Chapter 16

The amount of money people wish to hold shows an inverse relationship to

the interest rate.

Which of the following is a variable in the equation of exchange?

the price level,the money supply,the velocity of money,real GDP.

The equation of exchange is an ________ while the quantity theory of money is a theory that ________.

accounting identity; assumes velocity is held constant

Which of the following will cause a reduction in the amount of money individuals wish to hold?

an increase in the interest rate

Asset demand for money is holding money

as a store of value instead of other assets.

The asset demand for money is

greater at low interest rates, because the opportunity cost of holding money is low.

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

impacts net exports.

The quantity theory of money and prices asserts that

increases in the money supply lead to inflation.

In economics, the demand for money is basically a demand for

liquidity.

An appreciation of the U.S. dollar

makes our exports more expensive in terms of foreign currency and imports cheaper in terms of the dollar, decreasing net exports.

Suppose that the Fed has decided to utilize the Taylor rule to implement monetary policy. If the actual federal funds rate target is presently below the level specified by the Taylor rule and has been lower then this level for several weeks, then this would be a signal that

monetary policy is very expansionary.

Suppose the actual federal funds rate is equal to the rate implied by a particular inflation goal. In this situation, the Taylor rule implies that

monetary policy will tend to produce that inflation rate.

The relationship between the quantity of money balances demanded and the interest rate is

negative.

In the interest-rate-based transmission mechanism, a decrease in the money supply will

reduce investment, shift the aggregate demand function inward, and lower real Gross Domestic Product (GDP).

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

results in a proportionate increase in the price level.

Which of the following best represents the equation of exchange?

M * V = P * Y

What is the most common reason people demand money?

People desire to use money as a medium of exchange when they buy goods and services

An appreciation of the U.S. dollar is most likely a result that

U.S. interest rates have increased.