Question 1

The demand for real money balances ________.

Accepted Answer

A)  is downward sloping with respect to prices
B)  is downward sloping with respect to interest rates
C)  is downward sloping with respect to income
D)  all of the above
E)  none of the aboveF) A) and B)
G) C) and D)

Question 2

In the very short run ________.

Accepted Answer

A)  the real interest rate will be affected by changes in the nominal rate
B)  monetary policy has an immediate effect on inflation
C)  the inflation rate is determined by the federal funds rate
D)  all of the above
E)  none of the aboveF) A) and C)
G) A) and D)

Question 3

The MP curve indicates the relationship between ________ and the ________.

Accepted Answer

A)  taxes;price level
B)  the real interest rate;inflation rate
C)  monetary policy;IS curve
D)  all of the above
E)  none of the aboveF) D) and E)
G) All of the above B

Question 4

"Real money balances" refers to ________.

Accepted Answer

A)  the quantity of goods and services that money can buy
B)  gold and silver
C)  money that is actually available to be spent
D)  all of the above
E)  none of the aboveF) A) and B)
G) B) and C)

Question 5

Suppose the nominal interest rate is five percent,and the inflation rate rises from two percent to three percent.Might an increase in the nominal interest rate to 5.5 percent be consistent with the Taylor Principle? If not,what consequences might ensue?

Accepted Answer

Yes,it might be.The Taylor Principle req...

Question 6

When the Federal Reserve ________.

Accepted Answer

A)  drains liquidity,the federal funds rate falls
B)  drains liquidity,real interest rates fall
C)  provides more liquidity,the federal funds rate falls
D)  all of the above
E)  none of the aboveF) A) and E)
G) None of the above

Question 7

If people begin to generally feel better about the future ________.

Accepted Answer

A)  autonomous consumption should rise
B)  autonomous investment should rise
C)  the AD curve will shift to the right
D)  all of the above
E)  none of the aboveF) B) and D)
G) A) and D)

Question 8

The MP curve may be used to represent how ________.

Accepted Answer

A)  movements of the inflation rate are determined by the real interest rate
B)  monetary policy responds to changes in the real interest rate
C)  movements of the real interest rate are related to the inflation rate
D)  all of the above
E)  none of the aboveF) B) and D)
G) A) and E)

Question 9

The IS curve is Y = 20 - 1.5r,and the aggregate demand curve is Y = 15.5 - 0.3π.When the inflation rate is 3 percent,output is ________.

Accepted Answer

A)  20
B)  14.6
C)  9.5
D)  3.6
E)  none of the aboveF) B) and D)
G) C) and D)

Question 10

Why is the demand for real money balances downward sloping?

Accepted Answer

A)  because the opportunity cost of holding money decreases as interest rates decrease
B)  because when the interest rate falls the quantity of money demanded increases
C)  because lower interest rates encourage firms and households to increase their money holdings
D)  all of the above
E)  none of the aboveF) C) and E)
G) A) and D)

Question 11

If the monetary policy curve is correct,then policy makers care only about inflation and not at all about aggregate output and unemployment.Comment.

Accepted Answer

The monetary policy curve is a concise e...

Question 12

If the central bank did not follow the Taylor principle,an increase in inflation would lead to ________.

Accepted Answer

A)  a decrease in the nominal interest rate
B)  an increase in inflation
C)  a decrease in aggregate expenditure
D)  all of the above
E)  none of the aboveF) A) and B)
G) B) and C)

Question 13

A shift of the MP curve ________.

Accepted Answer

A)  implies an automatic adjustment of the interest rate
B)  implies a direct policy action of the Federal Reserve
C)  does not alter the relationship between inflation and the interest rate
D)  all of the above
E)  none of the aboveF) A) and B)
G) A) and C)

Question 14

The IS curve is Y = 20 - 1.5r,and the aggregate demand curve is Y = 15.5 - 0.3π.When the interest rate is 7 percent,the inflation rate is ________ percent.

Accepted Answer

A)  14.6
B)  9.5
C)  3.6
D)  20
E)  none of the aboveF) B) and D)
G) C) and E)

Question 15

If government cuts taxes ________.

Accepted Answer

A)  after tax income should increase shifting AD to the left to a lower equilibrium level of output
B)  after tax income should increase shifting AD to the right to a higher equilibrium level of output
C)  after tax income and the equilibrium level of output remain unchanged
D)  after tax income remains unchanged but the equilibrium level of output would increase
E)  none of the aboveF) A) and E)
G) B) and D) B

Question 16

The supply curve for money ________.

Accepted Answer

A)  is upward sloping with respect to interest rates
B)  is fixed to a specified interest rate
C)  is fixed regardless of the interest rate
D)  is downward sloping with respect to interest rates
E)  none of the aboveF) C) and E)
G) C) and D)

Question 17

________ is a good measure of the opportunity cost of holding money.

Accepted Answer

A)  The real interest rate
B)  Liquidity preference
C)  Real income
D)  The inflation rate
E)  none of the aboveF) None of the above
G) A) and E)

Question 18

The AD Curve ________.

Accepted Answer

A)  demonstrates how central banks respond to changes in interest rates by changing the inflation rate
B)  shows how changes in equilibrium output affect the inflation rate
C)  explains long run fluctuations in output and inflation
D)  all of the above
E)  none of the aboveF) A) and D)
G) A) and C)

Question 19

A rightward shift of the money supply ________.

Accepted Answer

A)  may come about from an increase in the quantity of money supplied by the Federal Reserve
B)  may come about from a decrease in the price level
C)  leads to a decrease in interest rates ceteris paribus
D)  all of the above
E)  none of the aboveF) None of the above
G) C) and D)

Question 20

The Federal Reserve ________.

Accepted Answer

A)  sets the federal funds rate once a year
B)  controls the interest rate in the short run
C)  controls the interest rate in the long run
D)  all of the above
E)  none of the aboveF) B) and E)
G) None of the above B

Exam 10: Monetary Policy and Aggregate Demand

The demand for real money balances ________.

Correct AnswerverifiedShow Answer

In the very short run ________.

Correct AnswerverifiedShow Answer

The MP curve indicates the relationship between ________ and the ________.

Correct AnswerverifiedB

"Real money balances" refers to ________.

Correct AnswerverifiedShow Answer

Suppose the nominal interest rate is five percent,and the inflation rate rises from two percent to three percent.Might an increase in the nominal interest rate to 5.5 percent be consistent with the Taylor Principle? If not,what consequences might ensue?

Correct AnswerverifiedYes,it might be.The Taylor Principle req...View AnswerShow Answer

When the Federal Reserve ________.

Correct AnswerverifiedShow Answer

If people begin to generally feel better about the future ________.

Correct AnswerverifiedShow Answer

The MP curve may be used to represent how ________.

Correct AnswerverifiedShow Answer

The IS curve is Y = 20 - 1.5r,and the aggregate demand curve is Y = 15.5 - 0.3π.When the inflation rate is 3 percent,output is ________.

Correct AnswerverifiedShow Answer

Why is the demand for real money balances downward sloping?

Correct AnswerverifiedShow Answer

If the monetary policy curve is correct,then policy makers care only about inflation and not at all about aggregate output and unemployment.Comment.

Correct AnswerverifiedThe monetary policy curve is a concise e...View AnswerShow Answer

If the central bank did not follow the Taylor principle,an increase in inflation would lead to ________.

Correct AnswerverifiedShow Answer

A shift of the MP curve ________.

Correct AnswerverifiedShow Answer

The IS curve is Y = 20 - 1.5r,and the aggregate demand curve is Y = 15.5 - 0.3π.When the interest rate is 7 percent,the inflation rate is ________ percent.

Correct AnswerverifiedShow Answer

If government cuts taxes ________.

Correct AnswerverifiedB

The supply curve for money ________.

Correct AnswerverifiedShow Answer

________ is a good measure of the opportunity cost of holding money.

Correct AnswerverifiedShow Answer

The AD Curve ________.

Correct AnswerverifiedShow Answer

A rightward shift of the money supply ________.

Correct AnswerverifiedShow Answer

The Federal Reserve ________.

Correct AnswerverifiedB

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The MP curve indicates the relationship between and the .

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B

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Yes,it might be.The Taylor Principle req...
View Answer

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The monetary policy curve is a concise e...
View Answer

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B

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B