Question 1

If there is a decrease in the price level,

Accepted Answer

A)   there will be a rightward movement along a stationary money demand curve
B)   there will be a leftward movement along a stationary money demand curve
C)   the demand curve for money will shift rightward
D)   the demand curve for money will shift leftward
E)   there will be no movement of the demand curve for money and no movement along itF) B) and D)
G) A) and D)

Question 2

In the long run,the crowding-out effect of an increase in government purchases is

Accepted Answer

A)   more complete than in the short run
B)   canceled out by increases in infrastructure spending
C)   less complete than in the short run
D)   canceled out by improved consumer confidence
E)   a multiple of the initial change in spendingF) C) and E)
G) A) and C)

Question 3

An increase in government purchases will increase GDP by an amount equal to the change in government purchases times the expenditure multiplier.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is the most sensitive to interest rate changes?

Accepted Answer

A)   The demand for non-durable goods.
B)   The demand for inexpensive goods.
C)   The demand for durable goods.
D)   The demand for necessities.
E)   The demand for services.F) A) and E)
G) A) and D)

Question 5

If the Fed increases the money supply,the interest rate

Accepted Answer

A)   rises and spending increases
B)   rises and spending decreases
C)   falls and spending increases
D)   falls and spending decreases
E)   falls,business spending increases,and consumer spending decreasesF) C) and D)
G) A) and E)

Question 6

A decrease in the interest rate reduces the opportunity cost of holding money.

Accepted Answer

A) True 
 B)False

Question 7

In the short-run macro model,an increase in government spending

Accepted Answer

A)   may reduce real GDP
B)   partially crowds out private investment spending
C)   usually crowds out exports
D)   usually crowds out spending on services
E)   requires an increase in taxes.F) A) and B)
G) A) and C)

Question 8

Which of the following dampens the effect on GDP of a change in government spending?

Accepted Answer

A)   The money supply changes when real income changes.
B)   Taxes change when government spending changes.
C)   Money demand changes when real income changes.
D)   People do not expect much from the government.
E)   Aggregate spending does not respond to changes in the interest rate.F) C) and D)
G) B) and E)

Question 9

If the Fed wants to increase the interest rate,it will

Accepted Answer

A)   buy bonds and increase the money supply.
B)   buy bonds and decrease the money supply.
C)   sell bonds and increase the money supply.
D)   sell bonds and decrease the money supply.
E)   sell bonds and increase money demand.F) A) and E)
G) D) and E)

Question 10

If the demand for bonds increases,the

Accepted Answer

A)   price and quantity of bonds in existence both increase
B)   price of bonds increases,but the quantity of bonds in existence decreases
C)   price of bonds increases,but the quantity of bonds in existence remains unchanged
D)   interest rate and quantity of bonds in existence both increase
E)   interest rate increases,but the quantity of bonds in existence remains unchangedF) C) and D)
G) A) and E)

Question 11

The classical model's theory of the interest rate does not apply in the short run.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is a stock variable?

Accepted Answer

A)   Saving
B)   Consumption
C)   Income
D)   Investment
E)   Money.F) A) and B)
G) None of the above

Question 13

-Refer to Figure 14-5.If the Fed wishes to reduce the interest rate,it will

Accepted Answer

A)   increase money demand
B)   decrease money demand
C)   increase the money supply
D)   decrease the money supply
E)   simply set a lower market interest rateF) A) and C)
G) A) and D)

Question 14

An increase in the interest rate shifts the money demand curve to the right.

Accepted Answer

A) True 
 B)False

Question 15

If the quantity of money demanded exceeds the quantity of money supplied at a given interest rate,what will happen to restore the market to equilibrium?

Accepted Answer

A)   The public will try to buy bonds,the price of bonds will increase,and the interest rate will fall until equilibrium is attained where the money demand and supply curves intersect at the market interest rate.
B)   The public will try to sell bonds,the price of bonds will decrease,and the interest rate will rise until equilibrium is attained where the money demand and supply curves intersect at the market interest rate.
C)   The public will try to sell bonds,the price of bonds will increase,and the interest rate will fall until equilibrium is attained where the money demand and supply curves intersect.
D)   The public will try to buy bonds,the price of bonds will increase,and the interest rate will rise until equilibrium is attained where the money demand and supply curves intersect.
E)   The public will try to buy bonds,the price of bonds will decrease,and the interest rate will fall until equilibrium is attained where the money demand and supply curves intersect.F) A) and B)
G) A) and C)

Question 16

Open market sales of bonds by the Federal Reserve drain reserves from the banking system and shift

Accepted Answer

A)   the allocation of wealth between bonds and stocks
B)   the economy toward a trough in the business cycle
C)   the money supply curve leftward
D)   reserves to nonmember banks
E)   the demand for money curve leftwardF) B) and E)
G) None of the above

Question 17

A household's quantity of money demanded is defined as

Accepted Answer

A)   the amount of income that the household chooses to hold in the form of money,at each possible interest rate
B)   the amount of wealth that the household chooses to hold as money,rather than as other assets
C)   the household's desire to have greater financial wealth
D)   the percentage of each dollar of income that the household wishes to spend
E)   the total amount the household decides to hold in cash,bonds,and other assets,at each possible interest rate.F) A) and B)
G) D) and E)

Question 18

References in the newspaper to the bond market are usually references to

Accepted Answer

A)   the primary bond market
B)   the commodities market
C)   the secondary bond market
D)   the stock market
E)   the futures marketF) A) and C)
G) A) and D)

Question 19

The fact that total wealth is fixed at any point in time is referred to as the

Accepted Answer

A)   budget constraint.
B)   wealth constraint.
C)   wealth effect.
D)   hard asset effect.
E)   income effect.F) A) and E)
G) D) and E)

Question 20

Which of the following will lead to an increase in the quantity of money demanded?

Accepted Answer

A)   A decrease in the overall level of wealth in the economy
B)   A decrease in the price level
C)   A decrease in nominal income
D)   An increase in real income
E)   A decrease in real incomeF) A) and D)
G) C) and E)

Exam 14: The Money Market and Monetary Policy

References in the newspaper to the bond market are usually references to

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In the short-run macro model,an increase in government spending

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Which of the following is the most sensitive to interest rate changes?

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Which of the following will lead to an increase in the quantity of money demanded?

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In the long run,the crowding-out effect of an increase in government purchases is

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An increase in government purchases will increase GDP by an amount equal to the change in government purchases times the expenditure multiplier.

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-Refer to Figure 14-5.If the Fed wishes to reduce the interest rate,it will

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The classical model's theory of the interest rate does not apply in the short run.

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A decrease in the interest rate reduces the opportunity cost of holding money.

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A household's quantity of money demanded is defined as

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The fact that total wealth is fixed at any point in time is referred to as the

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Which of the following is a stock variable?

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If the Fed wants to increase the interest rate,it will

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If the demand for bonds increases,the

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Open market sales of bonds by the Federal Reserve drain reserves from the banking system and shift

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Which of the following dampens the effect on GDP of a change in government spending?

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If the Fed increases the money supply,the interest rate

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If there is a decrease in the price level,

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An increase in the interest rate shifts the money demand curve to the right.

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If the quantity of money demanded exceeds the quantity of money supplied at a given interest rate,what will happen to restore the market to equilibrium?

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