MACRO FINAL 3/6
Which one of the following statements is correct?
A vertical money supply curve means that the quantity of money supplied is independent of the interest rate.
An increase in the money supply will cause a decrease in planned investment spending.
False
When people exchange money for financial assets, the interest rate rises.
False
When the short-run aggregate supply curve is steep, then for a given increase in aggregate demand,
the increase in real GDP will be relatively small and the increase in the price level will be relatively large
Which of the following is not assumed to be constant along the money demand curve?
the interest rate
If the Fed increases the money supply, then
the interest rate declines and the quantity of money demanded increases
The opportunity cost of holding money increases when
the interest rate rises
If the quantity of money supplied exceeds the quantity of money demanded,
the interest rate will fall
Velocity will be higher
the less effective money is as a store of value
Those who argue against interest rate targets for monetary policy claim that
the necessary changes in money supply reinforce business cycles
If investment is not sensitive to changes in the interest rate, then changes in the money supply
will have little effect on aggregate demand
Which of the following would cause a downward movement along the money demand curve?
a decrease in the interest rate
Which of the following would most likely lower the velocity of money?
a lower inflation rate
In the long run, an increase in aggregate demand
affects only the price level
In the aggregate demand-aggregate supply model, a decrease in the money supply will cause a short-run
decrease in both the price level and real GDP
As the price level rises, money __________ causing interest rates to __________ and investment spending to __________.
demand rises; rise; fall
The money demand curve slopes
downward because the cost of holding money decreases as the interest rate decreases
Historical evidence has shown that the M1 velocity of money in the United States
has varied over the century and has recently fluctuated a quite a bit
If the Fed increases the money supply, GDP
increases because the resulting decrease in the interest rate leads to an increase in investment
In an economy in which real output grows at an average rate of 3 percent per year, a 7 percent average rate of growth in the money supply would result in a(n)
inflation rate of 4 percent, if velocity were constant
An increase in the money supply will
lead people to try to exchange money for interest-bearing assets
People will hold __________ money as the interest rate __________ because they will __________ other financial assets.
more; decreases; sell
According to the equation of exchange, if nominal GDP equals $6 trillion and the money supply equals $1 trillion, the velocity of money
must be 6
The equation of exchange states that
nominal GDP = money in circulation * velocity
If the Fed sells government securities to banks, eventually we expect
planned investment expenditures to decrease
The demand for money varies
positively with both the price level and the level of real GDP
If interest rates are __________ to changes in the money supply and planned investment expenditures are __________ to interest rate changes, then monetary policy will be effective in changing aggregate demand.
responsive; sensitive
If the money supply decreases, the opportunity cost of holding money __________ and people will want to hold __________ quantity of money.
rises; a smaller
The quantity theory of money states that
since velocity is reasonably stable, we can predict the effects of an increase in the money supply on nominal income
In an economy in which velocity is constant and real output grows at an average rate of 3 percent per year, a 5 percent average rate of growth in the money supply would result in a
slowly increasing price level
The quantity theory of money
states that the quantity of money in circulation determines only the price level in the long run
If the Fed expands the money supply, a short-run aggregate supply curve __________ would yield the largest short-run increase in real GDP.
that is relatively flat
Which monetary policy would be appropriate to close a contractionary gap?
the Fed's purchase of U.S. government securities
In the history of monetary policy, the period of October 1979 to October 1982 was notable for
the emphasis placed on controlling the money supply during that period
In the United States over the last decade, the velocity of
M2 has been more stable than the velocity of M1, possibly because of the deregulation of the interest paid on checkable deposits
Suppose the money demand curve shifts rightward. Which of the following is true about the Fed's options?
The Fed can keep the interest rate from rising only if it increases the money supply.
If the Fed sells U.S. government securities to drain reserves from banks, which of the following will probably occur?
The interest rate will rise and the quantity of money demanded will fall.
