ECO 111 Exam 4: Chapters 15, 16, 18
questions with answers rated A+
The opportunity cost of holding money will increase if: - correct answer ✔✔Interest rates rise
By adding together the speculative, transactions, and precautionary demands for money, one
can obtain: - correct answer ✔✔The market demand curve for money
The intersection of the market demand for money and the market supply of money establishes
the: - correct answer ✔✔Equilibrium rate of interest
If the supply curve of money is vertical, what should happen to the equilibrium interest rate and
equilibrium quantity of money as a result of a recession? - correct answer ✔✔Equilibrium
interest rate should go down, but equilibrium quantity would remain unchanged
Given an upward-sloping supply curve, which of the following is most likely if the Fed pursues
restrictive monetary policy? - correct answer ✔✔The equilibrium price level and output will
both decrease
In the Keynesian model, the effectiveness of monetary policy depends on which of the
following? - correct answer ✔✔All of the above
Which of the following is a series of events used by Keynesians to describe the steps by which
expansionary monetary policy works in the short run? - correct answer ✔✔Increase in M,
decrease in interest rate, increase in I
Monetary policy will be most effective if: - correct answer ✔✔The demand curve for money and
the investment demand curve are downward sloping, but neither is vertical or horizontal
, What should happen to the equilibrium interest rate and the corresponding rate of investment
if the Fed lowers the minimum reserve ratio? - correct answer ✔✔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? -
correct answer ✔✔Buying bonds in the open market
Monetary stimulus will fail if: - correct answer ✔✔The investment demand curve is perfectly
inelastic
When the money market is in equilibrium in the liquidity trap: - correct answer ✔✔An increase
in the money supply does not affect interest rates
Which of the following acts as a constraint on expansionary monetary policy? - correct answer
✔✔All of the above
Which of the following positions can be attributed to the monetarists? - correct answer ✔✔All
of the above
Which of the following is a monetarist assumption, which plays a key role in explaining the
monetarist view that the fiscal policy is ineffective? - correct answer ✔✔Crowding out
Given monetarist assumptions about the shape of the aggregate supply curve, which of the
following would most likely result if the Fed pursues expansionary monetary policy? - correct
answer ✔✔The equilibrium price level would increase but output would stay the same
Monetarists argue that the velocity of money: - correct answer ✔✔Is constant
questions with answers rated A+
The opportunity cost of holding money will increase if: - correct answer ✔✔Interest rates rise
By adding together the speculative, transactions, and precautionary demands for money, one
can obtain: - correct answer ✔✔The market demand curve for money
The intersection of the market demand for money and the market supply of money establishes
the: - correct answer ✔✔Equilibrium rate of interest
If the supply curve of money is vertical, what should happen to the equilibrium interest rate and
equilibrium quantity of money as a result of a recession? - correct answer ✔✔Equilibrium
interest rate should go down, but equilibrium quantity would remain unchanged
Given an upward-sloping supply curve, which of the following is most likely if the Fed pursues
restrictive monetary policy? - correct answer ✔✔The equilibrium price level and output will
both decrease
In the Keynesian model, the effectiveness of monetary policy depends on which of the
following? - correct answer ✔✔All of the above
Which of the following is a series of events used by Keynesians to describe the steps by which
expansionary monetary policy works in the short run? - correct answer ✔✔Increase in M,
decrease in interest rate, increase in I
Monetary policy will be most effective if: - correct answer ✔✔The demand curve for money and
the investment demand curve are downward sloping, but neither is vertical or horizontal
, What should happen to the equilibrium interest rate and the corresponding rate of investment
if the Fed lowers the minimum reserve ratio? - correct answer ✔✔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? -
correct answer ✔✔Buying bonds in the open market
Monetary stimulus will fail if: - correct answer ✔✔The investment demand curve is perfectly
inelastic
When the money market is in equilibrium in the liquidity trap: - correct answer ✔✔An increase
in the money supply does not affect interest rates
Which of the following acts as a constraint on expansionary monetary policy? - correct answer
✔✔All of the above
Which of the following positions can be attributed to the monetarists? - correct answer ✔✔All
of the above
Which of the following is a monetarist assumption, which plays a key role in explaining the
monetarist view that the fiscal policy is ineffective? - correct answer ✔✔Crowding out
Given monetarist assumptions about the shape of the aggregate supply curve, which of the
following would most likely result if the Fed pursues expansionary monetary policy? - correct
answer ✔✔The equilibrium price level would increase but output would stay the same
Monetarists argue that the velocity of money: - correct answer ✔✔Is constant
