Question 1

In the graph of the money market,the money supply curve is

Accepted Answer

A)  vertical.It shifts rightward if the Fed buys bonds.
B)  vertical.It shifts rightward if the Fed sells bonds.
C)  upward sloping.It shifts rightward if the Fed buys bonds.
D)  upward sloping.It shifts rightward if the Fed sells bonds.E) A) and B)
F) A) and C)

Question 2

A surplus or shortage in the money market is eliminated by adjustments in the price level according to

Accepted Answer

A)  both liquidity preference theory and classical theory.
B)  neither liquidity preference theory nor classical theory.
C)  liquidity preference theory,but not classical theory.
D)  classical theory,but not liquidity preference theory.E) A) and B)
F) A) and C)

Question 3

People hold money primarily because it

Accepted Answer

A)  increases in value when there is inflation.
B)  serves as a store of value.
C)  serves as a medium of exchange.
D)  functions as a unit of account.E) B) and D)
F) A) and C)

Question 4

According to liquidity preference theory,if the price level increases,then the equilibrium interest rate

Accepted Answer

A)  rises and the aggregate quantity of goods demanded rises.
B)  rises and the aggregate quantity of goods demanded falls.
C)  falls and the aggregate quantity of goods demanded rises.
D)  falls and the aggregate quantity of goods demanded falls.E) A) and B)
F) A) and C)

Question 5

If there is excess demand for money,then people will

Accepted Answer

A)  deposit more money into interest-bearing accounts,and the interest rate will fall.
B)  deposit more money into interest-bearing accounts,and the interest rate will rise.
C)  withdraw money from interest-bearing accounts,and the interest rate will fall.
D)  withdraw money from interest-bearing accounts,and the interest rate will rise.E) A) and B)
F) A) and D)

Question 6

Suppose that the Federal reserve is concerned about the effects of falling stock prices on the economy.What could it do?

Accepted Answer

A)  buy bonds to raise the interest rate
B)  buy bonds to lower the interest rate
C)  sell bonds to raise the interest rate
D)  sell bonds to raise the interest rate.E) A) and B)
F) None of the above

Question 7

An increase in the U.S.interest rate

Accepted Answer

A)  raises the opportunity cost of holding dollars.
B)  induces households to increase consumption.
C)  shifts money demand to the right.
D)  leads to a depreciation of the U.S.dollar.E) B) and C)
F) A) and D)

Question 8

If expected inflation is constant and the nominal interest rate decreases by 2 percentage points,then the real interest rate

Accepted Answer

A)  increases by 2 percentage points.
B)  increases,but by less than 2 percentage points.
C)  decreases,but by less than 2 percentage points.
D)  decreases by 2 percentage points.E) B) and C)
F) None of the above

Question 9

If the Federal Reserve decided to raise interest rates,it could

Accepted Answer

A)  buy bonds to lower the money supply.
B)  buy bonds to raise the money supply.
C)  sell bonds to lower the money supply.
D)  sell bonds to raise the money supply.E) A) and D)
F) B) and C) C

Question 10

People choose to hold a larger quantity of money if

Accepted Answer

A)  the interest rate rises,which causes the opportunity cost of holding money to rise.
B)  the interest rate falls,which causes the opportunity cost of holding money to rise.
C)  the interest rate rises,which causes the opportunity cost of holding money to fall.
D)  the interest rate falls,which causes the opportunity cost of holding money to fall.E) C) and D)
F) A) and D) D

Question 11

Figure 34-1 
-Refer to Figure 34-1.Which of the following is correct?

Accepted Answer

A)  If the interest rate is 4 percent,there is excess money demand,and the interest rate will fall.
B)  If the interest rate is 3 percent,there is excess money supply,and the interest rate will rise.
C)  Starting with an interest rate of 4 percent,the demand for goods and services will increase until the money market reaches a new equilibrium.
D)  None of the above is correct.E) A) and D)
F) None of the above

Question 12

If people decide to hold less money,then

Accepted Answer

A)  money demand decreases,there is an excess supply of money,and interest rates rise.
B)  money demand decreases,there is an excess supply of money,and interest rates fall.
C)  money demand increases,there is an excess demand for money,and interest rates fall.
D)  money demand increases,there is an excess demand for money,and interest rates rise.E) A) and D)
F) All of the above

Question 13

If the price level rises,then

Accepted Answer

A)  the interest rate falls and spending on goods and services falls.
B)  the interest rate falls and spending on goods and services rises.
C)  the interest rate rises and spending on goods and services falls.
D)  the interest rate rises and spending on goods and services rises.E) C) and D)
F) A) and D) C

Question 14

The interest rate that the Federal Reserve pays banks on the reserves they hold is called the

Accepted Answer

A)  open-market rate.
B)  discount rate.
C)  preference rate.
D)  None of the above are correct.E) None of the above
F) A) and D)

Question 15

When the interest rate is above the equilibrium level,

Accepted Answer

A)  the quantity of money that people want to hold is less than the quantity of money that the Federal Reserve has supplied.
B)  people respond by buying interest-bearing bonds or by depositing money in interest-bearing bank accounts.
C)  bond issuers and banks respond by lowering the interest rates they offer.
D)  All of the above are correct.E) All of the above
F) A) and C)

Question 16

When there is an excess supply of money,

Accepted Answer

A)  people will try to get rid of money causing interest rates to rise.Investment increases.
B)  people will try to get rid of money causing interest rates to fall.Investment decreases.
C)  people will try to get rid of money causing interest rates to fall.Investment increases.
D)  people will try to get rid of money causing interest rates to rise.Investment decreases.E) A) and B)
F) A) and C)

Question 17

With respect to their impact on aggregate demand for the U.S.economy,which of the following represents the correct ordering of the wealth effect,interest-rate effect,and exchange-rate effect from most important to least important?

Accepted Answer

A)  wealth effect,exchange-rate effect,interest-rate effect
B)  exchange-rate effect,interest-rate effect,wealth effect
C)  interest-rate effect,wealth effect,exchange-rate effect
D)  interest-rate effect,exchange-rate effect,wealth effectE) A) and B)
F) None of the above

Question 18

If the interest rate decreases

Accepted Answer

A)  or if the price level increases,then people will want to hold more money.
B)  or if the price level increases,then people will want to hold less money.
C)  or if the price level decreases,then people will want to hold more money.
D)  or if the price level decreases,then people will want to hold less money.E) C) and D)
F) None of the above

Question 19

According to classical macroeconomic theory,

Accepted Answer

A)  output is determined by the supplies of capital and labor and the available production technology.
B)  for any given level of output,the interest rate adjusts to balance the supply of,and demand for,loanable funds.
C)  given output and the interest rate,the price level adjusts to balance the supply of,and demand for,money.
D)  All of the above are correct.E) B) and C)
F) A) and D)

Question 20

Other things the same,which of the following happens if the price level rises?

Accepted Answer

A)  Money demand shifts rightward.
B)  Initially there is an excess demand for money in the money market.
C)  The interest rate rises.
D)  All of the above are correct.E) B) and C)
F) None of the above

Exam 21: The Influences of Monetary and Fiscal Policy on Aggregate Demand: How Monetary Policy Influences Aggregate Demand

In the graph of the money market,the money supply curve is

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A surplus or shortage in the money market is eliminated by adjustments in the price level according to

Correct AnswerverifiedShow Answer

People hold money primarily because it

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According to liquidity preference theory,if the price level increases,then the equilibrium interest rate

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If there is excess demand for money,then people will

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Suppose that the Federal reserve is concerned about the effects of falling stock prices on the economy.What could it do?

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An increase in the U.S.interest rate

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If expected inflation is constant and the nominal interest rate decreases by 2 percentage points,then the real interest rate

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If the Federal Reserve decided to raise interest rates,it could

Correct AnswerverifiedC

People choose to hold a larger quantity of money if

Correct AnswerverifiedD

Figure 34-1 -Refer to Figure 34-1.Which of the following is correct?

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If people decide to hold less money,then

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If the price level rises,then

Correct AnswerverifiedC

The interest rate that the Federal Reserve pays banks on the reserves they hold is called the

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When the interest rate is above the equilibrium level,

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When there is an excess supply of money,

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With respect to their impact on aggregate demand for the U.S.economy,which of the following represents the correct ordering of the wealth effect,interest-rate effect,and exchange-rate effect from most important to least important?

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If the interest rate decreases

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According to classical macroeconomic theory,

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Other things the same,which of the following happens if the price level rises?

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C

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D

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C

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