Question 1

The hypothesis that changes in the money supply lead to an equiproportional change in the price level is called

Accepted Answer

A)  the quantity theory of money.
B)  the classical theory of money.
C)  the Keynesian theory of money.
D)  the fractional theory of money.E) All of the above
F) None of the above

Question 2

A contractionary monetary policy causes

Accepted Answer

A)  higher interest rates, which increases the international price of the dollar and decreases net exports.
B)  higher interest rates, which decreases the foreign demand for U.S. financial instruments, raising the international price of the dollar and increasing net exports.
C)  lower interest rates, which decreases the foreign demand for U.S. financial instruments, raising the international price of the dollar and increasing net exports.
D)  higher interest rates, which increases the foreign demand for U.S. financial instruments, which causes interest rates to decrease. There is no effect on net exports.E) All of the above
F) A) and C)

Question 3

Other things being equal, the quantity theory of money suggests that any increase in the money supply

Accepted Answer

A)  causes a reduction in the demand for money.
B)  results in a decrease in the aggregate price level.
C)  causes the aggregate level of nominal Gross Domestic Product (GDP) to fall.
D)  results in a proportionate increase in the price level.E) All of the above
F) A) and B)

Question 4

When the rate of interest in the economy falls, there will be

Accepted Answer

A)  an increase in the market price of existing bonds.
B)  a decrease in the transaction demand for money.
C)  less investment by businesses.
D)  an increase in nominal Gross Domestic Product (GDP) .E) A) and D)
F) None of the above

Question 5

A open market purchase of government securities by the Fed will cause which of the following?

Accepted Answer

A)  a reduction in the federal funds rate
B)  an increase in the amount of excess reserves that banks will wish to hold
C)  an increase in the equilibrium quantity of reserves
D)  all of the aboveE) None of the above
F) C) and D)

Question 6

-Refer to the above figure. Which panel is consistent with the Fed buying bonds?

Accepted Answer

A)  Panel A
B)  Panel B
C)  Panel C
D)  Panel DE) A) and D)
F) None of the above

Question 7

The demand for money curve depicts

Accepted Answer

A)  an inverse relationship between the quantity of money demanded and the quantity of bonds demanded.
B)  a direct relationship between the quantity of money demanded and the quantity of bonds demanded.
C)  an inverse relationship between the quantity of money demanded and the interest rate.
D)  a direct relationship between the quantity of money demanded and the interest rate.E) A) and B)
F) C) and D)

Question 8

According to Keynes, the impact of a decrease in the money supply is a

Accepted Answer

A)  lower interest rate and larger growth in real GDP.
B)  lower interest rate and smaller growth in real GDP.
C)  higher interest rate and larger growth in real GDP.
D)  higher interest rate and smaller growth in real GDP.E) A) and D)
F) All of the above

Question 9

When the interest rate increases, people will adjust their precautionary demand for money

Accepted Answer

A)  upward.
B)  downward.
C)  not at all.
D)  downward or upward depending upon the actual supply of money.E) A) and B)
F) B) and C)

Question 10

If the Fed thought the economy was experiencing a recessionary gap, and it wanted to correct this gap, it would

Accepted Answer

A)  sell bonds.
B)  lower the differential between the discount rate and the federal funds rate.
C)  raise the reserve requirement.
D)  increase aggregate supply.E) A) and B)
F) None of the above

Question 11

Which of the following is a variable in the equation of exchange?

Accepted Answer

A)  the price level.
B)  the money supply.
C)  the velocity of money.
D)  real GDP.
E)  all of the above.F) B) and E)
G) B) and C)

Question 12

An increase in the money supply will affect aggregate demand

Accepted Answer

A)  only if the increase in the money supply causes interest rates to rise.
B)  only if the increase in the money supply causes people to buy less goods and services.
C)  only if the increase in the money supply causes people to increase their saving.
D)  if the increase in the money supply causes interest rates to fall and/or causes people to buy more goods and services.E) A) and B)
F) A) and C)

Question 13

The short-run effect of an increase in the money supply is to

Accepted Answer

A)  increase real GDP only.
B)  increase the price level only.
C)  increase both real GDP and the price level.
D)  increase nominal GDP but decrease the price level.E) A) and B)
F) C) and D)

Question 14

Which Federal Reserve Bank now regularly tracks target levels for the federal funds rate predicted by a basic Taylor-rule equation?

Accepted Answer

A)  Boston
B)  Chicago
C)  New York
D)  St. LouisE) B) and C)
F) A) and D)

Question 15

The quantity theory of money and prices assumes

Accepted Answer

A)  velocity is constant.
B)  real output is constant.
C)  the price level is constant.
D)  the price level is increasing at a constant rate.E) None of the above
F) A) and B)

Question 16

A depreciation of the U.S. dollar

Accepted Answer

A)  makes U.S. exports more expensive in terms of foreign currency and imports less expensive in terms of the dollar, increasing net exports.
B)  makes U.S. exports less expensive in terms of foreign currency and imports more expensive in terms of the dollar, increasing net exports.
C)  makes U.S. exports less expensive in terms of foreign currency and imports more expensive in terms of the dollar, decreasing net exports.
D)  makes U.S. exports more expensive in terms of foreign currency and imports less expensive in terms of the dollar, decreasing net exports.E) A) and B)
F) C) and D)

Question 17

-In the above figure, assume the economy starts out in equilibrium at point d. If the Fed increases the money supply so that the new aggregate demand curve is AD₃, then the long-run equilibrium will be at point

Accepted Answer

A)  a.
B)  b.
C)  c.
D)  i.E) B) and C)
F) None of the above

Question 18

When interest rates rise, the transactions demand for money usually

Accepted Answer

A)  decreases.
B)  increases.
C)  decreases initially and then increases to the original position.
D)  does not change.E) A) and B)
F) B) and C)

Question 19

An assumption used in the quantity theory of money is that

Accepted Answer

A)  the price level is constant.
B)  velocity is constant.
C)  nominal Gross Domestic Product (GDP) is constant.
D)  the money supply is constant.E) A) and B)
F) None of the above

Question 20

The "direct effect" of an increase in the money supply is to

Accepted Answer

A)  increase aggregate demand as people spend their excess money balances.
B)  increase aggregate demand as interest rates fall and investment spending increases.
C)  increase aggregate supply as producers anticipate higher future profits.
D)  decrease the rate of inflation.E) A) and D)
F) A) and C)

Exam 15: Domestic and International Dimensions of Monetary Policy

If the Fed thought the economy was experiencing a recessionary gap, and it wanted to correct this gap, it would

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According to Keynes, the impact of a decrease in the money supply is a

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The quantity theory of money and prices assumes

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Which Federal Reserve Bank now regularly tracks target levels for the federal funds rate predicted by a basic Taylor-rule equation?

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Which of the following is a variable in the equation of exchange?

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-Refer to the above figure. Which panel is consistent with the Fed buying bonds?

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When the interest rate increases, people will adjust their precautionary demand for money

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When interest rates rise, the transactions demand for money usually

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-In the above figure, assume the economy starts out in equilibrium at point d. If the Fed increases the money supply so that the new aggregate demand curve is AD₃, then the long-run equilibrium will be at point

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An assumption used in the quantity theory of money is that

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The hypothesis that changes in the money supply lead to an equiproportional change in the price level is called

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A depreciation of the U.S. dollar

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A contractionary monetary policy causes

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The "direct effect" of an increase in the money supply is to

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An increase in the money supply will affect aggregate demand

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The demand for money curve depicts

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When the rate of interest in the economy falls, there will be

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Other things being equal, the quantity theory of money suggests that any increase in the money supply

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A open market purchase of government securities by the Fed will cause which of the following?

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The short-run effect of an increase in the money supply is to

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