Question 1

Monetary stimulus will fail if

Accepted Answer

A)  Banks are reluctant to lend money.
B)  The investment demand curve is fairly flat.
C)  The money demand curve is fairly steep.
D)  Consumers begin to spend more.

Question 2

Which of the following groups believes monetary policy to be effective for fighting inflation but not for changing real output?

Accepted Answer

A)  Keynesian economists.
B)  Classical economists.
C)  Monetarists.
D)  Neo-Keynesian economists.

Question 3

Which of the following is less sensitive to interest rate changes?

Accepted Answer

A)  The residential housing market.
B)  Food and other household items.
C)  Utility industries.
D)  State and local finances.

Question 4

Money held for making everyday market purchases represents the

Accepted Answer

A)  Crisis demand for money.
B)  Speculative demand for money.
C)  Transactions demand for money.
D)  Precautionary demand for money.

Question 5

Ceteris paribus,the quantities of money people are willing and able to hold

Accepted Answer

A)  Decrease as interest rates fall.
B)  Increase as interest rates fall.
C)  Increase as the money supply decreases.
D)  Decrease when the speculative demand increases.

Question 6

The money supply curve as determined by current Federal Reserve policy is

Accepted Answer

A)  Vertical since it's not determined by the interest rate.
B)  Horizontal since it's not determined by the interest rate.
C)  Upward-sloping to the right.
D)  Downward-sloping to the right.

Question 7

Keynes believed that monetary stimulus would be ineffective during a recession because of all of the following except

Accepted Answer

A)  The liquidity trap.
B)  Low expectations.
C)  The reluctance of banks to lend.
D)  The willingness of consumers to increase consumption when interest rates fall.

Question 8

According to Bernanke's policy guide,a 1/4 point decrease in long-term interest rates results in a

Accepted Answer

A)  $10 billion stimulus for the economy.
B)  $50 billion stimulus for the economy.
C)  $10 billion decrease for the economy.
D)  $50 billion decrease for the economy.

Question 9

A monetary stimulus is designed to shift the

Accepted Answer

A)  AS curve to the right.
B)  AS curve to the left.
C)  AD curve to the right.
D)  AD curve to the left.

Question 10

If the real rate of interest is negative,then,ceteris paribus,

Accepted Answer

A)  The nominal interest rate is negative.
B)  Monetary policy is tight.
C)  The nominal interest rate is less than the anticipated inflation rate.
D)  The inflation rate is negative.

Question 11

Assuming the aggregate supply curve is vertical,which of the following is most likely to occur if the Fed pursues expansionary monetary policy?

Accepted Answer

A)  The equilibrium price level and output will both increase.
B)  The equilibrium price level and output will both decrease.
C)  The equilibrium price level will increase but output will stay the same.
D)  The equilibrium output will increase but the price level will stay the same.

Question 12

When monetary policy reduces interest rates,

Accepted Answer

A)  The income for retired people increases.
B)  Income is redistributed from lenders to borrowers.
C)  The construction industry is negatively impacted.
D)  The money supply curve decreases.

Question 13

The federal funds rate is the interest rate for

Accepted Answer

A)  Reserves borrowed from the Fed.
B)  Money lent to a bank's best business customers.
C)  Reserves lent by banks to the Fed.
D)  Interbank reserve loans.

Question 14

An increase in the money supply will

Accepted Answer

A)  Reduce interest rates and increase aggregate demand.
B)  Reduce interest rates and decrease aggregate demand.
C)  Raise interest rates and increase aggregate demand.
D)  Raise interest rates and decrease aggregate demand.

Question 15

Monetary stimulus may be ineffective if

Accepted Answer

A)  The investment demand curve is inelastic.
B)  Expectations of a boom cause the investment demand curve to shift to the right,offsetting interest rate effects that would stimulate the economy.
C)  The investment demand curve is horizontal.
D)  People usually respond to lower interest rates by consuming more goods and services.

Question 16

In which of the following situations is expansionary monetary policy most effective?

Accepted Answer

A)  The Fed raises the reserve requirement.
B)  The Fed raises the discount rate.
C)  The Fed sells more securities.
D)  Banks are willing to lend excess reserves.

Question 17

Using the equation of exchange and assuming full employment and a constant velocity of money,a decrease in the required reserve ratio would result in a

Accepted Answer

A)  Lower velocity.
B)  Lower quantity of real output.
C)  Higher price level.
D)  Lower price level.

Question 18

Refer to Figure 15.7.Suppose the money supply decreases.This will cause interest rates to ________ and cause a shift from point ________.

Accepted Answer

A)  increase;A to point B
B)  decrease;B to point A
C)  increase;A to point D
D)  decrease;C to point D

Question 19

The normal market demand curve for money is

Accepted Answer

A)  A horizontal curve at very high interest rates,where the quantity demanded changes but the interest rate is constant.
B)  An upward-sloping demand curve,where more money is held when interest rates are higher.
C)  A vertical demand curve,where the same amount of money is held regardless of the interest rate.
D)  A downward-sloping demand curve,where more money is held at lower interest rates.

Question 20

The liquidity trap exists because the lower portion of the money demand curve is horizontal.

Accepted Answer

A) True 
 B)False

Exam 15: Monetary Policy

Ceteris paribus,the quantities of money people are willing and able to hold

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In which of the following situations is expansionary monetary policy most effective?

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Which of the following is less sensitive to interest rate changes?

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If the real rate of interest is negative,then,ceteris paribus,

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Assuming the aggregate supply curve is vertical,which of the following is most likely to occur if the Fed pursues expansionary monetary policy?

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The normal market demand curve for money is

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Using the equation of exchange and assuming full employment and a constant velocity of money,a decrease in the required reserve ratio would result in a

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Monetary stimulus will fail if

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An increase in the money supply will

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When monetary policy reduces interest rates,

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Which of the following groups believes monetary policy to be effective for fighting inflation but not for changing real output?

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According to Bernanke's policy guide,a 1/4 point decrease in long-term interest rates results in a

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Keynes believed that monetary stimulus would be ineffective during a recession because of all of the following except

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A monetary stimulus is designed to shift the

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Money held for making everyday market purchases represents the

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The liquidity trap exists because the lower portion of the money demand curve is horizontal.

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Refer to Figure 15.7.Suppose the money supply decreases.This will cause interest rates to ________ and cause a shift from point ________.

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Monetary stimulus may be ineffective if

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The federal funds rate is the interest rate for

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The money supply curve as determined by current Federal Reserve policy is

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Refer to Figure 15.7.Suppose the money supply decreases.This will cause interest rates to and cause a shift from point .

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