Question 1

Suppose that the demand and supply of money are initially in equilibrium,and that the demand for money increases.A monetary authority interested in keeping the money supply constant and the interest rate low must

Accepted Answer

A)  increase the money supply
B)  decrease the money supply
C)  increase the demand for money
D)  decrease the demand for money
E)  give up pursuing both goals at the same time and choose one or the other

Question 2

For interest rates to remain stable during economic expansions,the growth rate of the money supply should

Accepted Answer

A)  exceed the growth in the demand for money
B)  just match the growth in the demand for money
C)  be less than the growth in the demand for money
D)  be zero
E)  just match the growth in nominal GDP

Question 3

If the price level rises,then the

Accepted Answer

A)  money supply will increase
B)  money supply will decrease
C)  quantity of money supplied will increase
D)  quantity of money supplied will decrease
E)  demand for money will increase

Question 4

The demand for money varies

Accepted Answer

A)  directly with both the price level and the level of real GDP
B)  inversely with both the price level and the level of real GDP
C)  inversely with the price level and directly with the level of real GDP
D)  directly with the price level and inversely with the level of real GDP
E)  inversely with the level of nominal GDP

Question 5

To eliminate a contractionary gap,the Fed can __________ the money supply,which would __________.

Accepted Answer

A)  increase; increase the interest rate and investment
B)  increase; decrease the interest rate and increase investment
C)  decrease; increase the interest rate and investment
D)  decrease; decrease the interest rate and investment
E)  decrease; increase the interest rate and decrease investment

Question 6

When the money supply increases,people get rid of their excess money by buying real assets,such as durable goods.

Accepted Answer

A) True 
 B)False

Question 7

Exhibit 15-7 
-Referring to Exhibit 15-7,a decrease in the interest rate will cause a move from

Accepted Answer

A)  A to B
B)  A to F
C)  A to G
D)  A to C
E)  A to I

Question 8

According to the equation of exchange,if the amount of money in the economy of Monetania times the velocity of money equals 800 million Monetanian dollars ($) ,then Monetania's

Accepted Answer

A)  real GDP equals $800 million
B)  nominal GDP equals $800 million
C)  real GDP equals $800 million times the price level
D)  nominal GDP equals $800 million times the price level
E)  price level equals 8 Monetanian dollars

Question 9

An increase in the interest rate will

Accepted Answer

A)  have no effect on investment,since investment is autonomous
B)  increase investment,since it will be more profitable to hold stocks and bonds
C)  increase investment,since people will be less willing to hold money
D)  decrease investment only if firms have to borrow money to make investments
E)  decrease investment regardless of whether firms have to borrow money to make an investment

Question 10

In an economy in which real output grows at an average rate of 3 percent per year,a 7 percent average rate of growth in the money supply would result in a(n)

Accepted Answer

A)  inflation rate of 4 percent,if velocity were constant
B)  inflation rate of -4 percent,if velocity were constant
C)  $4 increase in the price level per year
D)  $4 decrease in the price level per year
E)  change in the velocity of money

Question 11

In the aggregate demand-aggregate supply model,an increase in the money supply will cause in the short run a(n)

Accepted Answer

A)  increase in both the price level and real GDP
B)  decrease in both the price level and real GDP
C)  increase in real GDP and a decrease in the price level
D)  decrease in real GDP and an increase in the price level
E)  increase in the price level only

Question 12

If the Fed buys bonds,then the money supply

Accepted Answer

A)  increases,the interest rate falls,and the quantity of money demanded increases
B)  falls,the interest rate falls,and the quantity of money demanded increases
C)  increases,the interest rate increases,and the quantity of money demanded increases
D)  falls,the interest rate increases,and the quantity of money demanded falls
E)  falls,the interest rate falls,and the quantity of money demanded falls

Question 13

Which of the following is an example of an expansionary monetary policy?

Accepted Answer

A)  Government purchases of goods and services decline.
B)  The discount rate is increased.
C)  The Fed sells U.S.government securities in the open market.
D)  The required reserve ratio is lowered.
E)  The income tax is lowered.

Question 14

In an economy in which velocity is constant and the same level of real output is produced year after year,a slow increase in the money supply would result in a

Accepted Answer

A)  constant price level
B)  slowly increasing price level
C)  rapidly increasing price level
D)  slowly increasing real GDP
E)  rapidly increasing real GDP

Question 15

Exhibit 15-6 m to Dm' in Exhibit 15-6,the Fed will A) do nothing and the interest rate will rise to i' B) do nothing and the interest rate will settle at i C) decrease the money supply to restore its target of i D) increase the money supply to restore its target of i E) decrease money demand back to Dm to restore its target of i" class="answers-bank-image d-inline" rel="preload" >
-If the Fed is targeting the money supply and the money demand shifts from Dm to Dm' in Exhibit 15-6,the Fed will

Accepted Answer

A)  do nothing and the interest rate will rise to i'
B)  do nothing and the interest rate will settle at i
C)  decrease the money supply to restore its target of i
D)  increase the money supply to restore its target of i
E)  decrease money demand back to Dm to restore its target of i

Question 16

If interest rates are __________ to changes in the money supply and planned investment expenditures are __________ to interest rates,then monetary policy will be __________ in changing Gross Domestic Product.

Accepted Answer

A)  sensitive; sensitive; effective
B)  responsive; insensitive; ineffective
C)  responsive; insensitive; effective
D)  not responsive; sensitive; effective
E)  not responsive; insensitive; effective

Question 17

The steeper the short-run aggregate supply curve,the __________ the change in price level and the __________ the change in real Gross Domestic Product for a given shift in the aggregate demand curve.

Accepted Answer

A)  larger; larger
B)  larger; smaller
C)  smaller; larger
D)  smaller; smaller
E)  real GDP and the price level are not affected by the shape of the aggregate supply curve

Question 18

What is the effect of an expansionary monetary policy on the demand for investment curve?

Accepted Answer

A)  It causes the curve to shift left.
B)  It causes the curve to shift right.
C)  It causes downward movement along the curve.
D)  It causes an upward movement along the curve.
E)  It has no effect on the quantity of investment demanded.

Question 19

When people exchange money for financial assets,the interest rate rises.

Accepted Answer

A) True 
 B)False

Question 20

One of the reasons that the FOMC lowered its target for the federal funds rate in September 2007 was

Accepted Answer

A)  confidence that the fallout from rising mortgage default rates would not spread to the wider economy
B)  the belief that lenders would respond to the housing crisis by loosening lending standards
C)  more easily available credit boosting investment and economic growth
D)  to add liquidity to financial markets and strengthen the economy
E)  All of the answers are correct

Exam 16: Monetary Theory and Policy

If interest rates are __________ to changes in the money supply and planned investment expenditures are __________ to interest rates,then monetary policy will be __________ in changing Gross Domestic Product.

Correct AnswerverifiedShow Answer

In an economy in which velocity is constant and the same level of real output is produced year after year,a slow increase in the money supply would result in a

Correct AnswerverifiedShow Answer

The demand for money varies

Correct AnswerverifiedShow Answer

Which of the following is an example of an expansionary monetary policy?

Correct AnswerverifiedShow Answer

According to the equation of exchange,if the amount of money in the economy of Monetania times the velocity of money equals 800 million Monetanian dollars ($) ,then Monetania's

Correct AnswerverifiedShow Answer

If the Fed buys bonds,then the money supply

Correct AnswerverifiedShow Answer

The steeper the short-run aggregate supply curve,the __________ the change in price level and the __________ the change in real Gross Domestic Product for a given shift in the aggregate demand curve.

Correct AnswerverifiedShow Answer

In an economy in which real output grows at an average rate of 3 percent per year,a 7 percent average rate of growth in the money supply would result in a(n)

Correct AnswerverifiedShow Answer

Suppose that the demand and supply of money are initially in equilibrium,and that the demand for money increases.A monetary authority interested in keeping the money supply constant and the interest rate low must

Correct AnswerverifiedShow Answer

In the aggregate demand-aggregate supply model,an increase in the money supply will cause in the short run a(n)

Correct AnswerverifiedShow Answer

To eliminate a contractionary gap,the Fed can __________ the money supply,which would __________.

Correct AnswerverifiedShow Answer

An increase in the interest rate will

Correct AnswerverifiedShow Answer

When the money supply increases,people get rid of their excess money by buying real assets,such as durable goods.

Correct AnswerverifiedShow Answer

For interest rates to remain stable during economic expansions,the growth rate of the money supply should

Correct AnswerverifiedShow Answer

Exhibit 15-7 -Referring to Exhibit 15-7,a decrease in the interest rate will cause a move from

Correct AnswerverifiedShow Answer

What is the effect of an expansionary monetary policy on the demand for investment curve?

Correct AnswerverifiedShow Answer

One of the reasons that the FOMC lowered its target for the federal funds rate in September 2007 was

Correct AnswerverifiedShow Answer

When people exchange money for financial assets,the interest rate rises.

Correct AnswerverifiedShow Answer

Exhibit 15-6 -If the Fed is targeting the money supply and the money demand shifts from Dm to Dm' in Exhibit 15-6,the Fed will

Correct AnswerverifiedShow Answer

If the price level rises,then the

Correct AnswerverifiedShow Answer

If interest rates are to changes in the money supply and planned investment expenditures are to interest rates,then monetary policy will be __ in changing Gross Domestic Product.

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The steeper the short-run aggregate supply curve,the the change in price level and the the change in real Gross Domestic Product for a given shift in the aggregate demand curve.

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To eliminate a contractionary gap,the Fed can the money supply,which would .

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Exhibit 15-6 -If the Fed is targeting the money supply and the money demand shifts from D_m to D_m' in Exhibit 15-6,the Fed will

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