According to the quantity theory, if constant growth in the money supply is combined with fluctuating velocity, which of the following is most likely to result?
  • create an inflationary increase in price level.
  • borrow for the short term from the central bank.
  • unpredictable rises and falls in nominal GDP
  • the quantity of money will fall.
If you were to survey central bankers from around the world and ask them what they believe the primary task of monetary policy should be, what would the most popular answer likely be?
  • fighting inflation
  • create an inflationary increase in price level.
  • quantitative easing
  • monitoring asset prices and leverage
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 recent U.S. recession?
  • quantitative easing
  • Central Bank
  • The Federal Reserve
  • requirements
____________________________ 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?
  • Long and variable time lags
  • an expansionary monetary policy.
  • Northern's loan assets increase by $30 million
  • increase of $1 million in Pacific's loan assets
If a Central Bank decides it needs to decrease both the aggregate demand and the money supply, then it will:
  • borrow for the short term from the central bank.
  • a contractionary monetary policy.
  • follow tight monetary policy.
  • following a loose monetary policy.
If GDP is 3600 and the money supply is 300, what is the velocity?
  • basic quantity equation of money
  • 4
  • 3
  • 12
The central bank uses a ____________________ monetary policy to offset business related economic contractions and expansions?
  • Central Bank
  • countercyclical
  • discount rate
  • a contractionary monetary policy.
If GDP is 2400 and the money supply is 600, then what is the velocity?
  • 4
  • 3
  • a higher discount rate
  • 12
The Central Bank has raised its reserve requirements from 10% to 12%. If Southern Bank finds that it is not holding enough in reserves to meet the higher requirements, then it will likely:
  • countercyclical
  • borrow for the short term from the central bank.
  • follow tight monetary policy.
  • following a loose monetary policy.
When the Federal Reserve announces that it is implementing a new interest rate policy, the ____________________ will be affected?
  • federal funds rate
  • the money supply decreases.
  • The Federal Reserve
  • interest rates increase.
Which of the following is a traditional tool used by the Fed during recessions?
  • altering the discount rate
  • a higher discount rate
  • open market operations
  • The Federal Reserve
What is the name given to the macroeconomic equation MV = PQ?
  • a higher discount rate
  • interest rates increase.
  • basic quantity equation of money
  • the quantity of money will fall.
According to the basic quantity equation of money, if price and output fall while velocity increases, then:
  • the quantity of money will fall.
  • a contractionary monetary policy.
  • following a loose monetary policy.
  • basic quantity equation of money
Atlantic Bank is required to hold 10% of deposits as reserves. If the central bank increases the discount rate, how would Atlantic Bank respond?
  • federal funds rate
  • buy bonds in open market operations.
  • monitoring asset prices and leverage
  • by increasing its reserves
When the Central Bank acts in a way that causes the money supply to increase while aggregate demand remains unchanged, it is:
  • increase of $1 million in Pacific's loan assets
  • an expansionary monetary policy.
  • Long and variable time lags
  • Northern's loan assets increase by $30 million
A central bank that wants to increase the quantity of money in the economy will:
  • buy bonds in open market operations.
  • follow tight monetary policy.
  • the money supply in the economy decreases
  • raise the reserve requirement.
How are the specific interest rates for the lending and borrowing markets determined?
  • an expansionary monetary policy.
  • increase of $1 million in Pacific's loan assets
  • Northern's loan assets increase by $30 million
  • by the forces of supply and demand
If nominal GDP is 2700 and the money supply is 900, what is velocity?
  • 3
  • 4
  • it negatively affects expansionary monetary policy.
  • interest rates increase.
What term is used to describe the interest rate charged by the central bank when it makes loans to commercial banks?
  • countercyclical
  • federal funds rate
  • discount rate
  • Central Bank
Regardless of the outcome in the long run, ______________________ always has the effect of stimulating the economy in the short run.
  • expansionary monetary policy
  • follow tight monetary policy.
  • following a loose monetary policy.
  • the quantity of money will fall.
When the central bank decides to increase the discount rate, the:
  • interest rates increase.
  • the money supply increases and interest rates decrease.
  • the money supply decreases.
  • altering the discount rate
If nominal GDP is 1800 and the money supply is 450, then what is velocity?
  • 12
  • 3
  • 4
  • raise the reserve requirement.
If the original level of aggregate demand is AD0, then an expansionary monetary policy that shifts aggregate demand to AD1 will only:
  • create an inflationary increase in price level.
  • fighting inflation
  • countercyclical
  • following a loose monetary policy.
The ___________________ is the institution designed to control the quantity of money in the economy and also to oversee the:
  • expansionary monetary policy
  • Long and variable time lags
  • a loose monetary policy
  • Central Bank; safety and stability of the banking system.
When a Central Bank makes a decision that will cause an increase in both the money supply and aggregate demand, it is:
  • follow tight monetary policy.
  • a contractionary monetary policy.
  • following a loose monetary policy.
  • the money supply decreases.
When the central bank lowers the reserve requirement on deposits:
  • the money supply decreases.
  • interest rates increase.
  • the money supply increases and interest rates decrease.
  • the money supply in the economy decreases
Central bank policy requires all banks to hold 10% of deposits as reserves. Pacific Bank policy prevents it from holding excess reserves. Suppose banks cannot trade any of the bonds they already have. If the central bank decides to lower the reserve requirement to 9%, which of the following will result?
  • by the forces of supply and demand
  • Northern's loan assets increase by $30 million
  • increase of $1 million in Pacific's loan assets
  • an expansionary monetary policy.
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 loose monetary policy
  • fighting inflation
  • federal funds rate
  • expansionary monetary policy
Which of the following institutions determines the quantity of money in the economy as its most important task?
  • requirements
  • quantitative easing
  • The Federal Reserve
  • Central Bank
When the central bank decides it will sell bonds using open market operations:
  • the money supply in the economy decreases
  • the money supply decreases.
  • the money supply increases and interest rates decrease.
  • interest rates increase.
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