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60. Refer to Figure 34-2. What is measured along the horizontal axis of the left-hand graph?
a.
nominal output
b.
real output
c.
the opportunity cost of holding money
d.
the quantity of money
61. Refer to Figure 34-2. What does Y represent on the horizontal axis of the right-hand graph?
a.
the quantity of money
b.
the rate of inflation
c.
real output
d.
nominal output
62. Refer to Figure 34-2. Which of the following quantities is held constant as we move from one point to another on
either graph?
a.
the nominal interest rate
b.
the quantity of money demanded
c.
investment
d.
the expected rate of inflation
63. Refer to Figure 34-2. If the graphs apply to an economy such as the U.S. economy, then the slope of the AD curve is
primarily attributable to the
a.
wealth effect.
b.
interest-rate effect.
c.
exchange-rate effect.
d.
Fisher effect.
64. Refer to Figure 34-2. A decrease in Y from Y1 to Y2 is explained as follows:
a.
The Federal Reserve increases the money supply, causing the money-demand curve to shift from MD1 to
MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to
Y2.
b.
An increase in P from P1 to P2 causes the money-demand curve to shift from MD1 to MD2; this shift of MD
causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2.
c.
A decrease in P from P2 to P1 causes the money-demand curve to shift from MD1 to MD2; this shift of MD
causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2.
d.
An increase in the price level causes the money-demand curve to shift from MD2 to MD1; this shift of MD
causes r to decrease from r2 to r1; and this decrease in r causes Y to decrease from Y1 to Y2.
65. Refer to Figure 34-2. As we move from one point to another along the money-demand curve MD1,
a.
the price level is held fixed at P1.
b.
the interest rate is held fixed at r1.
c.
the money supply is changing so as to keep the money market in equilibrium.
d.
the expected inflation rate is changing so as to keep the real interest rate constant.
66. Refer to Figure 34-2. If the money-supply curve MS on the left-hand graph were to shift to the left, this would
a.
represent an action taken by the Federal Reserve.
b.
shift the AD curve to the left.
c.
create, until the interest rate adjusted, an excess demand for money at the interest rate that equilibrated the
money market before the shift.
d.
All of the above are correct.
67. Refer to Figure 34-2. Assume the money market is always in equilibrium. Under the assumptions of the model,
a.
the real interest rate is lower at Y2 than it is at Y1.
b.
the quantity of money is the same at Y1 as it is at Y2.
c.
the price level is lower at r2 than it is at r1.
d.
All of the above are correct.
68. Refer to Figure 34-2. Assume the money market is always in equilibrium. Under the assumptions of the model,
a.
the quantity of goods and services demanded is higher at P2 than it is at P1.
b.
the quantity of money is higher at Y1 than it is at Y2.
c.
an increase in r from r1 to r2 is associated with a decrease in Y from Y1 to Y2.
d.
All of the above are correct.
69. Refer to Figure 34-2. Assume the money market is always in equilibrium, and suppose r1 = 0.08; r2 = 0.12; Y1 =
13,000; Y2 = 10,000; P1 = 1.0; and P2 = 1.2. Which of the following statements is correct?
a.
When r = r2, nominal output is higher than it is when r = r1.
b.
When r = r2, real output is higher than it is when r = r1.
c.
When r = r2, the expected rate of inflation is higher than it is when r = r1.
d.
If the velocity of money is 4 when r = r2, then the quantity of money is $3,000.
70. Refer to Figure 34-2. Assume the money market is always in equilibrium, and suppose r1 = 0.08; r2 = 0.12; Y1 =
13,000; Y2 = 10,000; P1 = 1.0; and P2 = 1.2. Which of the following statements is correct? When P = P2,
a.
investment is lower than it is when P = P1.
b.
nominal output is higher than it is when P = P1.
c.
the expected rate of inflation is higher than it is when P = P1.
d.
the velocity of money is higher than it is when P = P1.
Figure 34-3.
71. Refer to Figure 34-3. What quantity is represented by the downward-sloping line on the left-hand graph?
a.
the supply of money
b.
the demand for money
c.
the rate of inflation
d.
Aggregate Demand.
72. Refer to Figure 34-3. Which of the following sequences (numbered arrows) shows the logic of the interest-rate effect?
a.
1, 2, 3, 4
b.
1, 4, 3, 2
c.
3, 4, 2, 1
d.
3, 2, 1, 4
73. Refer to Figure 34-3. For an economy such as the United States, what component of the demand for goods and
services is most responsible for the decrease in output from Y1 to Y2?
a.
consumption
b.
investment
c.
net exports
d.
government spending
74. According to liquidity preference theory, if the quantity of money demanded is greater than the quantity supplied, then
the interest rate will
a.
increase and the quantity of money demanded will decrease.
b.
increase and the quantity of money demanded will increase.
c.
decrease and the quantity of money demanded will decrease.
d.
decrease and the quantity of money demanded will increase.
75. When households find themselves holding too much money, they respond by
a.
purchasing interest-earning financial assets and interest rates fall.
b.
purchasing interest-earning financial assets and interest rates rise.
c.
holding the extra money and interest rates rise.
d.
selling interest-earning financial assets, which eliminates the excess supply of money.
76. According to liquidity preference theory, if the quantity of money supplied is greater than the quantity demanded, then
the interest rate will
a.
increase and the quantity of money demanded will decrease.
b.
increase and the quantity of money demanded will increase.
c.
decrease and the quantity of money demanded will decrease.
d.
decrease and the quantity of money demanded will increase.
77. According to liquidity preference theory, if there were a surplus of money, then
a.
the interest rate would be above equilibrium and the quantity of money demanded would be too large for
equilibrium.
b.
the interest rate would be above equilibrium and the quantity of money demanded would be too small for
equilibrium.
c.
the interest rate would be below equilibrium and the quantity of money demanded would be too small for
equilibrium.
d.
the interest rate would be below equilibrium and the quantity of money demanded would be too large for
equilibrium.
78. The interest rate would fall and the quantity of money demanded would
a.
increase if there were a surplus in the money market.
b.
increase if there were a shortage in the money market.
c.
decrease if there were a surplus in the money market.
d.
decrease if there were a shortage in the money market.
79. As the interest rate falls,
a.
the quantity of money demanded falls, which would reduce a shortage.
b.
the quantity of money demanded falls, which would reduce a surplus.
c.
the quantity of money demanded rises, which would reduce a shortage.
d.
the quantity of money demanded rises, which would reduce a surplus.
80. The interest rate falls if
a.
the price level falls or the money supply falls.
b.
the price level falls or the money supply rises.
c.
the price level rises or the money supply falls.
d.
the price level rises or the money supply rises.
81. If, at some interest rate, the quantity of money demanded is less than the quantity of money supplied, people will
desire to
a.
sell interest-bearing assets, causing the interest rate to decrease.
b.
sell interest-bearing assets, causing the interest rate to increase.
c.
buy interest-bearing assets, causing the interest rate to decrease.
d.
buy interest-bearing assets, causing the interest rate to increase.
82. If, at some interest rate, the quantity of money supplied is less than the quantity of money demanded, people will
desire to
a.
sell interest-bearing assets, causing the interest rate to decrease.
b.
sell interest-bearing assets, causing the interest rate to increase.
c.
buy interest-bearing assets, causing the interest rate to decrease.
d.
buy interest-bearing assets, causing the interest rate to increase.
83. Which of the following is correct?
a.
A higher price level shifts money demand rightward.
b.
When money demand shifts rightward, the interest rate rises.
c.
A higher interest rate reduces the quantity of goods and services demanded.
d.
All of the above are correct.
84. If the Fed increases the money supply,
a.
the interest rate increases, which tends to raise stock prices.
b.
the interest rate increases, which tends to reduce stock prices.
c.
the interest rate decreases, which tends to raise stock prices.
d.
the interest rate decreases, which tends to reduce stock prices.
85. When there is an excess supply of money,
a.
people will try to get rid of money causing interest rates to rise. Investment increases.
b.
people will try to get rid of money causing interest rates to fall. Investment decreases.
c.
people will try to get rid of money causing interest rates to fall. Investment increases.
d.
people will try to get rid of money causing interest rates to rise. Investment decreases.
86. If there is excess demand for money, then people will
a.
deposit more money into interest-bearing accounts, and the interest rate will fall.
b.
deposit more money into interest-bearing accounts, and the interest rate will rise.
c.
withdraw money from interest-bearing accounts, and the interest rate will fall.
d.
withdraw money from interest-bearing accounts, and the interest rate will rise.
87. If there is excess money supply, people will
a.
deposit more into interest-bearing accounts, and the interest rate will fall.
b.
deposit more into interest-bearing accounts, and the interest rate will rise.
c.
withdraw money from interest-bearing accounts, and the interest rate will fall.
d.
withdraw money from interest-bearing accounts, and the interest rate will rise.
88. People might withdraw money from interest-bearing accounts,
a.
making the interest rate fall, if there is a surplus in the money market.
b.
making the interest rate rise, if there is a surplus in the money market.
c.
making the interest rate fall, if there is a shortage in the money market.
d.
making the interest rate rise, if there is a shortage in the money market.
89. Which of the following statements is correct?
a.
Both liquidity preference theory and classical theory assume the interest rate adjusts to bring the money
market into equilibrium.
b.
Both liquidity preference theory and classical theory assume the price level adjusts to bring the money market
into equilibrium.
c.
Liquidity preference theory assumes the interest rate adjusts to bring the money market into equilibrium;
classical theory assumes the price level adjusts to bring the money market into equilibrium.
d.
Liquidity preference theory assumes the price level adjusts to bring the money market into equilibrium;
classical theory assumes the interest rate adjusts to bring the money market into equilibrium.
90. Changes in the interest rate bring the money market into equilibrium according to
a.
both liquidity preference theory and classical theory.
b.
neither liquidity preference theory nor classical theory.
c.
liquidity preference theory, but not classical theory.
d.
classical theory, but not liquidity preference theory.
91. If the price level rises, then
a.
the interest rate falls and spending on goods and services falls.
b.
the interest rate falls and spending on goods and services rises.
c.
the interest rate rises and spending on goods and services falls.
d.
the interest rate rises and spending on goods and services rises.
92. According to the interest-rate effect, an increase in the price level will
a.
increase money demand and interest rates. Investment declines.
b.
increase money demand and interest rates. Investment increases.
c.
increase money demand, reduce interest rates, and investment increases.
d.
decrease money demand and interest rates. Investment declines.
93. A surplus or shortage in the money market is eliminated by adjustments in the price level according to
a.
both liquidity preference theory and classical theory.
b.
neither liquidity preference theory nor classical theory.
c.
liquidity preference theory, but not classical theory.
d.
classical theory, but not liquidity preference theory.
94. Which of the following statements is correct for the long run?
a.
Output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the
supply and demand for money; the price level adjusts to balance the supply and demand for loanable funds.
b.
Output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the
supply and demand for loanable funds; the price level adjusts to balance the supply and demand for money.
c.
Output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the
supply and demand for loanable funds; the price level is relatively slow to adjust.
d.
Output responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supply
and demand for loanable funds; the price level adjusts to balance the supply and demand for money.
95. Which of the following statements is correct for the short run?
a.
Output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the
supply and demand for money; the price level adjusts to balance the supply and demand for loanable funds.
b.
Output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the
supply and demand for loanable funds; the price level adjusts to balance the supply and demand for money.
c.
Output responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supply
and demand for money; the price level is relatively slow to adjust.
d.
Output responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supply
and demand for loanable funds; the price level adjusts to balance the supply and demand for money.
96. The short-run effects on the interest rate are
a.
shown equally well using either liquidity preference theory or classical theory.
b.
best shown using classical theory.
c.
best shown using liquidity preference theory.
d.
not shown well by either liquidity preference theory or classical theory.
97. An increase in the interest rate could have been caused by
a.
a fall in the price level causing the money-demand curve to shift leftward.
b.
a fall in the price level causing the money-demand curve to shift rightward.
c.
a rise in the price level causing the money-demand curve to shift leftward.
d.
a rise in the price level causing the money-demand curve to shift rightward.
98. The interest rate falls if
a.
either money demand or money supply shifts right.
b.
money demand shifts right or money supply shifts left.
c.
either money demand or money supply shifts left.
d.
money demand shifts left or money supply shifts right.
99. People will want to hold more money if the price level
a.
or if the interest rate increases.
b.
or if the interest rate decreases.
c.
increases or if the interest rate decreases.
d.
decreases or if the interest rate increases.
100. People will want to hold less money if the price level
a.
increases or if the interest rate increases.
b.
decreases or if the interest rate decreases.
c.
increases or if the interest rate decreases.
d.
decreases or if the interest rate increases.
101. If the interest rate decreases
a.
or if the price level increases, then people will want to hold more money.
b.
or if the price level increases, then people will want to hold less money.
c.
or if the price level decreases, then people will want to hold more money.
d.
or if the price level decreases, then people will want to hold less money.
102. Which of the following events would shift money demand to the right?
a.
an increase in the price level
b.
a decrease in the price level
c.
an increase in the interest rate
d.
a decrease in the interest rate
103. Which of the following events would shift money demand to the right?
a.
an increase in the interest rate or an increase in the price level
b.
an increase in the interest rate, but not an increase in the price level
c.
an increase in the price level, but not an increase in the interest rate
d.
neither an increase in the interest rate nor an increase in the price level
104. Which of the following events would shift money demand to the left?
a.
an increase in the price level
b.
a decrease in the price level
c.
an increase in the interest rate
d.
a decrease in the interest rate
105. Which of the following events would shift money demand to the left?
a.
an increase in the interest rate or an increase in the price level
b.
an increase in the interest rate, but not an increase in the price level
c.
an increase in the price level, but not an increase in the interest rate
d.
neither an increase in the interest rate nor an increase in the price level
106. Assume the money market is initially in equilibrium. If the price level increases, then according to liquidity
preference theory there is an excess
a.
supply of money until the interest rate increases.
b.
supply of money until the interest rate decreases.
c.
demand for money until the interest rate increases.
d.
demand for money until the interest rate decreases.
107. Assume the money market is initially in equilibrium. If the price level decreases, then according to liquidity
preference theory there is an excess
a.
supply of money until the interest rate increases.
b.
supply of money until the interest rate decreases.
c.
demand for money until the interest rate increases.
d.
demand for money until the interest rate decreases.
108. Other things the same, which of the following happens if the price level rises?
a.
Money demand shifts rightward.
b.
Initially there is an excess demand for money in the money market.
c.
The interest rate rises.
d.
All of the above are correct.
109. According to liquidity preference theory, if the price level decreases, then
a.
the interest rate falls because money demand shifts right.
b.
the interest rate falls because money demand shifts left.
c.
the interest rate rises because money supply shifts right.
d.
the interest rate rises because money supply shifts left.
110. According to liquidity preference theory, if the price level increases, then the equilibrium interest rate
a.
rises and the aggregate quantity of goods demanded rises.
b.
rises and the aggregate quantity of goods demanded falls.
c.
falls and the aggregate quantity of goods demanded rises.
d.
falls and the aggregate quantity of goods demanded falls.
111. According to liquidity preference theory, an increase in the price level shifts the
a.
money demand curve rightward, so the interest rate increases.
b.
money demand curve rightward, so the interest rate decreases.
c.
money demand curve leftward, so the interest rate decreases.
d.
money demand curve leftward, so the interest rate increases.
112. According to liquidity preference theory, a decrease in the price level shifts the
a.
money demand curve rightward, so the interest rate increases.
b.
money demand curve rightward, so the interest rate decreases.
c.
money demand curve leftward, so the interest rate decreases.
d.
money demand curve leftward, so the interest rate increases.
113. An increase in the U.S. interest rate
a.
raises the opportunity cost of holding dollars.
b.
induces households to increase consumption.
c.
shifts money demand to the right.
d.
leads to a depreciation of the U.S. dollar.
114. Other things the same, a decrease in the U.S. interest rate
a.
induces firms to invest more.
b.
shifts money demand to the left.
c.
makes the U.S. dollar appreciate.
d.
increases the opportunity cost of holding dollars.
115. Other things the same, which of the following responses would we expect from an increase in U.S. interest rates?
a.
Your aunt puts more money in her savings account.
b.
Foreign citizens decide to buy fewer U.S. bonds.
c.
You decide to purchase a new oven for your cookie factory.
d.
All of the above are correct.
116. Other things the same, which of the following responses would we expect to result from a decrease in U.S. interest
rates?
a.
U.S. citizens decide to hold more foreign bonds.
b.
People choose to hold more currency.
c.
You decide to purchase a new oven for your cookie factory.
d.
All of the above are correct.
117. Other things equal, in the short run a lower price level leads households to
a.
increase consumption and firms to buy more capital goods.
b.
increase consumption and firms to buy fewer capital goods.
c.
decrease consumption and firms to buy more capital goods.
d.
decrease consumption and firms to buy fewer capital goods.
118. According to liquidity preference theory, an increase in the price level causes the interest rate to
a.
increase, which increases the quantity of goods and services demanded.
b.
increase, which decreases the quantity of goods and services demanded.
c.
decrease, which increases the quantity of goods and services demanded.
d.
decrease, which decreases the quantity of goods and services demanded.
