Question 1

If M stand for the money supply,V for the velocity of money,P for the average selling price,and Q for the output of goods and services,the equation of exchange is MV = PQ.

Accepted Answer

A) True 
 B)False

Question 2

If the velocity of the M1 money supply is 4 and nominal GDP is $200 billion,the stock of money in circulation must be:

Accepted Answer

A)   $25 billion.
B)   $50 billion.
C)   $100 billion.
D)   $800 billion.E) A) and C)
F) B) and C)

Question 3

According to Keynesian theory,changes in the money supply have a direct and immediate impact on aggregate demand.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is a reason for the Keynesian view that monetary policy plays a minor role in affecting the economy?

Accepted Answer

A)   The money demand curve is vertical.
B)   The investment curve is very steep.
C)   The money demand curve is horizontal at any interest rate.
D)   The monetary rule.E) A) and C)
F) B) and C)

Question 5

According to Keynesians,an increase in the money supply will have its least impact on GDP when the aggregate demand curve intersects:

Accepted Answer

A)   the horizontal portion of the aggregate supply curve.
B)   the vertical portion of the aggregate supply curve
C)   the upward sloping portion of the aggregate supply curve..
D)   either the horizontal or upward sloping portion of the aggregate supply curve.,
E)   either the horizontal or upward sloping portion of the aggregate supply curve.F) A) and B)
G) B) and C)

Question 6

The stock of money people hold to take advantage of expected future changes in the price of bonds,stocks,or other nonmoney financial assets is the:

Accepted Answer

A)   unit-of-account motive for holding money.
B)   precautionary motive for holding money.
C)   speculative motive for holding money.
D)   transactions motive for holding money.E) B) and D)
F) A) and D)

Question 7

Which of the following correctly gives us the equation of exchange?

Accepted Answer

A)   TR = PQ.
B)   MV = VM.
C)   MV = PQ.
D)   TR = VM.E) C) and D)
F) A) and C)

Question 8

A decrease in the interest rate,other things being equal,causes a(n) :

Accepted Answer

A)   upward movement along the demand curve for money.
B)   downward movement along the demand curve for money.
C)   rightward shift of the demand curve for money.
D)   leftward shift of the demand curve for money.E) All of the above
F) C) and D)

Question 9

The impact of an increase in the money supply is a(n) :

Accepted Answer

A)   increase in the interest rate, which in turn stimulates investment and GDP.
B)   decrease in the interest rate, which in turn stimulates investment and GDP.
C)   a reduction in the general level of prices, which will increase the disposable income of households.
D)   improvement in technology, which will stimulate both output and employment.E) A) and D)
F) A) and C)

Question 10

Adam Smith listed three types of motives for people holding money--transaction,precautionary,and speculative.

Accepted Answer

A) True 
 B)False

Question 11

Monetarists believe that:

Accepted Answer

A)   velocity is constant.
B)   velocity is highly predictable.
C)   there are three motives for demanding money.
D)   changes in the money supply cause changes in velocity.
E)   a change in the money supply can affect real GDP.F) A) and E)
G) B) and D)

Question 12

Suppose that the Fed makes a $100 billion open-market sale of Treasury bonds,and the money multiplier is 6.Which of the following impacts are most likely to result?

Accepted Answer

A)  The money supply shifts inward,and the equilibrium interest rate rises in the money market.
B)  The money supply shifts outward,and the equilibrium interest rate falls in the money market.
C)  Investment declines,causing the aggregate demand curve to shift leftward,reducing equilibrium real GDP and thus slowing the economy.
D)  Both a.and c.are correct.
E)  Both b.and c.above are correct.F) B) and E)
G) B) and D)

Question 13

According to Keynesians,an increase in the money supply will have its greatest impact on GDP when the aggregate demand curve intersects:

Accepted Answer

A)   the vertical portion of the aggregate supply curve.
B)   the upward sloping portion of the aggregate supply curve.
C)   the horizontal portion of the aggregate supply curve.
D)   either the upward sloping or the vertical portions of the aggregate supply curve.
E)   either the horizontal or vertical portions of the aggregate supply curve.F) C) and D)
G) B) and C)

Question 14

Classical economists traditionally believed that:

Accepted Answer

A)   there are three motives for demanding money.
B)   a change in the money supply can affect real GDP.
C)   the transactions demand for money influences the velocity of money.
D)   the velocity of money is constant.
E)   the economy does not always operate at full employment.F) D) and E)
G) A) and B)

Question 15

When a household takes extra (unbudgeted) money on a trip,economists would classify this money as held for a(n) :

Accepted Answer

A)   speculative demand.
B)   transactions demand.
C)   emergency motive.
D)   precautionary demand.
E)   inflationary motive.F) A) and D)
G) None of the above

Question 16

The opportunity cost of holding money balances increases when:

Accepted Answer

A)   the inflation rate decreases.
B)   the interest rate increases.
C)   the interest rate decreases.
D)   GDP is far from full employment.E) B) and C)
F) A) and C)

Question 17

The money that households might hold either as money or in interest-bearing assets,depending on the interest rate,is called the:

Accepted Answer

A)   precautionary demand.
B)   transactions demand.
C)   speculative demand.
D)   liquidity motive.
E)   investment motive.F) A) and C)
G) C) and D)

Question 18

Classical economists believe that:

Accepted Answer

A)   velocity is not constant.
B)   changes in the money supply affect real GDP.
C)   the quantity of money explains prices..
D)   the money supply affects velocity.E) A) and C)
F) A) and D)

Question 19

Since classical economists believe that both V and Q are constants for an economy in short-run equilibrium,the equation of exchange becomes a theory in which:

Accepted Answer

A)   the quantity of money explains prices.
B)   the quantity of money explains velocity.
C)   the quantity of money explains real GDP.
D)   changes in M cause changes in V.
E)   prices are never flexibleF) B) and E)
G) B) and D)

Question 20

Exhibit 20-5 Money, Investment and product markets
 
-In Exhibit 20-5,when the money supply increases from MS₁ to MS₂,the equilibrium interest rate:

Accepted Answer

A)   remains unchanged.
B)   increases from i₂ to i₁, increasing investment spending from i₁ to i₂.
C)   increases from i₂ to i₁, decreasing investment spending from i₂ to i₁.
D)   decreases from i₁ to i₂, increasing investment spending from i₁ to i₂.
E)   decreases from i₁ to i₂, decreasing investment spending from i₂ to i₁.F) B) and D)
G) A) and B)

Exam 20: Monetary Policy

The money that households might hold either as money or in interest-bearing assets,depending on the interest rate,is called the:

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Exhibit 20-5 Money, Investment and product markets -In Exhibit 20-5,when the money supply increases from MS₁ to MS₂,the equilibrium interest rate:

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The opportunity cost of holding money balances increases when:

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Classical economists traditionally believed that:

Correct AnswerverifiedShow Answer

The impact of an increase in the money supply is a(n) :

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Which of the following is a reason for the Keynesian view that monetary policy plays a minor role in affecting the economy?

Correct AnswerverifiedShow Answer

Monetarists believe that:

Correct AnswerverifiedShow Answer

When a household takes extra (unbudgeted) money on a trip,economists would classify this money as held for a(n) :

Correct AnswerverifiedShow Answer

According to Keynesians,an increase in the money supply will have its least impact on GDP when the aggregate demand curve intersects:

Correct AnswerverifiedShow Answer

Since classical economists believe that both V and Q are constants for an economy in short-run equilibrium,the equation of exchange becomes a theory in which:

Correct AnswerverifiedShow Answer

Which of the following correctly gives us the equation of exchange?

Correct AnswerverifiedShow Answer

Adam Smith listed three types of motives for people holding money--transaction,precautionary,and speculative.

Correct AnswerverifiedShow Answer

A decrease in the interest rate,other things being equal,causes a(n) :

Correct AnswerverifiedShow Answer

Classical economists believe that:

Correct AnswerverifiedShow Answer

According to Keynesian theory,changes in the money supply have a direct and immediate impact on aggregate demand.

Correct AnswerverifiedShow Answer

The stock of money people hold to take advantage of expected future changes in the price of bonds,stocks,or other nonmoney financial assets is the:

Correct AnswerverifiedShow Answer

Suppose that the Fed makes a $100 billion open-market sale of Treasury bonds,and the money multiplier is 6.Which of the following impacts are most likely to result?

Correct AnswerverifiedShow Answer

If the velocity of the M1 money supply is 4 and nominal GDP is $200 billion,the stock of money in circulation must be:

Correct AnswerverifiedShow Answer

According to Keynesians,an increase in the money supply will have its greatest impact on GDP when the aggregate demand curve intersects:

Correct AnswerverifiedShow Answer

If M stand for the money supply,V for the velocity of money,P for the average selling price,and Q for the output of goods and services,the equation of exchange is MV = PQ.

Correct AnswerverifiedShow Answer

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