Chapter 15

What is the name given to the macroeconomic equation MV = PQ?

basic velocity of money equation

basic quantity equation of output

basic quantity equation of money

basic velocity of price equation

 

basic quantity equation of money

When the central bank lowers the reserve requirement on deposits:

the money supply increases and interest rates decrease.

the money supply and interest rates decrease.

the money supply and interest rates increase.

the money supply decreases and interest rates increase.

the money supply increases and interest rates decrease.

A central bank that desires to reduce the quantity of money in the economy can:

raise the reserve requirement.

buy bonds in open market operations.

lower the discount rate.

engage in quantitative easing.

raise the reserve requirement.

If the economy is at potential GDP and the Central Bank adopts an expansionary monetary policy that shifts aggregate demand to the right, in the long run, the Central Bank will __________________.

create an inflationary increase in price level.

create an increase in GDP.

create an increase in unemployment.

create a deflationary loss in price level.

create an inflationary increase in price level.

If nominal GDP is 2700 and the money supply is 900, what is velocity?

25

13.5

3

.33

3

Atlantic Bank is required to hold 10% of deposits as reserves. If the central bank increases the discount rate, how would Atlantic Bank respond?

by noting a decrease in net worth

by increasing its reserves

its balance sheet will be unchanged

it can make more loans with increased loan assets

by increasing its reserves

Regardless of the outcome in the long run, ______________________ is designed to stimulate the economy in the short run.

expansionary monetary policy

contractionary monetary policy

reverse quantitative easing policy

tight monetary policy

expansionary monetary policy

What term is used to describe the interest rate charged by the central bank when it makes loans to commercial banks?

discount rate

reserve requirement

Fed rate

open market rate

discount rate

_______________ will often cause monetary policy to be considered counterproductive because it makes it hard for the central bank to know when the policy will take effect?

Altering the discount rate

Reserve requirements

Long and variable time lags

Quantitative easing

Long and variable time lags

Which of the following terms is used to describe the proportion of deposits that banks are legally required to deposit with the central bank?

discount requirements

deposit requirements

reserve requirements

monetary requirements

reserve requirements

When the Federal Reserve announces that it is implementing a new interest rate policy, it is actually targeting a change in the ____________________.

real interest rate

consumer lending rate

nominal interest rate

federal funds rate

federal funds rate

If the economy is in recession with high unemployment and output below potential GDP, then __________________ would cause the economy to return to its potential GDP?

a tight monetary policy

fewer loanable funds

a loose monetary policy

higher interest rates

a loose monetary policy

If nominal GDP is 1800 and the money supply is 450, then what is velocity?

25

4.5

4

22

4

According to the basic quantity equation of money, if price and output fall while velocity increases, then:

the quantity of money will rise.

the quantity of money will fall.

the quantity of money will rise before it falls.

the quantity of money will rise slowly.

the quantity of money will fall.

When the central bank decides to increase the discount rate, the:

money supply increases.

interest rates decrease.

interest rates are unaffected.

interest rates increase.

interest rates increase.

Which of the following is described as an innovative and nontraditional method used by the Federal Reserve to expand the quantity of money and credit during the Great Recession of 2007-2009?

increased discount rate

increased reserves requirements

open market operations

quantitative easing

quantitative easing

When a Central Bank makes a decision that will cause an increase in both the money supply and aggregate demand, it is:

following a loose monetary policy.

following a tight monetary policy.

following a contractionary monetary policy.

reversing quantitative easing.

following a loose monetary policy.

If the economy is at equilibrium as shown in the diagram above, then an expansionary monetary policy will:

have no effect on both unemployment and inflation.

reduce unemployment, but increase inflation.

reduce both unemployment and inflation.

reduce unemployment, but have little effect on inflation.

reduce unemployment, but increase inflation.

If GDP is 3600 and the money supply is 300, what is the velocity?

18

8

4.57

12

12

If a Central Bank decides it needs to decrease both the aggregate demand and the money supply, then it will:

follow expansionary monetary policy.

follow loose monetary policy.

follow tight monetary policy.

follow quantitative easing policy.

follow tight monetary policy.