Question 1

International data for 1970-2015 show that monetary neutrality occurs only in wealthy countries.

Accepted Answer

A) True 
 B)False

Question 2

Given a recessionary gap, the Federal Reserve will use monetary policy to _____ real GDP and _____ aggregate demand.

Accepted Answer

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

Question 3

The demand for money is higher in Japan than in the United States because:

Accepted Answer

A)   telecommunications and information technology is more advanced in the United States than in Japan.
B)   Japanese consumers use credit cards more than people in the United States.
C)   Japanese interest rates are higher than those in the United States.
D)   Japanese interest rates are lower than those in the United States.

Question 4

If Congress imposes a $5 tax on each ATM transaction, the demand for money will likely:

Accepted Answer

A)   increase.
B)   decrease.
C)   fluctuate randomly.
D)   be unaffected.

Question 5

Scenario: Money and Interest Rates Banks decide to do away with fees charged when other banks' customers use the bank's own ATM. The demand for money will _____, and the supply of money will _____.

Accepted Answer

A)   increase; not change
B)   increase; decrease
C)   decrease; not change
D)   decrease; increase

Question 6

In the income-expenditure model, contractionary monetary policy leads to _____ interest rates, a(n)  _____ in planned investment spending, and a(n)  _____ in equilibrium GDP.

Accepted Answer

A)   lower; increase; increase
B)   lower; decrease; decrease
C)   higher; increase; increase
D)   higher; decrease; decrease

Question 7

If the economy is at potential output and the Fed increases the money supply, in the short run interest rates will likely:

Accepted Answer

A)   increase.
B)   decrease.
C)   remain constant.
D)   fluctuate randomly.

Question 8

Use the following to answer questions:
Figure: Short-Run Determination of the Interest Rate 1 and the central bank buys Treasury bills, then the resulting short-run shift in the supply of savings (loanable funds)  may be represented by a shift of the: A)  money supply curve to MS2, which raises the interest rate. B)  supply of loanable funds from S1 to S2, which lowers the interest rate. C)  supply of loanable funds from S2 to S1, which raises the interest rate. D)  interest rate from r2 to r1." class="answers-bank-image d-inline" rel="preload" >
-(Figure: Short-Run Determination of the Interest Rate)  Refer to Figure: Short-Run Determination of the Interest Rate. If the money supply is at MS1 and the central bank buys Treasury bills, then the resulting short-run shift in the supply of savings (loanable funds)  may be represented by a shift of the:

Accepted Answer

A)   money supply curve to MS2, which raises the interest rate.
B)   supply of loanable funds from S1 to S2, which lowers the interest rate.
C)   supply of loanable funds from S2 to S1, which raises the interest rate.
D)   interest rate from r2 to r1.

Question 9

Use the following to answer questions:
Figure: Monetary Policy and the AD-SRAS Model 
-(Figure: Monetary Policy and the AD-SRAS Model)  Refer to Figure: Monetary Policy and the AD-SRAS Model. The economy could move from point g to point f as a result of:

Accepted Answer

A)   an increase in the money supply.
B)   a reduction in the discount rate.
C)   a decrease in the money supply.
D)   purchases of government securities in the open market.

Question 10

In the short run, changes in the money supply change the interest rate, but in the long run, changes in the money supply have no effect on interest rates.

Accepted Answer

A) True 
 B)False

Question 11

The appropriate monetary policy to stabilize the economy during a recession is an expansionary policy.

Accepted Answer

A) True 
 B)False

Question 12

Which statement describes the difference between the Taylor rule and inflation targeting?

Accepted Answer

A)   The Federal Reserve uses inflation targeting, and the Bank of England uses the Taylor rule.
B)   The Taylor rule responds to past inflation, and inflation targeting is based on a forecast of inflation.
C)   Inflation targeting responds to past inflation, and the Taylor rule is based on a forecast of inflation.
D)   Inflation targeting is used in conducting fiscal policy, while the Taylor rule is used in monetary policy.

Question 13

The liquidity preference model uses the demand for and supply of money to determine:

Accepted Answer

A)   GDP.
B)   the price level.
C)   the interest rate.
D)   nominal output.

Question 14

The interest rate is determined in the loanable funds market in the short run.

Accepted Answer

A) True 
 B)False

Question 15

In the long run, changes in the money supply change prices but not real output and interest rates.

Accepted Answer

A) True 
 B)False

Question 16

The Federal Open Market Committee sets the target interest rate for the next:

Accepted Answer

A)   three months.
B)   six months.
C)   three weeks.
D)   six weeks.

Question 17

The money demand curve is _____ because a lower interest rate _____ the opportunity cost of holding money.

Accepted Answer

A)   upward sloping; increases
B)   downward sloping; increases
C)   upward sloping; decreases
D)   downward sloping; decreases

Question 18

Expansionary monetary policy causes _____ in interest rates in the short run and _____ in interest rates in the long run.

Accepted Answer

A)   a fall; no change
B)   a fall; a fall
C)   no change; a fall
D)   no change; no change

Question 19

According to the loanable funds model, in the short run, expansionary monetary policy:

Accepted Answer

A)   increases the supply of loanable funds.
B)   increases the demand for loanable funds.
C)   increases the quantity of loanable funds supplied.
D)   has no effect on the supply of loanable funds.

Question 20

If the money supply decreases by 10%, the aggregate price level will remain constant in the long run.

Accepted Answer

A) True 
 B)False

Exam 15: Monetary Policy

The liquidity preference model uses the demand for and supply of money to determine:

Correct Answer
verified

In the short run, changes in the money supply change the interest rate, but in the long run, changes in the money supply have no effect on interest rates.

Correct Answer
verified

Scenario: Money and Interest Rates Banks decide to do away with fees charged when other banks' customers use the bank's own ATM. The demand for money will _, and the supply of money will _.

Correct Answer
verified

Correct Answer
verified

If Congress imposes a $5 tax on each ATM transaction, the demand for money will likely:

Correct Answer
verified

If the money supply decreases by 10%, the aggregate price level will remain constant in the long run.

Correct Answer
verified

If the economy is at potential output and the Fed increases the money supply, in the short run interest rates will likely:

Correct Answer
verified

The Federal Open Market Committee sets the target interest rate for the next:

Correct Answer
verified

Given a recessionary gap, the Federal Reserve will use monetary policy to _ real GDP and _ aggregate demand.

Correct Answer
verified

Expansionary monetary policy causes _ in interest rates in the short run and _ in interest rates in the long run.

Correct Answer
verified

In the income-expenditure model, contractionary monetary policy leads to ___ interest rates, a(n) _ in planned investment spending, and a(n) ___ in equilibrium GDP.

Correct Answer
verified

International data for 1970-2015 show that monetary neutrality occurs only in wealthy countries.

Correct Answer
verified

The demand for money is higher in Japan than in the United States because:

Correct Answer
verified

The appropriate monetary policy to stabilize the economy during a recession is an expansionary policy.

Correct Answer
verified

Which statement describes the difference between the Taylor rule and inflation targeting?

Correct Answer
verified

The money demand curve is _ because a lower interest rate _ the opportunity cost of holding money.

Correct Answer
verified

In the long run, changes in the money supply change prices but not real output and interest rates.

Correct Answer
verified

The interest rate is determined in the loanable funds market in the short run.

Correct Answer
verified

Use the following to answer questions: Figure: Monetary Policy and the AD-SRAS Model -(Figure: Monetary Policy and the AD-SRAS Model) Refer to Figure: Monetary Policy and the AD-SRAS Model. The economy could move from point g to point f as a result of:

Correct Answer
verified

According to the loanable funds model, in the short run, expansionary monetary policy:

Correct Answer
verified

Exam 15: Monetary Policy

The liquidity preference model uses the demand for and supply of money to determine:

Correct AnswerverifiedShow Answer

In the short run, changes in the money supply change the interest rate, but in the long run, changes in the money supply have no effect on interest rates.

Correct AnswerverifiedShow Answer

Scenario: Money and Interest Rates Banks decide to do away with fees charged when other banks' customers use the bank's own ATM. The demand for money will _____, and the supply of money will _____.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If Congress imposes a $5 tax on each ATM transaction, the demand for money will likely:

Correct AnswerverifiedShow Answer

If the money supply decreases by 10%, the aggregate price level will remain constant in the long run.

Correct AnswerverifiedShow Answer

If the economy is at potential output and the Fed increases the money supply, in the short run interest rates will likely:

Correct AnswerverifiedShow Answer

The Federal Open Market Committee sets the target interest rate for the next:

Correct AnswerverifiedShow Answer

Given a recessionary gap, the Federal Reserve will use monetary policy to _____ real GDP and _____ aggregate demand.

Correct AnswerverifiedShow Answer

Expansionary monetary policy causes _____ in interest rates in the short run and _____ in interest rates in the long run.

Correct AnswerverifiedShow Answer

In the income-expenditure model, contractionary monetary policy leads to _____ interest rates, a(n) _____ in planned investment spending, and a(n) _____ in equilibrium GDP.

Correct AnswerverifiedShow Answer

International data for 1970-2015 show that monetary neutrality occurs only in wealthy countries.

Correct AnswerverifiedShow Answer

The demand for money is higher in Japan than in the United States because:

Correct AnswerverifiedShow Answer

The appropriate monetary policy to stabilize the economy during a recession is an expansionary policy.

Correct AnswerverifiedShow Answer

Which statement describes the difference between the Taylor rule and inflation targeting?

Correct AnswerverifiedShow Answer

The money demand curve is _____ because a lower interest rate _____ the opportunity cost of holding money.

Correct AnswerverifiedShow Answer

In the long run, changes in the money supply change prices but not real output and interest rates.

Correct AnswerverifiedShow Answer

The interest rate is determined in the loanable funds market in the short run.

Correct AnswerverifiedShow Answer

Use the following to answer questions: Figure: Monetary Policy and the AD-SRAS Model -(Figure: Monetary Policy and the AD-SRAS Model) Refer to Figure: Monetary Policy and the AD-SRAS Model. The economy could move from point g to point f as a result of:

Correct AnswerverifiedShow Answer

According to the loanable funds model, in the short run, expansionary monetary policy:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Scenario: Money and Interest Rates Banks decide to do away with fees charged when other banks' customers use the bank's own ATM. The demand for money will _, and the supply of money will _.

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Given a recessionary gap, the Federal Reserve will use monetary policy to _ real GDP and _ aggregate demand.

Correct Answer
verified

Expansionary monetary policy causes _ in interest rates in the short run and _ in interest rates in the long run.

Correct Answer
verified

In the income-expenditure model, contractionary monetary policy leads to ___ interest rates, a(n) _ in planned investment spending, and a(n) ___ in equilibrium GDP.

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The money demand curve is _ because a lower interest rate _ the opportunity cost of holding money.

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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