratioF) All of the above
G) B) and C)

Question 14

Which of the following is the last step in the sequence?

Accepted Answer

A)  A strong dollar relative to foreign currencies hurts U.S.exporters
B)  As the money supply increases,interest rates fall in the short run
C)  The value of the dollar declines
D)  Low U.S.interest rates makes the dollar less attractive to foreign investors
E)  The Fed chooses an expansionary monetary policyF) B) and D)
G) All of the above

Question 15

Exhibit 15-8 1 and the supply by S1.If the Fed raises the reserve requirement,the equilibrium will move from A) A to B B) A to C C) A to E D) A to H E) A to I" class="answers-bank-image d-inline" rel="preload" >
-In Exhibit 15-8,the demand for money is represented by D1 and the supply by S1.If the Fed raises the reserve requirement,the equilibrium will move from

Accepted Answer

A)  A to B
B)  A to C
C)  A to E
D)  A to H
E)  A to IF) A) and B)
G) A) and C)

Question 16

The interest rate that banks charge one another for overnight lending of reserves is the

Accepted Answer

A)  federal funds rate
B)  interbank credit card rate
C)  subprime mortgage rate
D)  prime rate
E)  local funds rateF) B) and C)
G) C) and D)

Question 17

Exhibit 15-7 
-Referring to Exhibit 15-7,a decrease in the level of real GDP will cause a move from

Accepted Answer

A)  A to F
B)  A to B
C)  A to C
D)  A to D
E)  A to HF) B) and D)
G) None of the above

Question 18

There is considerable disagreement about whether the Fed should

Accepted Answer

A)  engage in open market operations
B)  have the power to set reserve requirements
C)  reduce the money supply when the economy is growing
D)  allow banks to invest in the stock market
E)  attempt to control interest rates or should instead attempt to control the money supplyF) A) and E)
G) A) and D)

Question 19

The money demand curve will shift when there is a change in

Accepted Answer

A)  interest rates
B)  velocity
C)  the money supply
D)  the opportunity cost of holding money
E)  nominal GDPF) A) and B)
G) None of the above

Question 20

Exhibit 15-1 M to DM' D) DM to DM* E) C to D" class="answers-bank-image d-inline" rel="preload" >
-Referring to Exhibit 15-1,an increase in the interest rate will cause a move from

Accepted Answer

A)  B to A
B)  A to B
C)  DM to DM'
D)  DM to DM*
E)  C to DF) D) and E)
G) C) and E)

Exam 16: Monetary Theory and Policy

There is considerable disagreement about whether the Fed should

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Which of the following statements best describes the historical relationship between increases in the money supply (M1) and inflation in the U.S.?

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While monetary targets are important,also significant is what Fed officials have to say.Sometimes reassurance is all that's required to calm market jitters.

Correct AnswerverifiedShow Answer

Exhibit 15-8 -In Exhibit 15-8,the demand for money is represented by D1 and the supply by S1.If the Fed raises the reserve requirement,the equilibrium will move from

Correct AnswerverifiedShow Answer

The money demand curve will shift when there is a change in

Correct AnswerverifiedShow Answer

When the demand for money is shown on a graph,the __________ is on the vertical axis,and the __________ is on the horizontal axis.

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Which of the following is not assumed to be constant along the money demand curve?

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Exhibit 15-1 -Referring to Exhibit 15-1,an increase in the interest rate will cause a move from

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As the interest rate decreases,

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The demand for money is based primarily on money's role as a(n)

Correct AnswerverifiedShow Answer

If the Fed increases the money supply,GDP

Correct AnswerverifiedShow Answer

If the Fed sells U.S.government securities to drain reserves from banks,which of the following will probably occur?

Correct AnswerverifiedShow Answer

The extent to which a given increase in nominal income is the result of a price level change or a change in real income is primarily determined by

Correct AnswerverifiedShow Answer

The Fed's grip is tightest on the

Correct AnswerverifiedShow Answer

A decrease in the interest rate will

Correct AnswerverifiedShow Answer

Which of the following is the last step in the sequence?

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Exhibit 15-7 -Referring to Exhibit 15-7,a decrease in the level of real GDP will cause a move from

Correct AnswerverifiedShow Answer

The opportunity cost of holding money

Correct AnswerverifiedShow Answer

The interest rate that banks charge one another for overnight lending of reserves is the

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Exhibit 15-3 -In the situation shown in Exhibit 15-3,how could the Fed return the economy to potential output?

Correct AnswerverifiedShow Answer

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Exhibit 15-8 -In Exhibit 15-8,the demand for money is represented by D₁ and the supply by S₁.If the Fed raises the reserve requirement,the equilibrium will move from

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When the demand for money is shown on a graph,the is on the vertical axis,and the is on the horizontal axis.

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