Chapter 17 Monetary Policy and Inflation

| November 9, 2018

1)
In the short run when prices don’t have enough time to change, the Federal
Reserve
A)
can influence the level of interest rates in the economy.
B)
cannot influence the level of interest rates in the economy.
C)
can influence the level of interest rates in the economy but generally will not
because it would be destabilizing.
D)
can only affect the amount of money in the economy.

2)
Generally, when the Federal Reserve lowers interest rates, investment spending
________ and GDP ________.
A)
increases; decreases
B)
increases; increases
C)
decreases; decreases
D)
decreases; increases

3)
When the Federal Reserve increases interest rates, investment spending ________
and GDP ________.
A)
increases; decreases
B)
increases; increases
C)
decreases; decreases
D)
decreases; increases

4)
The nominal interest rate is determined in the
A)
stock market.
B)
money market.
C)
exchange market.
D)
bond market.

5)
The transaction demand for money comes mostly from the fact that
A)
money is a store of value.
B)
money is a medium of exchange.
C)
money is a unit of account.
D)
money has low opportunity cost.

6)
The opportunity cost of holding money is
A)
heavy and awkward.
B)
the probability of theft or loss.
C)
the ease of conducting everyday business.
D)
the return that could have been earned from holding wealth in other assets.

7)
Suppose that the interest rate available to you on a long-term bond is 4%. If
you hold $1,000 of your wealth in currency instead of in the form of a bond,
the annual opportunity cost is
A)
$0.04.
B)
$4.
C)
$40.
D)
$400.

8)
At higher interest rates the
A)
money supply is higher.
B)
money supply is indeterminate.
C)
quantity of money demanded is higher.
D)
quantity of money demanded is lower.

9)
At lower interest rates the
A)
money supply is indeterminate.
B)
money supply is lower.
C)
quantity of money demanded is higher.
D)
quantity of money demanded is lower.

10)
An increase in the price level in the economy leads to
A)
a leftward shift in the demand for money curve.
B)
a rightward shift in the demand for money curve.
C)
a leftward movement along the demand for money curve.
D)
a rightward movement along the demand for money curve.

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