MACROMACROMACRO

If there is an increase in nominal income, which of the following will most likely occur in the short run?

The demand for money will increase.

Expansionary fiscal policy will most likely result in

an increase in nominal interest rates

The amount of money that the public wants to hold in the form of cash will

decrease if interest rates increase

An inflationary gap can be eliminated by all of the following EXCEPT

an increase in the money supply

If the interest rate on short-term government bonds declined as a result of policy actions by a central bank, the central bank must have

decreased its administered interest rates

The demand for money increases when national income increases because

spending on goods and services increases

For which of the following sets of unemployment and inflation rates will a central bank be most reluctant to decrease its administered interest rates?

5 & 10

Which of the following would lead to an increase in nominal interest rates?

A contractionary monetary policy accompanied by an increase in the demand for money

Assume a banking system with limited reserves. During a recession, an increase in the money supply would result in which of the following?

A decrease in interest rates, an increase in interest-sensitive spending, and an increase in real output

When an economy is operating below the full-employment level of output, an appropriate monetary policy would be to decrease which of the following?

Administered interest rates

When a central bank conducts open-market bond sales in a banking system with limited reserves, the money supply, interest rate, and aggregate demand will change in which of the following ways in the short run?

An increase in administered interest rates

An increase in the price level will most likely cause which of the following?

An increase in the demand for money

Country H's current domestic output is lower than its potential domestic output. Assume that the central bank now decreases its administered interest rates. What will be the short-run effects of the central bank's action on cyclical unemployment and real income?

Cyclical unemployment will decrease, and real income will increase.

If the Federal Reserve pursues a contractionary monetary policy, output and the price level will change in which of the following ways in the short run?

DECREASE

When a central bank conducts open-market bond sales in a banking system with limited reserves, the money supply, interest rate, and aggregate demand will change in which of the following ways in the short run?

DECREASE INCREASE Decrease

Assuming the banking system has limited reserves, an increase in the money supply is most likely to have which of the following short-run effects on real interest rates and real output?

DECREASE INCREASE

Which of the following is a monetary policy used to counter the effect on employment of a negative supply shock in the short run?

Decreasing administered interest rates

An increase in administered interest rates will most likely change the nominal interest rate and aggregate demand in which of the following ways in the short run?

INCREASE DECREASE

A country's economy is in equilibrium at point H. Which of the following policies would be most effective to reduce the price level in the short run?

Increasing interest on reserves

With a constant money supply, if the demand for money decreases, the equilibrium interest rate and quantity of money will change in which of the following ways?

Interest Rate Decrease Quantity of Money no change

The economy is currently operating at long-run equilibrium. The central bank engages in expansionary monetary policy. How will the central bank's action affect the economy's real output and the price level in the short run?

Real output will increase, and the price level will increase.

If a central bank increases its administered interest rates, it is most likely responding to which of the following?

Rising price levels

Assuming a banking system with limited reserves, which of the following is a monetary policy action a central bank would implement to control inflation?

Sell government bonds to the public

Which of the following is most likely to increase if the public decides to increase its holdings of currency?

The interest rate

Assume a country's banking system has limited reserves. Which of the following results when the central bank sells bonds to commercial banks?

The money supply decreases.

Which of the following is true when interest rates rise?

The opportunity cost of holding cash increases.

Which of the following changes will necessarily occur as a result of an increase in the nominal interest rate?

The quantity of money demanded will decrease.

To reduce inflation, the central bank would be most likely to

increase its administered interest rates

If a country's economy is operating below the full-employment level of output at a very low inflation rate, the central bank of the country is most likely to

lower administered interest rates to generate an increase in output

Assume a country's banking system has limited reserves. To counteract a recession, the central bank should

buy securities on the open market and lower the discount rate