Question 1

The Fed can change the equilibrium rate of interest by changing

Accepted Answer

A)  Government spending.
B)  Taxes.
C)  Reserve requirements or the discount rate,or through open market operations.
D)  Tariffs.

Question 2

According to Figure 15.5,the liquidity trap occurs at an interest rate of

Accepted Answer

A)  8 percent only.
B)  2 percent only.
C)  2 percent and 4 percent.
D)  2 percent,4 percent,6 percent,and 8 percent.

Question 3

The effectiveness of monetary policy is influenced by

Accepted Answer

A)  The time it takes for lower interest rates to make investment spending more profitable.
B)  The willingness of Congress to implement it.
C)  How responsive the money supply is to changes in taxes.
D)  Reports by the Congressional Budget Office.

Question 4

Because monetarists believe that output is sensitive to changes in the money supply,they recommend that the money supply be allowed to grow at a steady and predictable rate.

Accepted Answer

A) True 
 B)False

Question 5

Ceteris paribus,if the Fed sells bonds through open market operations,the money

Accepted Answer

A)  Supply curve should shift rightward.
B)  Supply curve should shift leftward.
C)  Demand curve should shift rightward.
D)  Demand curve should shift leftward.

Question 6

All of the following impact the effectiveness of Fed policy except

Accepted Answer

A)  Global sources of money.
B)  The time lag between when interest rates change and when investment changes.
C)  Trade Unions.
D)  Expectations about the economy in the future.

Question 7

1 to AD2 except A) Buying bonds in the open market. B) Lowering the reserve requirement. C) Lowering the federal funds rate. D) Raising the discount rate." class="answers-bank-image d-inline" rel="preload" > Refer to Figure 15.6.All of the following Fed actions are likely to increase the aggregate demand curve from AD1 to AD2 except

Accepted Answer

A)  Buying bonds in the open market.
B)  Lowering the reserve requirement.
C)  Lowering the federal funds rate.
D)  Raising the discount rate.

Question 8

Name and explain the three reasons for holding money balances.

Accepted Answer

One reason to hold money balances is to ...

Question 9

Monetary stimulus will fail if

Accepted Answer

A)  Banks lend too much money.
B)  Short-term interest rates are affected but long-term interest rates are not.
C)  Consumers spend too much money,creating a shortage of money.
D)  Lower interest rates cause households to not refinance mortgages and not apply for new consumer loans.

Question 10

A horizontal aggregate supply curve causes higher inflation,rather than higher output,to result from increases in the money supply.

Accepted Answer

A) True 
 B)False

Question 11

The choice to hold money in the form of cash

Accepted Answer

A)  Has no opportunity cost.
B)  Results in forgone interest.
C)  Results in increased interest income.
D)  Results in greater outstanding debt.

Question 12

A decrease in aggregate demand could be caused by

Accepted Answer

A)  A decrease in the value of the domestic currency.
B)  A booming economy.
C)  Contractionary monetary policy.
D)  Expansionary monetary policy.

Question 13

According to monetarists,the aggregate supply curve is

Accepted Answer

A)  Upward-sloping to the right.
B)  Vertical at the natural rate of unemployment.
C)  Flat until full employment is reached.
D)  Flat.

Question 14

One In the News article titled "Fed to Expand Bond-Purchase Program" suggests that interest rates

Accepted Answer

A)  Will rise to encourage less borrowing for home mortgages and other loans.
B)  Will rise to encourage more savings.
C)  Will fall to encourage more borrowing for home mortgages and other loans.
D)  Decrease aggregate supply.

Question 15

Regarding the equation of exchange,all of the following are true according to monetarists except

Accepted Answer

A)  A reduction in M can leave real output unaffected.
B)  The velocity of money is stable.
C)  Changes in M may cause changes in P.
D)  In reality,MV does not always equal PQ but it is still incredibly useful.

Question 16

The cost of holding money in the form of cash is

Accepted Answer

A)  Negative.
B)  Always considered by noneconomists when deciding how much money to hold.
C)  Equal to whatever interest you would have received at the bank or other investment alternatives.
D)  Nonexistent.

Question 17

The liquidity trap illustrated in Figure 15.5 is the result of a

Accepted Answer

A)  Low opportunity cost of money.
B)  Low demand for cash at low interest rates.
C)  Fed ceiling on interest rates.
D)  Currency that is not serving its function as a store of value.

Question 18

Which of the following is true about monetary policy in the liquidity trap?

Accepted Answer

A)  Monetary policy will be unable to reduce interest rates further to stimulate investment.
B)  The opportunity cost of holding money is relatively high at interest rates implied by the liquidity trap.
C)  An expansion of the money supply will have the large effect of raising interest rates when the economy is in the liquidity trap.
D)  The demand for money is interest-inelastic in the liquidity trap.

Question 19

Which shift should occur if the Fed raises the discount rate?

Accepted Answer

A)  The investment demand curve should shift rightward.
B)  The aggregate supply curve should shift rightward.
C)  The aggregate demand curve should shift leftward.
D)  The aggregate demand curve should shift rightward.

Question 20

The equilibrium rate of interest is determined by

Accepted Answer

A)  Money demand and money supply.
B)  The U.S.Treasury.
C)  The president of the Federal Reserve Bank of New York.
D)  The Federal Closed Market Committee.

Exam 15: Monetary Policy

Monetary stimulus will fail if

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The choice to hold money in the form of cash

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The liquidity trap illustrated in Figure 15.5 is the result of a

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Ceteris paribus,if the Fed sells bonds through open market operations,the money

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According to Figure 15.5,the liquidity trap occurs at an interest rate of

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Name and explain the three reasons for holding money balances.

Correct AnswerverifiedOne reason to hold money balances is to ...View AnswerShow Answer

According to monetarists,the aggregate supply curve is

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The equilibrium rate of interest is determined by

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The Fed can change the equilibrium rate of interest by changing

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One In the News article titled "Fed to Expand Bond-Purchase Program" suggests that interest rates

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Which shift should occur if the Fed raises the discount rate?

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Which of the following is true about monetary policy in the liquidity trap?

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A decrease in aggregate demand could be caused by

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All of the following impact the effectiveness of Fed policy except

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The cost of holding money in the form of cash is

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A horizontal aggregate supply curve causes higher inflation,rather than higher output,to result from increases in the money supply.

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Refer to Figure 15.6.All of the following Fed actions are likely to increase the aggregate demand curve from AD1 to AD2 except

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Regarding the equation of exchange,all of the following are true according to monetarists except

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The effectiveness of monetary policy is influenced by

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Because monetarists believe that output is sensitive to changes in the money supply,they recommend that the money supply be allowed to grow at a steady and predictable rate.

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One reason to hold money balances is to ...
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Refer to Figure 15.6.All of the following Fed actions are likely to increase the aggregate demand curve from AD₁ to AD₂except

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