Econ 206 Chapter 15 Study Guide

Other things constant, an increase in the price level will _____ shift the money demand curve to the right. shift the money demand curve to the left. increase the quantity of money people want to hold. decrease the quantity of money people want to hold. have no impact on the money demand curve.

shift the money demand curve to the right.

If the velocity of money is 5.7 and nominal GDP is $18.6 trillion, then money supply is _____ $1.3 trillion. $3.25 trillion. $18.6 trillion. $20.8 trillion. $50 trillion.

$3.25 trillion

If the money supply is $600, the price level is $2, and real GDP is $300, the velocity of money is _____ 1. 150. 300. 600. 1,200.

1.

In an economy in which velocity is constant and real output grows at an average rate of 4 percent per year, a 4 percent average rate of growth in the money supply would result in _____ a constant price level. a slowly increasing price level. a rapidly increasing price level. constant real GDP. constant nominal GDP.

a constant price level.

In the long run, an expansionary monetary policy will lead to _____ a decrease in aggregate expenditure. an increase in unemployment. an increase in the price level. an increase in potential output. a decrease in the price level.

an increase in the price level

Which of the following would cause an increase in the velocity of money? an increase in the use of credit cards an increase in the money supply an increase in the demand for money a decrease in the rate of interest a decrease in nominal GDP and a constant money supply

an increase in the use of credit cards

If the money supply in an economy equals $10 trillion and nominal GDP equals $50 trillion, then according to the equation of exchange, the velocity of money _____ equals 1. equals 2. equals 5. cannot be determined since we do not know anything about prices. cannot be determined since we do not know anything about real GDP

equals 5.

An increase in investment can lead to a greater increase in aggregate demand if the value of the spending multiplier is _____ greater than 1. less than 1 but more than zero. negative. exactly equal to zero. exactly equal to one.

greater than 1.

The velocity of money in circulation measures _____ the average length of time that people hold wealth. how fast aggregate spending will increase for a given decline in money demand. how fast inflation will rise for a given increase in the money supply. how quickly money changes hands. how quickly banks can create money.

how quickly money changes hands.

To eliminate a recessionary gap, the Fed can _____ increase the money supply, as it will increase the interest rate and investment. increase the money supply, as it will decrease the interest rate and increase investment. decrease the money supply, as it will increase the interest rate and investment. decrease the money supply, as it will decrease the interest rate and investment. decrease the money supply, as it will increase the interest rate and decrease investment.

increase the money supply, as it will decrease the interest rate and increase 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 the velocity of money in circulation is constant. inflation rate of -4 percent, if the velocity of money in circulation is constant. $7 increase in the price level each year. $7 decrease in the price level each year. increase in the velocity of money in circulation.

inflation rate of 4 percent, if the velocity of money in circulation is constant.

Monetary policy influences the market interest rate, which in turn affects _____ investment, a component of aggregate demand. government spending, a component of aggregate demand. consumption, a component of aggregate demand. net exports, a component of aggregate demand. employment and price levels.

investment, a component of aggregate demand.

The demand for money is based primarily on money's role as a(n) _____ measure of wealth. medium of exchange. standard of economic well-being. interest-bearing asset. non-interest-bearing asset.

medium of exchange.

If the Fed adopts a contractionary monetary policy, eventually we can expect _____ aggregate demand to increase. short-run aggregate supply to decrease interest rates to decrease. planned investment expenditures to decrease. real gross domestic product to increase.

planned investment expenditures to decrease.

Exhibit 15.5 depicts the aggregate demand curve and the short-run aggregate supply curve of an economy. In this figure, short-run equilibrium occurs at _____ point b, where actual output exceeds potential output. point a, where actual output exceeds potential output. point c, where the actual price level exceeds the expected price level. point c, where the actual price level is less than the expected price level. point b, where the actual price level exceeds the expected price level.

point c, where the actual price level exceeds the expected price level.

Which of the following policies can be adopted by the Fed in order to stimulate an economy in the short run? increasing the market interest rate purchasing U.S. government securities increasing the discount rate increasing the price of consumer goods increasing the required reserve ratio

purchasing U.S. government securities

The opportunity cost of holding money increases when _____ the interest rate rises. the interest rate falls. the price level falls. nominal GDP rises. nominal GDP falls.

the interest rate rises.

In the long run, a change in the money supply does not affect the natural rate of unemployment because _____ the aggregate demand curve is vertical. the aggregate demand curve is downward sloping. the long-run aggregate supply curve is vertical. the long-run aggregate supply curve is upward sloping. the long-run aggregate supply curve is horizontal.

the long-run aggregate supply curve is vertical.

If real output and velocity are stable and predictable, then the equation of exchange can be used to derive a simple relationship between _____ the money supply and the price level. the money supply and the interest rate. the money supply and the foreign exchange rate. unemployment and aggregate demand. unemployment and nominal GDP.

the money supply and the price level

For a given increase in aggregate demand, the steeper the short-run aggregate supply curve, _____ the larger the increase in investment expenditure. the smaller the increase in the price level. the smaller the increase in real GDP. the larger the increase in real GDP. the smaller the increase in real interest rate.

the smaller the increase in real GDP.