QUESTION 71 To close a recessionary gap, the Fed would increase the money supply

Question

QUESTION 71

To close a recessionary gap, the Fed would

increase the money supply.

increase interest rates.

sell bonds.

decrease the money supply.

1.11 points   

QUESTION 72

The "direct effect" of an increase in the money supply is to

increase aggregate demand as interest rates fall and investment spending increases.

increase aggregate supply as producers anticipate higher future profits.

increase aggregate demand as people spend their excess money balances.

decrease the rate of inflation.

1.11 points   

QUESTION 73

The "indirect effect" of an increase in the money supply is to

increase aggregate supply as firms anticipate future profits.

increase aggregate demand as interest rates fall and investment spending increases.

decrease the price level.

increase aggregate demand as people try to spend their excess money balances.

1.11 points   

QUESTION 74

An inflationary gap currently exists. The Fed wants to bring the economy to a full employment level by using open market operations. The Fed should

increase the differential between the discount rate and the federal funds rate.

buy government securities.

decrease the differential between the discount rate and the federal funds rate.

sell government securities.

1.11 points   

QUESTION 75

In the real world, contractionary monetary policy would be used to

increase nominal GDP.

combat a recession.

increase long-run aggregate supply.

reduce the rate of inflation.

1.11 points   

QUESTION 76

It has been observed that a change in monetary policy in the United States

has little or no effect on foreign markets.

leads to corresponding changes in other countries.

has only short run influences.

impacts net exports.

1.11 points   

QUESTION 77

The net-export effect of expansionary monetary policy is a(n)

depreciation of the value of the dollar and the increase of U.S. net exports.

depreciation of the value of the dollar and the decrease of U.S. net exports.

appreciation of the value of the dollar and the decrease of U.S. net exports.

appreciation of the value of the dollar and the increase of U.S. net exports.

1.11 points   

QUESTION 78

The net-export effect of contractionary monetary policy is a(n)

appreciation of the value of the dollar and the decrease of U.S. net exports.

depreciation of the value of the dollar and the decrease of U.S. net exports.

appreciation of the value of the dollar and the increase of U.S. net exports.

depreciation of the value of the dollar and the increase of U.S. net exports.

1.11 points   

QUESTION 79

Other things being equal, the quantity theory of money suggests that any increase in the money supply

results in a decrease in the aggregate price level.

causes a reduction in the demand for money.

causes the aggregate level of nominal Gross Domestic Product (GDP) to fall.

results in a proportionate increase in the price level.

1.11 points   

QUESTION 80

The velocity of money

indicates the speed with which the U.S. Treasury can mint new coins.

is, according to the equation of exchange, equal to P/M.

indicates the number of times per year a dollar is spent on final goods and services.

is, according to the equation of exchange, equal to M/Y.

1.11 points   

QUESTION 81

The equation of exchange specifies that

Ms = PVY.

MsP = VY.

MsV = PY.

velocity and money supply are directly related.

1.11 points   

QUESTION 82

The monetary transmission mechanism that assumes that money supply growth stimulates the economy primarily by encouraging investment is

pre-Keynesian transmission mechanism.

the interest-rate-based transmission mechanism.

the classical transmission mechanism.

the post-Keynesian transmission mechanism.

1.11 points   

QUESTION 83

The interest-rate-based monetary policy transmission mechanism emphasizes the

direct effect of a change in the money supply that operates via a change in total planned production generated by a change in the price level.

indirect effect of a change in the money supply that operates via a change in total planned expenditures generated by a change in the interest rate.

direct effect of a change in the money supply that operates via a change in total planned expenditures generated by a change in the interest rate.

indirect effect of a change in the money supply that operates via a change in total planned production generated by a change in the price level.

1.11 points   

QUESTION 84

If the Fed wants to target interest rates, it must

control the value for velocity.

coordinate its activities with the largest private banks in the United States.

give up trying to control the money supply.

control the money supply.

1.11 points   

QUESTION 85

The interest rate that the Fed charges banks to borrow funds from the Fed is the

money market rate.

discount rate.

nominal interest rate.

federal funds rate.

1.11 points   

QUESTION 86

The federal funds rate is

the interest rate paid on reserves held with the Fed.

the interest rate at which banks can borrow excess reserves from other banks.

the interest rate on bonds issued by the federal government.

none of the above.

1.11 points   

QUESTION 87

In addition to open market operations and the required reserve ratio, another tool of monetary policy available to the Fed is

tax rates and the progressivity of the income-tax system.

fiscal policy.

the difference between the discount rate and the federal funds rate.

government spending and various transfer-payment programs.

1.11 points   

QUESTION 88

The Taylor rule implies that the Fed should set the federal funds target based on which of the following?

an estimated long-run real interest rate

the current deviation of the actual inflation rate from the Fed's inflation objective

the proportionate gap between actual real GDP and a measure of potential real GDP

all of the above

1.11 points   

QUESTION 89

According to Keynes, the effect on planned real investment spending resulting from the interest-rate impact of an increase in the money supply

impacts the economy by increasing the value of the U.S. dollar.

impacts the economy by reducing the deficit.

does not impact the economy.

impacts the economy through the multiplier.

1.11 points   

QUESTION 90

According to Keynes, the effect on planned real investment spending resulting from the interest-rate impact of a decrease in the money supply

impacts the economy by reducing the value of the U.S. dollar.

does not impact the economy.

impacts the economy by increasing the deficit.

impacts the economy through the multiplier.

increase the money supply.

increase interest rates.

sell bonds.

decrease the money supply.

Explanation / Answer

71. decrease the money supply.

72. increase aggregate demand as people spend their excess money balances.

73. increase aggregate demand as interest rates fall and investment spending increases.

74. buy government securities.

75. reduce the rate of inflation.

76. impacts net exports.

77. depreciation of the value of the dollar and the increase of U.S. net exports.

78. appreciation of the value of the dollar and the decrease of U.S. net exports.

79. results in a proportionate increase in the price level.

MV = PY if V and Y are constant then, increase in M leads to proportional increase in price.

80. indicates the number of times per year a dollar is spent on final goods and services.

81. MsV = PY.

84. control the money supply.

85. discount rate.

86. none of the above.

87. the difference between the discount rate and the federal funds rate.

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