Question 1

If the Fed's objective is to stimulate the economy,which of the following gives the correct sequence of events?

Accepted Answer

A)  The money supply increases,interest rates decrease,investment increases,and AD increases.
B)  The money supply increases,interest rates decrease,investment increases,and AS decreases.
C)  The money supply decreases,interest rates increase,investment decreases,and AD decreases.D) A) and B)
E) B) and C)

Question 2

The choice to hold money in the form of cash

Accepted Answer

A)  Has no opportunity cost.
B)  Results in forgone interest.
C)  Results in increased interest income.D) All of the above
E) A) and B)

Question 3

The liquidity trap refers to the portion of the money demand curve that is

Accepted Answer

A)  Upward-sloping.
B)  Downward-sloping.
C)  Horizontal.D) All of the above
E) B) and C)

Question 4

The Fed's eclecticism reflects

Accepted Answer

A)  Changes in the targets the Fed sets for adjusting monetary policy.
B)  Fixed rules that are set for monetary growth rates.
C)  Guidance from Congress.D) A) and B)
E) All of the above

Question 5

Which of the following explains why small reductions in interest rates may not lead to an increase in investment spending?

Accepted Answer

A)  Excess capacity gives businesses little incentive to expand production capacity.
B)  Investment demand is elastic with respect to the interest rate.
C)  Improved expectations shift the investment demand curve to the right.D) A) and B)
E) A) and C)

Question 6

The Fed can change the equilibrium rate of interest by changing

Accepted Answer

A)  Government spending.
B)  Taxes.
C)  Reserve requirements or the discount rate,or through open market operations.D) A) and B)
E) A) and C)

Question 7

If the Fed wants to increase AD,it should do which of the following?

Accepted Answer

A)  Conduct open market purchases.
B)  Raise the discount rate.
C)  Raise the required reserve ratio.D) B) and C)
E) A) and C)

Question 8

Effective expansionary monetary policy,according to Keynesian theorists,will do all of the following except

Accepted Answer

A)  Increase bank lending capacity.
B)  Lower real output.
C)  Encourage people to borrow and spend money.D) None of the above
E) All of the above

Question 9

If you are a banker,should you consider the nominal or real interest rate when deciding which rate to charge for a loan? Explain.

Accepted Answer

The real interest rate is the inflation-...

Question 10

To reduce the level of unanticipated inflation,monetarists advocate

Accepted Answer

A)  A sharp increase in short-term interest rates.
B)  Steady and predictable changes in the money supply.
C)  A decrease in short-term interest rates.D) A) and C)
E) A) and B)

Question 11

- In Figure 15.2,the equilibrium rate of interest

Accepted Answer

A)  Is 3 percent.
B)  Is 6 percent.
C)  Is 9 percent.D) A) and B)
E) All of the above

Question 12

The money supply M2 includes M1

Accepted Answer

A)  Plus balances in savings accounts and money market mutual funds.
B)  Plus balances in savings accounts,money market mutual funds,and currency in private bank vaults and in the Federal Reserve vaults.
C)  Minus balances in savings accounts and money market mutual funds.D) A) and C)
E) A) and B)

Question 13

All of the following impact the effectiveness of Fed policy except

Accepted Answer

A)  Global sources of money.
B)  The time lag between when interest rates change and when investment changes.
C)  How well individuals respond to the agricultural press releases.D) B) and C)
E) A) and B)

Question 14

Why is expansionary monetary policy ineffective in the liquidity trap?

Accepted Answer

In the liquidity trap,people are willing...

Question 15

The price of money is the nominal interest rate.

Accepted Answer

A) True 
 B)False

Question 16

- In Figure 15.2,if the money supply decreased from $200 billion to $100 billion,which of the following would be likely to occur?

Accepted Answer

A)  Aggregate supply would increase.
B)  The demand for money would increase.
C)  Aggregate demand would decrease.D) A) and C)
E) A) and B)

Question 17

According to Keynesians,fiscal policy affects

Accepted Answer

A)  Real interest rates only.
B)  Aggregate spending,prices,and nominal interest rates only.
C)  Aggregate spending,real output,and real interest rates,with possible effects on prices and nominal interest rates.D) A) and C)
E) All of the above

Question 18

Mark holds $100 in cash in his wallet to make purchases for gas and groceries.This represents the

Accepted Answer

A)  Precautionary demand for money.
B)  Transactions demand for money.
C)  Speculative demand for money.D) A) and B)
E) All of the above

Question 19

According to monetarists,the aggregate supply curve is

Accepted Answer

A)  Upward-sloping to the right.
B)  Vertical at the natural rate of unemployment.
C)  Flat until full employment is reached.D) All of the above
E) A) and B)

Question 20

Which of the following is true about monetary policy in the liquidity trap?

Accepted Answer

A)  Monetary policy will be unable to reduce interest rates further to stimulate investment.
B)  The opportunity cost of holding money is relatively high at interest rates implied by the liquidity trap.
C)  An expansion of the money supply will have the large effect of raising interest rates when the economy is in the liquidity trap.D) None of the above
E) All of the above

Exam 15: Monetary Policy

According to monetarists,the aggregate supply curve is

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The Fed's eclecticism reflects

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- In Figure 15.2,the equilibrium rate of interest

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If you are a banker,should you consider the nominal or real interest rate when deciding which rate to charge for a loan? Explain.

Correct AnswerverifiedThe real interest rate is the inflation-...View AnswerShow Answer

Which of the following explains why small reductions in interest rates may not lead to an increase in investment spending?

Correct AnswerverifiedShow Answer

If the Fed wants to increase AD,it should do which of the following?

Correct AnswerverifiedShow Answer

The Fed can change the equilibrium rate of interest by changing

Correct AnswerverifiedShow Answer

If the Fed's objective is to stimulate the economy,which of the following gives the correct sequence of events?

Correct AnswerverifiedShow Answer

Mark holds $100 in cash in his wallet to make purchases for gas and groceries.This represents the

Correct AnswerverifiedShow Answer

According to Keynesians,fiscal policy affects

Correct AnswerverifiedShow Answer

To reduce the level of unanticipated inflation,monetarists advocate

Correct AnswerverifiedShow Answer

The money supply M2 includes M1

Correct AnswerverifiedShow Answer

The liquidity trap refers to the portion of the money demand curve that is

Correct AnswerverifiedShow Answer

- In Figure 15.2,if the money supply decreased from $200 billion to $100 billion,which of the following would be likely to occur?

Correct AnswerverifiedShow Answer

Why is expansionary monetary policy ineffective in the liquidity trap?

Correct AnswerverifiedIn the liquidity trap,people are willing...View AnswerShow Answer

Which of the following is true about monetary policy in the liquidity trap?

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All of the following impact the effectiveness of Fed policy except

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Effective expansionary monetary policy,according to Keynesian theorists,will do all of the following except

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The choice to hold money in the form of cash

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The price of money is the nominal interest rate.

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The real interest rate is the inflation-...
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In the liquidity trap,people are willing...
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Correct Answer
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Correct Answer
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