Question 1

If the Fed reduces the discount rate,which of the following are most likely to result?

Accepted Answer

A)  The money supply curve shifts rightward,and the equilibrium interest rate falls in the money market.
B)  Investment declines,causing the aggregate demand curve to shift leftward,reducing equilibrium real GDP and thus slowing the economy.
C)  Investment rises,causing the aggregate demand curve to shift rightward,increasing equilibrium real GDP and thus accelerating the economy.
D)  Both a.and b.above are correct.
E)  Both a.and c.above are correct.

Question 2

The quantity of money held in response to interest rates is the:

Accepted Answer

A)   transactions motive for holding money.
B)   precautionary motive for holding money.
C)   speculative motive for holding money.
D)   unit-of-account motive for holding money.

Question 3

According to the quantity theory of money,a 10 percent increase in the money supply leads to a 10 percent increase in:

Accepted Answer

A)   velocity.
B)   unemployment.
C)   the price level.
D)   real GDP.

Question 4

If the Federal Reserve increases the money supply,ceteris paribus,the:

Accepted Answer

A)   rate of interest decreases.
B)   rate of interest increases.
C)   rate of interest is unaffected.
D)   Fed sell bonds.

Question 5

According to classical economists,

Accepted Answer

A)   prices are rigid.
B)   both V and Q are variable for an economy in short-run equilibrium.
C)   changes in M cause changes in V.
D)   the velocity of money is constant.

Question 6

Which of the following statements is true?

Accepted Answer

A)   The speculative demand for money at possible interest rates gives the demand for money curve its upward slope.
B)   There is an inverse relationship between the quantity of money demanded and the interest rate.
C)   According to the quantity theory of money, any change in the money supply will have no effect on the price level.
D)   All of the above are true.

Question 7

Which of the following statements is true?

Accepted Answer

A)   The speculative demand for money at possible interest rates gives the demand for money curve its upward slope.
B)   There is an inverse relationship between the quantity of money demanded and the interest rate.
C)   According to the quantity theory of money, any change in the money supply will have no effect on the price level.
D)   All of the above.

Question 8

Which of the following is true?

Accepted Answer

A)   Keynesians advocate increasing the money supply during economic recessions but decreasing the money supply during economic expansions.
B)   Monetarists advocate increasing the money supply by a constant rate year after year.
C)   Keynesians argue that the crowding-out effect is rather insignificant.
D)   Monetarists argue that the crowding-out effect is rather large.
E)   All of the above.

Question 9

If the money supply increases this will cause the interest rate to rise,investment to fall and GDP to fall.

Accepted Answer

A) True 
 B)False

Question 10

A decrease in the money supply:

Accepted Answer

A)   lowers the interest rate, causing a decrease in investment and a decrease in GDP.
B)   lowers the interest rate, causing a decrease in investment and an increase in GDP.
C)   raises the interest rate, causing an increase in investment and a decrease in GDP.
D)   raises the interest rate, causing an increase in investment and an increase in GDP.
E)   raises the interest rate, causing a decrease in investment and a decrease in GDP.

Question 11

When there is an excess demand for money,individuals and businesses will attempt to purchase bonds.

Accepted Answer

A) True 
 B)False

Question 12

Other things being equal,an increase in the rate of interest causes a(n) :

Accepted Answer

A)   upward movement along the demand for money curve.
B)   downward movement along the demand for money curve.
C)   rightward shift of the demand for money curve.
D)   leftward shift of the demand for money curve.

Question 13

Most monetarists favor:

Accepted Answer

A)   frequent changes in the growth rate of the money supply to avoid inflation.
B)   placing the Federal Reserve under the Treasury.
C)   a steady, gradual shrinkage of the money supply.
D)   a constant increase in the money supply year after year equal to the potential annual growth rate in real GDP.

Question 14

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.

Question 15

According to Keynesians,for monetary policy to have a stimulative effect on GDP,a(n) :

Accepted Answer

A)   increase in the money supply lowers the interest rate in order to stimulate higher levels of investment.
B)   increase in the money supply lowers the interest rate in order to lower levels of investment.
C)   decrease in the money supply lowers interest rate in order to stimulate higher levels of investment
D)   decrease in the money supply causes the interest rate to rise in order to stimulate higher levels of investment.
E)   increase in the money supply causes the interest rate to rise in order to stimulate higher levels of investment.

Question 16

Contrast the Keynesian and Monetarist views on the effectiveness of fiscal policy?

Accepted Answer

Keynesians believe the aggregate supply ...

Question 17

The speculative demand for money is the stock of money that people hold to:

Accepted Answer

A)   pay their predictable, everyday expenses.
B)   pay for any unexpected expenses that may occur.
C)   buy stocks, bonds, and other financial assets.
D)   buy the foreign currencies needed to purchase imports.

Question 18

Exhibit 20-2 Money market demand and supply curves
 
-Starting from an equilibrium at E₁ in Exhibit 20-2,a rightward shift of the money supply curve from MS₁ to MS₂ would cause an excess:

Accepted Answer

A)   demand for money, leading people to sell bonds.
B)   supply of money, leading people to buy bonds.
C)   supply of money, leading people to sell bonds.
D)   demand for money, leading people to buy bonds.

Question 19

If the nominal GDP is $500 billion and the money supply is $100 billion,the velocity of money is:

Accepted Answer

A)   500.
B)   5.00
C)   2.50.
D)   0.40.

Question 20

The monetarists totally reject the importance of changes in the money stock as determinants of changes in real GDP,the price level,and employment.

Accepted Answer

A) True 
 B)False

Exam 20: Monetary Policy

Which of the following is true?

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Which of the following statements is true?

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According to classical economists,

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Most monetarists favor:

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The quantity of money held in response to interest rates is the:

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A decrease in the money supply:

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According to the quantity theory of money,a 10 percent increase in the money supply leads to a 10 percent increase in:

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Contrast the Keynesian and Monetarist views on the effectiveness of fiscal policy?

Correct AnswerverifiedKeynesians believe the aggregate supply ...View AnswerShow Answer

Exhibit 20-2 Money market demand and supply curves -Starting from an equilibrium at E₁ in Exhibit 20-2,a rightward shift of the money supply curve from MS₁ to MS₂ would cause an excess:

Correct AnswerverifiedShow Answer

According to Keynesians,for monetary policy to have a stimulative effect on GDP,a(n) :

Correct AnswerverifiedShow Answer

The speculative demand for money is the stock of money that people hold to:

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If the Federal Reserve increases the money supply,ceteris paribus,the:

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

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When there is an excess demand for money,individuals and businesses will attempt to purchase bonds.

Correct AnswerverifiedShow Answer

If the money supply increases this will cause the interest rate to rise,investment to fall and GDP to fall.

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Which of the following statements is true?

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If the nominal GDP is $500 billion and the money supply is $100 billion,the velocity of money is:

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Other things being equal,an increase in the rate of interest causes a(n) :

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The monetarists totally reject the importance of changes in the money stock as determinants of changes in real GDP,the price level,and employment.

Correct AnswerverifiedShow Answer

If the Fed reduces the discount rate,which of the following are most likely to result?

Correct AnswerverifiedShow Answer

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Keynesians believe the aggregate supply ...
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