Macroeconomic-Exam4c

Description:	bradley r. schiller
Category:	Business
Created by:	leepao07 on 2009-07-31

Question	Answer
the federal reserves system can use its powers to alter the______	money supply
the total quantity of output demanded at alternative price levels in a given time period, ceteris paribus	aggregate demand
money held for future financial opportunities	speculative demand for money
equal to the nominal rate of interet minus the inflation rate	real rate of interest
the quantities of money ppl are willing and able to hold at alternative interest rates, ceteris paribus	demand for money
the choice of how and hwere to hold idle funds	portfolio decision
the interest rate that banks charge other banks for borrowed reserves in the _______ rate	federal funds
a decrease in private-sector borrowing and spending because of an increase in governemnt spending	crowding out
the number of times per year a dollar is used to purchase final goods and services	income velocity of money
determined by the intersection of the money demand curve and the money supply curve	equilibrium rate of interest
the use of an inflation ceiling to signal the need for monetary-policy adjustment	inflation targeting
money held for everyday purchases	transactions demand for money
money held for emergencies	precautionary demand for money
the mathematical formula used by monetarists to explain how monetary policy works	equation of exchange
the long-run rate of unemployment determined by structural forces	natural rate of unemployment
the use of money and credit controls to influence the macroeconomy	monetary policy
the portion of the money demand curve that is horizontal	liquidity trap
the price paid for the use of money	interest rate
people who hold idle money balances incur no costs	false
the downward slope of the money-demand curve indicates that the quantity of money people are willing abd able to hold increases as interest rate falls	true
when the fed buys securities and causes interests rates to fall, investment spending increases, thereby increasing AD	true
monetary policy affects the macro economy by shifting aggregate supply	false
if the interest rate is in teh liquidity-trap range, monetary policy is very effective	false
the liquidity trap ocurs because the opportunity cost of holding money is low at low interest	true
monetarists believe that changes in teh money supply increase aggregate demand by lowering interst rates	false
according to the equation of exchange, totla spending will rise if the money supply grows and velocity is stable	true
the assumption of a natural rate of unemployment implies that M is stable in the equation of exchange	flase
monetarists believe that an increase in government spending will "crowding out" private-sector spending and as a result the mix of output will change but AD will not shift	true
the opportuntiy cost of holding money will increase if: a)interest rate rise b)bond yields fall c)bond pricer rise d)the price level falls	a)interest rate rise
by adding together the speculative, transactions, and precautionary demands for money, one can obtain the: a)market demand curve for money b)keynesian liquidity trap c)monetarist demand-for-money curve d)market supply curve for money	a)market demand curve for money
the intersection of the market demand for money and the market supply of money estabilshes the: a)equilibrium of supply and demand of investment goods b)real rate of interest c)equilibrium rate of interest d)equilibrium average price level for economy	c)equilibrium rate of interest
refer to question #4	b)equilibrium interest rate should go down, but equilibrium quantity would reamin unchanged
refer to question #5	d)the equilibrium price level and output will both decrease
in keynesian model, effectiveness of monetary policy depnds on which of follwin? a)fed's ability to influnce money supply b)sensitvty of interest rates to changes in money supply c)sensitivity of investment spending to changes in interst rates d)all above	d) all of the above
refer to question #7	a) increse in M, decrease in interest rate, incrase in I
refer to question #8	c)and the investment demand curve are downward sloping, but neither is vertical nor horizontal
refer to quesiton #9	c)equilibrium interest rate should go down, and the rate of investment should go up
which of the following fed actions is most likely to increase the aggregate demand curve? a)reducing the discount rate b)selling bonds in the open market c)raising the reserve requirement d)raising the federal funds rate	a)reducing the discount rate
monetary stimulus will fail if: a)the investment demand curve is perfectly inelastic b)the investment demand curve is elastic c)the interest rate is above the liquidity trap	a)the investment demand curve is perfectly inelastic
when money market is in equilibrium in liquidity trap: a)dmeand for money is perfctly insensitive to interest rate b)an incrase in the money supply does not affect interst rates c)there is no speculative demand for money d)investment spending falls to 0	b)an increase in teh money supply does not affect interest rates
which of the following acts as a constraints on expansionary monetary policy? a)interest rate are responsive to a change in the money supply b)business expectation are optimistic c)banks are reluctant to lend money d)fed reduces the reserve requirement	c)banks are reluctant to lend money
which of the following positions can be attributed to the monetarists? a)"only money matters" b)"velocity is constant" c)"government expenditures crowd out private expenditures" d)all of the above are monetarist positions	d)all of the above are monetarist positions
which of the following is a monetarist assumption, which plays a key role in explaining the monetarist view that fiscal policy is ineffective? a)the liquidity trap b)crowding out c)ustable velocity of money d)a vetical aggregate demand curve	b)crowding out
refer to question #16	c)the equilibrium price level would increase but output would stay the same
monetarists argue tat velocity of money: a)in constnt b)is reducd wen fiscal policy puts idle money balances to wrk c)increases wen thr is a recession becus ppl accumulate money balances d)incrases as much as total spendin falls so tat MV remains constant	a)is constant
the existence of a natural rate of unemployment implies that in the long run: a)V in the equation of exchange is actually very unstable b)monetary policy affects only the rate of inflation c)Q in the equation of exchange varies in proportion to M	b)monetary policy affects only the rate of inflation
an increase in teh money supply will: a)always causes inflation b)nevr cause inflation c)cause inflation only if aggregate supply is horizontal d)cause infaltion if aggregate supply is upward sloping or vertical	d)cause infaltion if aggregate supply is upward sloping or vertical
refer to question #20	b)keynesians target interest rates, monetarists target steady money growth, and the fed targets a mix of the two
federal funds rate	the interest rate for interbank reserve loans
the fed's goal of stimulating the economy is achieved in three distinct steps:	1. an increase in the money supply 2. a reduction in interest rates 3. an increase in aggregate demand
monetary restraint is achieved with what?	1. a decrease in the money supply 2. an increase in interest rate 3. a decrease in aggregate demand
constraints on Monetary Stimulus	1. short vs. long-term rates 2. reluctant lenders 3. liquidity trap 4. low expectations 5. time lags
equation of exchange	MV=PQ
MV=PQ stands for?	M=the quantity of money in circulation V=its velocity of circulation P=the average price of goods times the quantity Q=the quantity of goods sold in a period
rule in simplifying the explanation of how monetary policy works	if M increases, prices (P) or output (Q) must rise, or V must fall
real interest rate	the nominal rate of interest minus anticipated inflation rate
real interest rate formula	nominal interest rate minus anticipated inflation rate
nominal interest rate formula	real interest rate plus anticipated rate of inflation