Question 1

Which of the following is a true statement about the relationship between the price of bonds and the interest rate?

Accepted Answer

A)  The prices of bonds are directly related to the interest rate.
B)  The prices of bonds increase when the interest rates rise.
C)  The prices of bonds are unrelated to the interest rate.
D)  The prices of bonds are inversely related to the interest rate.E) A) and B)
F) None of the above

Question 2

According to both the equation of exchange and the quantity theory of money,

Accepted Answer

A)  an increase in the money supply will increase real Gross Domestic Product (GDP) .
B)  an increase in the money supply will decrease real Gross Domestic Product (GDP) .
C)  a decrease in the money supply will decrease the velocity of money.
D)  a decrease in the money supply will decrease the price level.E) B) and C)
F) A) and B)

Question 3

The transactions demand for money will increase when

Accepted Answer

A)  the rate of interest increases.
B)  the price level falls.
C)  nominal Gross Domestic Product (GDP) increases.
D)  nominal Gross Domestic Product (GDP) decreases.E) A) and C)
F) A) and B)

Question 4

The interest-rate-based monetary policy transmission mechanism suggests that the changes in the money supply affect aggregate spending

Accepted Answer

A)  indirectly through interest rates and planned investment spending.
B)  directly through interest rates and planned consumption spending.
C)  indirectly through tax rates and planned consumption spending.
D)  directly through interest rates and planned government spending.E) B) and D)
F) A) and C)

Question 5

What are the two features of money that distinguish it from all other goods in the economy?

Accepted Answer

A)  Money is government issued and it is redeemable for gold or silver.
B)  Money is accepted as a medium of exchange and it is the common unit of account used to express prices.
C)  Money is part of every barter transaction and it is divisible.
D)  Money is a common unit of account and it is also can be traded for other currencies at a guaranteed exchange rate.E) None of the above
F) B) and D)

Question 6

An appreciation of the U.S.dollar is most likely a result that

Accepted Answer

A)  the Fed has pursued an expansionary monetary policy.
B)  U.S.interest rates have increased.
C)  U.S.bond prices have increased.
D)  more dollars are required to obtain foreign currencies.E) A) and D)
F) A) and C)

Question 7

If the interest rate increases,the

Accepted Answer

A)  quantity of money demanded will remain unchanged.
B)  money demand curve will shift to the right.
C)  money demand curve will shift to the left.
D)  quantity of money demanded will fall.E) All of the above
F) A) and D)

Question 8

The Federal Reserve's credit policy refers to

Accepted Answer

A)  a direct credit on bank depositors' saving and checking accounts.
B)  regulations on terms on credit cards that banks issue.
C)  the Fed's direct lending to homeowners and students.
D)  the Fed's direct lending to financial and nonfinancial firms.E) B) and D)
F) B) and C)

Question 9

The federal funds rate is

Accepted Answer

A)  the interest rate paid on reserves held with the Fed.
B)  the interest rate at which banks can borrow excess reserves from other banks.
C)  the interest rate on bonds issued by the federal government.
D)  none of the above.E) A) and D)
F) B) and C)

Question 10

The price of bonds and the interest rate are

Accepted Answer

A)  inversely related.
B)  positively related.
C)  unrelated.
D)  related,but we are not sure how.E) B) and C)
F) C) and D)

Question 11

The demand for money curve depicts

Accepted Answer

A)  an inverse relationship between the quantity of money demanded and the quantity of bonds demanded.
B)  a direct relationship between the quantity of money demanded and the quantity of bonds demanded.
C)  an inverse relationship between the quantity of money demanded and the interest rate.
D)  a direct relationship between the quantity of money demanded and the interest rate.E) A) and B)
F) B) and C)

Question 12

Which of the following best describes the income velocity of money?

Accepted Answer

A)  V = P 
B)  V = Y
C)  V = PY/ 
D)  V =  /PYE) B) and C)
F) A) and C)

Question 13

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 C)
F) A) and D)

Question 14

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) C) and D)
F) All of the above

Question 15

The main reason people hold money is that

Accepted Answer

A)  money provides a standard of value.
B)  money is used to buy goods and services.
C)  money is intrinsically valuable.
D)  money is power.E) None of the above
F) All of the above

Question 16

When interest rates rise,the transactions demand for money usually

Accepted Answer

A)  decreases.
B)  increases.
C)  decreases initially and then increases to the original position.
D)  does not change.E) A) and B)
F) C) and D)

Question 17

Suppose the Fed conducts an open market purchase of bonds.This monetary policy action will tend to cause

Accepted Answer

A)  the price of bonds to increase,and the interest rate to increase.
B)  the price of bonds to increase,and the interest rate to decrease.
C)  the price of bonds to decrease,and the interest rate to increase.
D)  the price of bonds to decrease,and the interest rate to decrease.E) None of the above
F) A) and B)

Question 18

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) B) and C)
F) A) and D)

Question 19

The official Federal Reserve strategy for implementing its monetary policy objectives is spelled out in the

Accepted Answer

A)  Federal Reserve Board (FR
B)  Decree.
B)  Federal Reserve Bank Cooperative (FRB
C)  Proposal.
C)  Federal Advisory Committee (FA
C)  Statement.
D)  Federal Open Market Committee (FOM
C)  Directive.E) A) and D)
F) B) and D)

Question 20

An assumption used in the quantity theory of money is that

Accepted Answer

A)  the price level is constant.
B)  velocity is constant.
C)  nominal Gross Domestic Product (GDP) is constant.
D)  the money supply is constant.E) None of the above
F) B) and C)

Exam 16: Domestic and International Dimensions of Monetary Policy

An assumption used in the quantity theory of money is that

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The price of bonds and the interest rate are

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Which of the following is a true statement about the relationship between the price of bonds and the interest rate?

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The transactions demand for money will increase when

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If the interest rate increases,the

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Asset demand for money is holding money

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Which of the following best describes the income velocity of money?

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The Federal Reserve's credit policy refers to

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

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The federal funds rate is

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Suppose the Fed conducts an open market purchase of bonds.This monetary policy action will tend to cause

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What are the two features of money that distinguish it from all other goods in the economy?

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When interest rates rise,the transactions demand for money usually

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The interest-rate-based monetary policy transmission mechanism suggests that the changes in the money supply affect aggregate spending

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The official Federal Reserve strategy for implementing its monetary policy objectives is spelled out in the

Correct AnswerverifiedShow Answer

The main reason people hold money is that

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

According to both the equation of exchange and the quantity theory of money,

Correct AnswerverifiedShow Answer

An appreciation of the U.S.dollar is most likely a result that

Correct AnswerverifiedShow Answer

The demand for money curve depicts

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