Question 1

The Keynesian viewpoint is that the investment curve is highly responsive to the changes in the rate of interest.

Accepted Answer

A) True 
 B)False

Question 2

If the Fed wants to raise interest rates, then it can use its open market operations to:

Accepted Answer

A)  increase the money supply.
B)  decrease the money supply.
C)  increase money demand.
D)  decrease money demand.

Question 3

If people attempt to sell bonds because of excess money demand, then the interest rate will:

Accepted Answer

A)  rise.
B)  fall.
C)  remain unchanged
D)  react unpredictably.

Question 4

Other things being equal, the quantity of money that people wish to hold in currency and their checking accounts can be expected to:

Accepted Answer

A)  increase as the interest rate increases.
B)  decrease as the interest rate increases.
C)  decrease as real GDP increases.
D)  none of these.

Question 5

According to monetarists, which of the following would be most important for the control of inflation?

Accepted Answer

A)  a steady increase in federal expenditures
B)  the imposition of price controls
C)  keeping the growth rate of the money supply low and steady
D)  a steady increase in the size of the budget deficit

Question 6

A decrease in the interest rate, other things being equal, causes a(n) :

Accepted Answer

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

Question 7

Classical economists traditionally believed that:

Accepted Answer

A)  there are three motives for demanding money.
B)  a change in the money supply can affect real GDP.
C)  the transactions demand for money influences the velocity of money.
D)  the velocity of money is constant.
E)  the economy does not always operate at full employment.

Question 8

The downward slope of the demand for money curve is created by the:

Accepted Answer

A)  transactions demand for money.
B)  precautionary demand for money.
C)  speculative demand for money.
D)  all of these.

Question 9

The quantity theory of money of the Classical economists says that a change in the money supply will produce a:

Accepted Answer

A)  proportional change in the price level.
B)  greater than proportional change in the price level.
C)  less than proportional change in the price level.
D)  wide variation in the velocity of money.

Question 10

The transmission mechanism is the effect of changes in monetary policy on prices, real GDP, and employment.

Accepted Answer

A) True 
 B)False

Question 11

The transmission mechanism is the effect of changes in monetary policy on the stock market.

Accepted Answer

A) True 
 B)False

Question 12

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

Question 13

Exhibit 16-4 Aggregate demand and supply model 1 to AD2? A) Raise the legal reserve requirement. B) Raise the discount rate. C) Lower the federal funds rate. D) Buy government securities. E) Print currency." class="answers-bank-image d-inline" rel="preload" > In Exhibit 16-4, which one of the following actions could the Fed use to shift the AD curve from AD1 to AD2?

Accepted Answer

A)  Raise the legal reserve requirement.
B)  Raise the discount rate.
C)  Lower the federal funds rate.
D)  Buy government securities.
E)  Print currency.

Question 14

The velocity of money is:

Accepted Answer

A)  money supply divided by prices.
B)  spending divided by output.
C)  required monetary reserves divided by income.
D)  GDP divided by the money supply.

Question 15

Since classical economists believe that both V and Q are constants for an economy in short-run equilibrium, the equation of exchange becomes a theory in which:

Accepted Answer

A)  the quantity of money explains prices.
B)  the quantity of money explains velocity.
C)  the quantity of money explains real GDP.
D)  changes in M cause changes in V.
E)  prices are never flexible

Question 16

The precautionary demand for holding money is when people hold money:

Accepted Answer

A)  instead of near money.
B)  to transact purchases they expect to make.
C)  as insurance against unexpected needs.
D)  to speculate in the stock market.
E)  to take advantage of changes in interest rates.

Question 17

The precautionary demand for money is the demand for money:

Accepted Answer

A)  for normal transactions purposes.
B)  for normal investment purposes.
C)  for special stock purchases.
D)  to protect against inflation.
E)  to cover unexpected events.

Question 18

The average number of times per year each dollar is used to transact an exchange is known as the:

Accepted Answer

A)  liquidity of money.
B)  velocity of money.
C)  quantity theory of money.
D)  equation of exchange
E)  rapidity index

Question 19

Suppose that the current money market equilibrium features an interest rate of 5 percent and a quantity of $2 trillion. If the Fed raises the discount rate, which of the following is most likely to be the new money market equilibrium?

Accepted Answer

A)  An interest rate of 6 percent and a quantity of $1.5 trillion.
B)  An interest rate of 5 percent and a quantity of $2 trillion.
C)  An interest rate of 4 percent and a quantity of $2.5 trillion.
D)  None of the above.

Question 20

In a two-asset economy with money and T-bills, the quantity of money that people will want to hold, other things being equal, can be expected to:

Accepted Answer

A)  increase as the real GDP interest rate increases.
B)  decrease as the real GDP interest rate increases.
C)  decrease as real GDP increases.
D)  none of these.

Exam 16: Monetary Policy

The precautionary demand for holding money is when people hold money:

Correct AnswerverifiedShow Answer

The transmission mechanism is the effect of changes in monetary policy on prices, real GDP, and employment.

Correct AnswerverifiedShow Answer

Exhibit 16-4 Aggregate demand and supply model In Exhibit 16-4, which one of the following actions could the Fed use to shift the AD curve from AD1 to AD2?

Correct AnswerverifiedShow Answer

A decrease in the interest rate, other things being equal, causes a(n) :

Correct AnswerverifiedShow Answer

The Keynesian viewpoint is that the investment curve is highly responsive to the changes in the rate of interest.

Correct AnswerverifiedShow Answer

According to monetarists, which of the following would be most important for the control of inflation?

Correct AnswerverifiedShow Answer

If people attempt to sell bonds because of excess money demand, then the interest rate will:

Correct AnswerverifiedShow Answer

Classical economists traditionally believed that:

Correct AnswerverifiedShow Answer

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

The precautionary demand for money is the demand for money:

Correct AnswerverifiedShow Answer

If the Fed wants to raise interest rates, then it can use its open market operations to:

Correct AnswerverifiedShow Answer

Other things being equal, the quantity of money that people wish to hold in currency and their checking accounts can be expected to:

Correct AnswerverifiedShow Answer

The transmission mechanism is the effect of changes in monetary policy on the stock market.

Correct AnswerverifiedShow Answer

The average number of times per year each dollar is used to transact an exchange is known as the:

Correct AnswerverifiedShow Answer

Since classical economists believe that both V and Q are constants for an economy in short-run equilibrium, the equation of exchange becomes a theory in which:

Correct AnswerverifiedShow Answer

The quantity theory of money of the Classical economists says that a change in the money supply will produce a:

Correct AnswerverifiedShow Answer

The velocity of money is:

Correct AnswerverifiedShow Answer

Suppose that the current money market equilibrium features an interest rate of 5 percent and a quantity of $2 trillion. If the Fed raises the discount rate, which of the following is most likely to be the new money market equilibrium?

Correct AnswerverifiedShow Answer

The downward slope of the demand for money curve is created by the:

Correct AnswerverifiedShow Answer

In a two-asset economy with money and T-bills, the quantity of money that people will want to hold, other things being equal, can be expected to:

Correct AnswerverifiedShow Answer

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Exhibit 16-4 Aggregate demand and supply model In Exhibit 16-4, which one of the following actions could the Fed use to shift the AD curve from AD₁ to AD₂?

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