Question 1

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

Accepted Answer

A)   increase aggregate demand as people try to spend their excess money balances.
B)   increase aggregate demand as interest rates fall and investment spending increases.
C)   increase aggregate supply as firms anticipate future profits.
D)   decrease the price level.E) C) and D)
F) A) and D)

Question 2

Travis always carries $100 in his wallet to pay for groceries. This is an example of the

Accepted Answer

A)   precautionary demand for money.
B)   asset demand for money.
C)   transactions demand for money.
D)   wealth demand for money.E) None of the above
F) A) and C)

Question 3

The interest-rate-based approach to monetary policy says that a change in the money supply influences aggregate demand by

Accepted Answer

A)   a change in interest rates which changes investment.
B)   following the monetary rule.
C)   changing consumer consumption behavior as they adjust to a change in the number of dollars available.
D)   leading to shifts of the short-run aggregate supply curve.E) A) and B)
F) A) and C)

Question 4

Suppose the Fed increases the money supply. As a result of this, people go out and spend more money on consumer goods, increasing aggregate spending. This is known as a(n)

Accepted Answer

A)   direct effect of monetary policy.
B)   indirect effect of monetary policy.
C)   direct effect of fiscal policy.
D)   indirect effect of fiscal policy.E) B) and C)
F) A) and D)

Question 5

The long-run effect of an increase in the money supply when starting from full employment 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 real GDP as the price level increases too.E) B) and D)
F) C) and D)

Question 6

Suppose the economy is in long-run and short-run equilibrium. The Fed changes its policy by raising the difference between the discount rate and the federal funds rate. In the long run we would expect to observe

Accepted Answer

A)   a lower price level.
B)   a higher price level.
C)   a lower real national income.
D)   a higher real national income.E) B) and C)
F) A) and D)

Question 7

An open market sale of government securities by the Fed will cause which of the following?

Accepted Answer

A)   an increase in the federal funds rate
B)   an increase in the equilibrium quantity of reserves
C)   all of the above
D)   none of the aboveE) B) and D)
F) B) and C)

Question 8

A person is preparing for a long automobile trip and cashes in a certificate of deposit for cash in case of emergencies along the way. This is an example of the

Accepted Answer

A)   transactions demand for money.
B)   precautionary demand for money.
C)   wealth demand for money.
D)   asset demand for money.E) B) and C)
F) A) and B)

Question 9

When the Fed conducts open market operations, it

Accepted Answer

A)   purchases or sells government bonds issued by the U.S. Treasury.
B)   is engaging in fiscal policy.
C)   also raises taxes at the same time.
D)   shifts the demand for money curve.E) A) and B)
F) A) and C)

Question 10

Which of the following is associated with a contractionary monetary policy?

Accepted Answer

A)   Lowering the differential between the discount rate and the federal funds rate
B)   Selling bonds
C)   Lowering the required reserve ratio
D)   Raising bond pricesE) All of the above
F) A) and B)

Question 11

The formula of the equation of exchange is

Accepted Answer

A)   MS = Y.
B)   MS = VPY.
C)   MSV = PY.
D)   MS/P = Y.E) C) and D)
F) B) and C)

Question 12

Which of the following has been the most likely effect of the Fed's credit policy?

Accepted Answer

A)   Banks and other financial institutions have taken more time to recover from the 2008-2009 financial meltdown.
B)   The federal funds rate and the discount rate have dropped to negative levels.
C)   The money multiplier and the link between the money supply and the economy have become unstable.
D)   The scope of asymmetric information problems in the banking industry has reduced.E) None of the above
F) B) and C)

Question 13

Which of the following is NOT part of the FOMC directive?

Accepted Answer

A)   It lays out the FOMC's general economic objectives.
B)   It establishes short-term federal funds rate objectives.
C)   It specifies target ranges for money supply growth.
D)   It specifies who the chair of the Fed is.E) B) and C)
F) A) and D)

Question 14

An increase in bond prices will most likely result in

Accepted Answer

A)   an increase in interest rates.
B)   a decrease in the quantity demanded of money.
C)   an increase in the quantity demanded of money.
D)   an increase in the opportunity cost of holding money.E) None of the above
F) A) and C)

Question 15

Asset demand for money is holding money

Accepted Answer

A)   to meet unplanned expenditures and emergencies.
B)   as a medium of exchange to make payments.
C)   as a store of value instead of other assets.
D)   to speculate on the stock market and bonds.E) A) and D)
F) A) and C)

Question 16

In the market for bank reserves, a reduction in the required reserve ratio will cause

Accepted Answer

A)   a reduction in the federal funds rate.
B)   an increase in the equilibrium quantity of reserves.
C)   a reduction in the demand for reserves.
D)   all of the above.E) A) and B)
F) A) and D)

Question 17

The interest-rate-based monetary policy transmission mechanism argues that an increase in the money supply

Accepted Answer

A)   has no effect on aggregate demand but reduces long-run aggregate supply.
B)   has no effect on aggregate demand but increases short-run aggregate supply.
C)   causes interest rates to fall, which causes an increase in planned investment, and an increase in aggregate demand.
D)   causes the inflation rate to decline, which causes an increase in household consumption spending and an increase in aggregate demand.E) A) and B)
F) B) and D)

Question 18

According to the quantity theory of money, an excess quantity of money supplied will lead to

Accepted Answer

A)   a reduction in spending and higher interest rates.
B)   a reduced level of real Gross Domestic Product (GDP) .
C)   a higher level of employment.
D)   a higher price level.E) A) and B)
F) A) and C)

Question 19

Which of the following is NOT a reason the Fed changes the rate of growth of the money supply?

Accepted Answer

A)   To influence aggregate demand
B)   To shift the demand for money curve
C)   To influence the amount of consumption
D)   To influence the amount of investmentE) B) and C)
F) A) and D)

Question 20

One of the tools of monetary policy is to change the discount rate. Since 2003

Accepted Answer

A)   the Fed has not changed the discount rate.
B)   the Fed has pegged the discount rate to the reserve requirement.
C)   the Fed has kept the discount rate a fixed amount above the federal funds rate.
D)   the Fed has kept the federal funds rate one percentage point above the discount rate.E) C) and D)
F) A) and D)

Exam 16: Domestic and International Dimensions of Monetary Policy

Which of the following is NOT part of the FOMC directive?

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Asset demand for money is holding money

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One of the tools of monetary policy is to change the discount rate. Since 2003

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Which of the following has been the most likely effect of the Fed's credit policy?

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An increase in bond prices will most likely result in

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An open market sale of government securities by the Fed will cause which of the following?

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Which of the following is associated with a contractionary monetary policy?

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Suppose the Fed increases the money supply. As a result of this, people go out and spend more money on consumer goods, increasing aggregate spending. This is known as a(n)

Correct AnswerverifiedShow Answer

When the Fed conducts open market operations, it

Correct AnswerverifiedShow Answer

The interest-rate-based approach to monetary policy says that a change in the money supply influences aggregate demand by

Correct AnswerverifiedShow Answer

In the market for bank reserves, a reduction in the required reserve ratio will cause

Correct AnswerverifiedShow Answer

The formula of the equation of exchange is

Correct AnswerverifiedShow Answer

Which of the following is NOT a reason the Fed changes the rate of growth of the money supply?

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According to the quantity theory of money, an excess quantity of money supplied will lead to

Correct AnswerverifiedShow Answer

A person is preparing for a long automobile trip and cashes in a certificate of deposit for cash in case of emergencies along the way. This is an example of the

Correct AnswerverifiedShow Answer

Suppose the economy is in long-run and short-run equilibrium. The Fed changes its policy by raising the difference between the discount rate and the federal funds rate. In the long run we would expect to observe

Correct AnswerverifiedShow Answer

The long-run effect of an increase in the money supply when starting from full employment is to

Correct AnswerverifiedShow Answer

The interest-rate-based monetary policy transmission mechanism argues that an increase in the money supply

Correct AnswerverifiedShow Answer

Travis always carries $100 in his wallet to pay for groceries. This is an example of the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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