Question 1

Using the equation of exchange,if real output increases by 5 percent per year and velocity is stable,in order to keep the price level stable

Accepted Answer

A)  The interest rate must increase by 5 percent per year.
B)  Velocity must increase by 5 percent per year.
C)  The money supply must increase by 5 percent per year. C

Question 2

Monetary policy is most effective when the money demand curve is __________ and investment demand is _____________.

Accepted Answer

A)  horizontal;elastic
B)  downward-sloping;elastic
C)  horizontal;inelastic

Question 3

-In Figure 15.3,the Fed can change the equilibrium interest rate from 2 percent to 6 percent by

Accepted Answer

A)  Selling bonds in the open market.
B)  Reducing the discount rate.
C)  Buying bonds in the open market.

Question 4

-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.

Question 5

Name and explain the three reasons for holding money balances.

Accepted Answer

One reason to hold money balances is to ...

Question 6

How well fiscal policy works depends on how much the velocity of money can be changed by government tax and spending decisions.

Accepted Answer

A) True 
 B)False

Question 7

According to the monetarist view and the equation of exchange,which of the following will occur because the Fed sells securities in the open market?

Accepted Answer

A)  A decrease in real interest rates.
B)  A decrease in nominal aggregate spending.
C)  A lower level of real output.

Question 8

When the money market is in equilibrium in the liquidity trap,

Accepted Answer

A)  An increase in the money supply does not affect interest rates.
B)  The demand for money is perfectly insensitive to interest rates.
C)  Investment spending falls to zero.

Question 9

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.

Question 10

Use the equation of exchange to explain the impact of an increase in the money supply if velocity and output are stable.

Accepted Answer

The equation of exchange states that the...

Question 11

The success of Fed intervention depends in part on how closely changes in long-term interest rates follow changes in short-term interest rates.

Accepted Answer

A) True 
 B)False

Question 12

Using the equation of exchange,the existence of a natural rate of unemployment implies that in the long run:

Accepted Answer

A)  Velocity in the equation of exchange is actually very unstable.
B)  Monetary policy affects only the rate of inflation.
C)  Quantity of real output in the equation of exchange varies in proportion to money supply.

Question 13

- Refer to Figure 15.7.Suppose the money supply increases.This will cause interest rates to __________ and cause a shift from point _____________.

Accepted Answer

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

Question 14

The speculative,transactions,and precautionary demands for money added together give the

Accepted Answer

A)  Market demand curve for money.
B)  Monetarist demand-for-money curve.
C)  Keynesian liquidity trap. A

Question 15

The speculative demand for money is related to money functioning as a

Accepted Answer

A)  Store of value.
B)  Standard of value.
C)  Medium of exchange.

Question 16

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.

Question 17

Given a vertical aggregate supply curve,which of the following is most likely to occur if the Fed pursues restrictive 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 decrease but output will stay the same.

Question 18

Monetary policy will never be effective if interest rates

Accepted Answer

A)  Change quickly.
B)  Respond to a change in the money supply,and investment spending responds to a change in the interest rate.
C)  Do not respond to a change in the money supply,and investment spending does not respond to changes in the interest rate.

Question 19

Money held to take advantage of future financial opportunities is the

Accepted Answer

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

Question 20

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. B

Exam 15: Monetary Policy

Using the equation of exchange,if real output increases by 5 percent per year and velocity is stable,in order to keep the price level stable

Correct AnswerverifiedC

Monetary policy is most effective when the money demand curve is __________ and investment demand is _____________.

Correct AnswerverifiedShow Answer

-In Figure 15.3,the Fed can change the equilibrium interest rate from 2 percent to 6 percent by

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Name and explain the three reasons for holding money balances.

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

How well fiscal policy works depends on how much the velocity of money can be changed by government tax and spending decisions.

Correct AnswerverifiedShow Answer

According to the monetarist view and the equation of exchange,which of the following will occur because the Fed sells securities in the open market?

Correct AnswerverifiedShow Answer

When the money market is in equilibrium in the liquidity trap,

Correct AnswerverifiedShow Answer

The equilibrium rate of interest is determined by

Correct AnswerverifiedShow Answer

Use the equation of exchange to explain the impact of an increase in the money supply if velocity and output are stable.

Correct AnswerverifiedThe equation of exchange states that the...View AnswerShow Answer

The success of Fed intervention depends in part on how closely changes in long-term interest rates follow changes in short-term interest rates.

Correct AnswerverifiedShow Answer

Using the equation of exchange,the existence of a natural rate of unemployment implies that in the long run:

Correct AnswerverifiedShow Answer

- Refer to Figure 15.7.Suppose the money supply increases.This will cause interest rates to __________ and cause a shift from point _____________.

Correct AnswerverifiedShow Answer

The speculative,transactions,and precautionary demands for money added together give the

Correct AnswerverifiedA

The speculative demand for money is related to money functioning as a

Correct AnswerverifiedShow Answer

A monetary stimulus is designed to shift the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Monetary policy will never be effective if interest rates

Correct AnswerverifiedShow Answer

Money held to take advantage of future financial opportunities is the

Correct AnswerverifiedShow Answer

Monetary stimulus will fail if

Correct AnswerverifiedB

Correct Answer
verified
C

Monetary policy is most effective when the money demand curve is and investment demand is ___.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
One reason to hold money balances is to ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The equation of exchange states that the...
View Answer

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified
A

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
B