1. The velocity of money is
a. the rate at which the price index for consumer goods rises.
b. the multiple by which an increase in government expenditures will cause output to rise.
c. set by the Board of Governors of the Federal Reserve System.
d. the average number of times one dollar buys final goods and services during a year.
2. A decrease in the nominal interest rate would
a. encourage people to hold larger money balances.
b. encourage people to hold smaller money balances.
c. force the Fed to increase the money supply.
d. cause households to decrease consumption.
3. The demand curve for money
a. shows the amount of money balances that individuals and businesses wish to hold at various interest rates.
b. reflects the open market operations policy of the Federal Reserve.
c. shows the amount of money individuals and businesses wish to hold at various price levels.
d. reflects the discount rate policy of the Federal Reserve.
4. If unemployment were 12 percent and prices were rising
2 percent annually, which of the following would be the most appropriate
a. a decrease in planned government expenditures
b. a decrease in the Fed's reserve requirements
c. the sale of U.S. securities by the Federal Reserve
d. an increase in the discount rate
5. "Monetary instability has been the major cause of economic
instability in this country. Expansion in the money supply has been the
source of every major inflation. Every major recession has been either
caused or perpetuated by monetary contraction." Who among the following
would most likely adhere to this view?
c. supply-side economists
d. early proponents of the quantity theory of money
6. Suppose the Fed has reduced the money supply in an
effort to decelerate inflation. If decision makers anticipate that the
Fed will soon shift back to a more expansionary monetary policy, the decline
in the money supply will
a. be more effective as an anti-inflationary weapon.
b. be less effective as an anti-inflationary weapon.
c. reduce aggregate demand by a larger amount than if decision makers expect the restrictive policy to continue.
d. leave aggregate demand unchanged because expectations do not influence the effectiveness of macropolicy.
7. If monetary authorities persistently expand the money
supply more rapidly than real output, the probable result will be
b. lower money interest rates.
c. rapid growth of real output.
d. an increase in real private investment.
8. Which of the following accurately summarizes the transmission
of restrictive monetary policy to the goods and services market?
a. Higher real interest rates will lead to a reduction in both business investment and consumer purchases of durable items, causing a reduction in aggregate demand.
b. The exchange rate value of the dollar will rise, causing U.S. exports to fall and imports to rise. With lower net exports, aggregate demand will fall.
c. Bank reserves will fall and loans will become less available to small- and medium-sized businesses. The investment undertaken by these businesses will fall, leading to a reduction in aggregate demand.
d. All of the above are true.
9. Suppose the U.S. Treasury finances a budget deficit
by selling securities to the public. The money supply will
a. increase because the demand deposits of the Treasury will increase.
b. decrease because the demand deposits of the public will decrease.
c. decrease because the money in the hands of the Fed will increase.
d. remain unchanged as long as the government spends what is borrowed.
10. Starting from a position of macroeconomic equilibrium
at the full-employment level of real GDP, in the short run an unanticipated
increase in the money supply will
a. raise real interest rates, lower prices, and reduce real GDP.
b. raise real interest rates, lower prices, and leave real GDP unchanged.
c. raise nominal interest rates, lower prices, and leave real GDP unchanged.
d. lower real interest rates, raise prices, and increase real GDP.