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Exam 15: Monetary Policy

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Question 31

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An increase in the supply of money will lead to a(n) _____ in equilibrium real GDP and a _____ equilibrium interest rate.

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

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Question 32

Multiple Choice

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If the economy is in a recessionary gap, the Federal Reserve should conduct _____ monetary policy by _____ the money supply.

A) expansionary; decreasing
B) expansionary; increasing
C) contractionary; decreasing
D) contractionary; increasing

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Question 33

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Long-term interest rates affect the demand for money more than short-term interest rates.

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

In the long-run changes in the money supply will change prices but not real GDP or interest rates.

If the interest rate on CDs rises from 5% to 10%, the opportunity cost of holding money will _____ and the quantity demanded of money will _____.

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

Suppose the Federal Reserve sells Treasury bills. We can expect this transaction to _____ the money supply, _____ Treasury bill prices, and _____ interest rates.

Improvements in information technology have:

The higher the short-term interest rate, the:

The Fed uses _____ to target the federal funds rate.

If a checking account has an interest rate of 1% and a Treasury bill has an interest rate of 3%, the opportunity cost of holding cash in a checking account is:

Expansionary monetary policy _____ the money supply, _____ interest rates, and _____ consumption and investment spending.

The higher the short-term interest rate, the lower the opportunity cost of holding money.

Use the following to answer questions : Figure: Monetary Policy I -(Figure: Monetary Policy I) Look at the figure Monetary Policy I. If the economy is initially in equilibrium at E₁ and the central bank chooses to sell Treasury bills, _____ shift to the _____ a(n) _____ gap.

Inflation targeting is different from the Taylor rule because the Taylor rule is based on a forecast of inflation, but inflation targeting adjusts monetary policy to past inflation.

When the short-term interest rate _____, the opportunity cost of holding money _____, and the quantity of money individuals want to hold _____.

Use the following to answer questions : Figure: Monetary Policy and the AD-SRAS Model -(Figure: Monetary Policy and the AD-SRAS Model) Look at the figure Monetary Policy and the AD-SRAS Model. If the economy is in an inflationary gap at point h, it can move to point i as a result of:

To lower the short-term interest rate, the Federal Reserve can:

Why does a recession, all else equal, decrease the demand for money?