1. Contractionary monetary policy causes a short-run _____ in interest rates in the short run and _____ in interest rates in the long run.

• increase; an increase
• increase; no change
• decrease; no change
• decrease; a decrease

2. According to the liquidity preference model, a _____ in the money supply shifts the money supply curve to the _____ and increases the equilibrium interest rate.

• decrease; right
• decrease; left
• increase; left
• increase; right

3. Monetary policy affects aggregate demand through changes in:

• export demand.
• tax receipts.
• consumer and investment spending.
• government spending.

4. The demand for money is higher in Japan than in the United States because:

• Japanese banks pay interest on checking accounts.
• most stores in Japan do not accept credit cards.
• the average price level is lower in Japan.
• the ATMs are open all night.

5. People forgo interest and hold money:

• because they are required to.
• because banks are too risky.
• to reduce their transaction costs.
• because there are no substitutes for money.

6. Figure: Monetary Policy and the AD-SRAS Model

 Reference: Ref 15-7
(Figure: Monetary Policy and the AD-SRAS Model) Look at the figure Monetary Policy and the AD-SRAS Model. If the economy is in a recessionary gap at point f, it could move to point g as a result of:

• purchases of government securities in the open market.
• a decrease in government spending.
• a decrease in the money supply.
• an increase in the discount rate.

7. Scenario: Money and Interest Rates
Banks decide to do away with fees charged when other banks' customers use the bank's own ATM. Reference: Ref 15-10
(Scenario: Money and Interest Rates) Look at the scenario Money and Interest Rates. If the money supply remains constant, interest rates will likely:

• remain the same.
• increase or decrease, depending upon what maximizes profits for the largest commercial banks.
• increase.
• decrease.

8. When nominal wages increase, the short-run aggregate supply curve:

• shifts to the right.
• remains constant.
• disappears.
• shifts to the left.

9. If the equilibrium interest rate in the money market is 5%, then at an interest rate of 2% sellers of interest-bearing financial assets _____ interest rates to find willing buyers.

• Sales of financial assets do not depend on the rate offered.
• can offer 2%
• can offer lower
• must offer higher

10. If the economy is in a recessionary gap, the Federal Reserve should conduct _____ monetary policy by _____ the money supply.

• expansionary; increasing
• contractionary; increasing
• contractionary; decreasing
• expansionary; decreasing

11. If Congress imposes a $5 tax on each ATM transaction, the demand for money will likely:

• decrease.
• be unaffected.
• increase.
• fluctuate randomly.

12. If the equilibrium interest rate in the money market is 5%, then at an interest rate of 2%, money demanded is _____ than money supplied.

• It is impossible to predict which is greater, money demanded or money supplied.
• less than
• equal to
• greater than

13. Figure: Changes in the Money Supply

Reference: Ref 15-2
(Figure: Changes in the Money Supply) Look at the figure Changes in the Money Supply. If the supply of money shifts from S1 to S2, the Federal Reserve must have _____ Treasury bills in the open market.

• borrowed
• bought
• sold
• issued new

14. Long-term interest rates and short-term interest rates:

• usually move in lockstep.
• don't always move closely together.
• always move closely together.
• are independent of one another.

15. Contractionary monetary policy causes _____ in the price level in the short run and _____ in the price level in the long run.

• a decrease; a decrease
• no change; a decrease
• a decrease; no change
• no change; no change

16. The slope of the demand curve for money is:

• negative.
• horizontal.
• vertical.
• positive.

17. Which of the following describes the difference between the Taylor rule and inflation targeting?

• Inflation targeting responds to past inflation, and the Taylor rule is based on a forecast of inflation.
• Inflation targeting is used in conducting fiscal policy, while the Taylor rule is used in monetary policy.
• The Federal Reserve uses inflation targeting, and the Bank of England uses the Taylor rule.
• The Taylor rule responds to past inflation, and inflation targeting is based on a forecast of inflation.

18. If the money supply decreases by 5%, in the long run:

• the unemployment rate rises by 10%.
• the price level drops by 5%.
• interest rates rise by 5%.
• real GDP drops by 5%.