Quiz # 4

2020. 10. 3. Quiz # 4:Ch.
16 & Instr material: SC 2018 FALL-ECN211 21556
Quiz # 4:Ch.16 & Instr material

Due Oct 29, 2018 at 11:59pm Points 50 Questions 50
Available Oct 11, 2018 at 6am - Oct 29, 2018 at 11:59pm 19 days
Time Limit 90 Minutes Allowed Attempts 2
Instruc ons
To prepare for Test # 4
1. Read Ch.16 (all pages) from the text.
2. Read the Instructor handout for Monetary Policy given out in class.
3. Go through the power point slides for Ch.16:
4. Take the print practice test found given out in class.
5. Complete the ESSAY Q re Monetary Policy now available under the Modules/Essays folder.
6. Finally take Practice Quiz # 4 by following the instructions listed below.
Instructions for taking Quiz # 4
Quiz # 4 is worth 50 points of your grade. It is now available on Canvas from

Oct.11th /2018 until Oct.29th /2018/11.59 pm. Click on the Modules tab. Then click on "ONLINE
QUIZZES" folder and click on Quiz # 3 to start the test. This quiz will ask you to answer 50 questions
picked randomly by Canvas. You will have 1 hour 30 minutes to complete the test. You may
make two attempts to take the test and the highest score among the two will be counted towards
your grade.. You must click the "Submit" button at the conclusion of your test. Otherwise Canvas will
not record your grade!
This quiz was locked Oct 29, 2018 at 11:59pm.
A empt History
Attempt Time Score
KEPT Attempt 2 81 minutes 38 out of 50
LATEST Attempt 2 81 minutes 38 out of 50
Attempt 1 4 minutes 0 out of 50 *
* Some questions not yet graded
Score for this attempt: 38 out of 50

https://learn.maricopa.edu/courses/1048243/quizzes/1797295 1/27
2020. 10. 3. Quiz # 4:Ch.16 & Instr material: SC 2018 FALL-ECN211 21556
Submitted Oct 27, 2018 at 11:29pm

This attempt took 81 minutes.
Question 1 0 / 1 pts
When interest rates rise, the quantity demanded of money held for the:
precautionary motive falls.
orrect Answer speculative motive falls.
ou Answered speculative motive rises.
precautionary motive rises.
transactions motive falls.
Which of the following policies would be most likely to reduce the rate
of inflation?
a reduction in the required reserves imposed on the banking system
Correct! sale of government bonds by the Federal Reserve
a reduction in the discount rate
an increase in the size of the federal budget deficit
Speculative demand for money is a(n):

inverse function of prices.
ou Answered positive function of interest rates.
function of unexpected needs.
orrect Answer inverse function of interest rates.
positive function of prices.
When a household takes extra (unbudgeted) money on a trip,

economists would classify this money as held for a(n):
ou Answered transactions demand.
emergency motive.
inflationary motive.
orrect Answer precautionary demand.
speculative demand.
Other things being equal, an increase in the rate of interest causes

a(n):
rightward shift of the demand for money curve.
leftward shift of the demand for money curve.
Correct! upward movement along the demand for money curve.
downward movement along the demand for money curve.
The Keynesian cause-and-effect sequence predicts that an increase in

the money supply will cause interest rates to:
rise, cutting investment and shifting the AD curve rightward, leading to

an increase in real GDP.
rise, boosting investment and shifting the AD curve rightward, leading to

fall, boosting investment and shifting the AD curve rightward, leading to

a decrease in real GDP.
Correct!
fall, boosting investment and shifting the AD curve rightward, leading to
fall, cutting investment and shifting the AD curve leftward, leading to a

decrease in real GDP.
Which of the following characterizes the Monetarist viewpoint?
orrect Answer Neither a nor b are part of the debate.
Both a and b are part of the debate.
ou Answered
They believe that monetary policy is transmitted to the economy only
through its effects on the interest rate and investment.
They believe that money can never affect investment.
Monetarists and classical economists:
assume that the Keynesian description of monetary policy

underestimates the true stimulative effect of an increase in the money
supply.
assume that stimulative monetary policy will create high levels of GDP
and slightly high prices.
ou Answered
assume that the economy operates at full employment and stimulative
monetary policy will increase both aggregate supply and aggregate
demand.
assume that stimulative monetary policy will create high levels of GDP
without inflation.
orrect Answer
assume the economy operates at full employment and stimulative
monetary policy will only cause the price level to rise.
According to the quantity theory of money, if M's growth is lower than

Q's, then:
P rises
V falls.
P stays the same
ou Answered V rises.
orrect Answer P falls.
If M stands for the money supply, V for the velocity of money, P for the
average selling price, and Q for the output of goods and services, the
equation of exchange is:
MP = PQ.
MP = VQ.
Correct! MV = PQ.
MQ = VP.
The number of times per year each dollar is used to transact an

exchange is the:
quantity theory of money.
Correct!
velocity of money.
turnover rate.
equation of exchange.
expenditure rate.
Since classical economists believe that both V and Q are constants for
an economy in short-run equilibrium, the equation of exchange
becomes a theory in which:
the quantity of money explains velocity.
the quantity of money explains real GDP.
prices are never flexible
Correct!
the quantity of money explains prices.
changes in M cause changes in V.
If the Fed wants to raise interest rates, then it can use its open market
operations to:
decrease money demand.
Correct!
decrease the money supply.
increase money demand.
increase the money supply.
If the Fed uses its tools to expand the money supply, bond prices will
be bid down and interest rates will rise.
Correct!
False
True
The average number of times per year each dollar is used to transact
an exchange is known as the:
Correct!
velocity of money.
quantity theory of money.
liquidity of money.
equation of exchange
rapidity index
According to the equation of exchange, if M = 200, P = 100, and Q =

10, the V is:
2,000.
2.
20.
Correct!
5.
10.
The belief that the velocity of money is not constant but highly
predictable is associated with the:
supply-side school.
classical school.
rational expectations school
Correct!
monetarist school.
Keynesian school.
Exhibit 16-4 Aggregate demand and supply model
In Exhibit 16-4, which one of the following actions could the Fed use to
shift the AD curve from AD3 to AD2?
Lower the legal reserve requirement.
Lower the federal funds rate.
Lower the discount rate.
Print currency.
Correct!
Sell government securities.
Since classical economists and monetarists believe that the economy

operates at full employment, real GDP, that is, along the vertical
segment of aggregate supply:
Correct!
any increase in the money supply can only end up raising the price
level.
any decrease in the money supply can only end up raising the price
level.
any increase in the money supply can only end up lowering the price
level.
changes in the money supply will not affect the price level.
any increase in the money supply will cause both nominal and real GDP
to increase.
The downward slope of the demand for money curve is created by the:
transactions demand for money.
all of these.
Correct!
speculative demand for money.
precautionary demand for money.
The impact of an increase in the money supply is a(n):
reduction in the general level of prices, which will increase the

disposable income of households.
Correct!
decrease in the interest rate, which in turn stimulates investment and
GDP.
increase in the interest rate, which in turn stimulates investment and

GDP.
improvement in technology, which will stimulate both output and

employment.
"Monetary instability has been the major cause of economic instability

in this country. Expansion in the money supply has been the source of
every major inflation. Every major recession has been either caused or
perpetuated by monetary contraction." Who among the following would
most likely adhere to this view?
Correct! Monetarists.
Demand-side economists.
Keynesians.
Quantity theorists.
Exhibit 16-6 Money, investment and product markets
In Exhibit 16-6, an increase in the money supply from MS1 to MS2

causes:
Correct!
interest rates to fall from i1 to i2 and the quantity demanded of
investment to increase from I1 to I2.
interest rates to fall from i1 to i2 and aggregate demand to shift from AD2
to AD1.
interest rates to rise from i2 to i1 and aggregate demand to shift from

AD1 to AD2.
interest rates to fall from i1 to i2 and the quantity demanded of

investment to decrease from I2 to I1.
interest rates to rise from i2 to i1 and the quantity demanded of

investment to remain the same.
An increase in the money supply:
lowers the interest rate, causing an increase in investment and a

decrease in GDP.
raises the interest rate, causing a decrease in investment and a

decrease in GDP.
raises the interest rate, causing an increase in investment and an

increase in GDP.
Correct!
lowers the interest rate, causing an increase in investment and an
increase in GDP.
lowers the interest rate, causing a decrease in investment and an

increase in GDP.
According to the quantity theory of money, which one of the following

economic variables would change in response to an increase in the
money supply?
Correct! prices
real income
velocity
employment
When the Fed decreases the money supply, interest rates:
Correct! rise.
are unaffected.
fall and then rise.
rise and then fall.
fall.
If the investment curve is relatively vertical, the Keynesian conclusion is

that the transmission mechanism has little effect on the economy.
orrect Answer True
ou Answered False
When the Fed reduces the money supply, it will cause a decrease in
aggregate demand because:
Correct!
real rates will rise, lowering business investment and consumer
spending.
lower interest rates will cause the value of assets (for example, stocks)
to rise.
the national debt will increase, causing consumers to reduce their

spending.
the dollar will depreciate on the foreign exchange market, leading to an

increase in net exports.
If M = 200, P = 100, and Q = 10, then V is:
10.
2.
Correct! 5.
20.
2,000.
The speculative demand for holding money is when people hold

money:
Correct! to take advantage of changes in interest rates.
to transact purchases they expect to make.
as insurance against unexpected needs.
instead of near money.
to speculate in the stock market.
If the money supply increases this will cause the interest rate to rise,
investment to fall and GDP to fall.
True
Correct! False
The demand for money that households keep for emergency purposes
is known as the:
temporary demand.
transactions demand.
Correct! precautionary demand.
speculative demand.
emergency demand.
Exhibit 16-2 Money market demand and supply curves
Starting from an equilibrium at E1 in Exhibit 16-2, a rightward shift of

the money supply curve from MS1 to MS2 would cause an excess:
demand for money, leading people to buy bonds.
supply of money, leading people to sell bonds.
demand for money, leading people to sell bonds.
Correct! supply of money, leading people to buy bonds.
An increase in the supply of money will:
Correct!
reduce the rate of interest and, thereby, trigger an increase in current
spending by households and businesses.
reduce aggregate demand and real output.
lead to a higher rate of unemployment.
increase only the general level of prices.
Contrast the Keynesian and Monetarist views on the effectiveness of

fiscal policy.
Your Answer:
the velocity of money is stable or not. Monetarist says that money

supply will affect the economy but Keynesian says that interest rate
and investment will do that
Monetarists think that economy will be fixed itself but it might take a
long time so Keynesians say that government should involve in
The Monetarists advocate the monetary rule in order to stabilize the

business cycle which states that the money supply should be increased
by a constant rate year after year.
ou Answered False
orrect Answer True
Monetarists argue that the Fed should frequently adjust the money
supply in response to ever-changing economic conditions.
ou Answered True
orrect Answer False
The Keynesian mechanism through which monetary policy affects the

price level, real GDP, and employment depends on the impact of the:
interest rate on savings.
Correct! interest rate on investment.
interest rate on bond prices.
inflation on investment.
As shown in Exhibit 16-1, assume the money supply curve shifts

leftward from MS1 to MS2 and the economy is operating along the
intermediate segment of the aggregate supply curve. The result will be
a:
higher investment, lower real GDP, and lower price level.
higher investment, higher real GDP, and higher price level.
higher interest rate and no effect on real GDP or the price level.
Correct! lower investment, lower real GDP, and lower price level.
The velocity of money is the:
number of times the price level increases during a year.
number of times per year each product is purchased during the year.
rapidity of price increases during inflation.
time it takes for checks to clear banks.
Correct!
number of times per year each dollar is used to transact an exchange.
Exhibit 16-4 Aggregate demand and supply model
In Exhibit 16-4, which one of the following actions could the Fed use to
shift the AD curve from AD1 to AD2?
Correct! Buy government securities.
Raise the legal reserve requirement.
Lower the federal funds rate.
Raise the discount rate.
Print currency.
In Exhibit 16-3, assume an equilibrium at E2 with the money supply at

$100 billion and the interest rate at 15 percent. The Fed uses its policy
tools to move the economy to a new equilibrium at E1 with a money
supply of 150 billion and an interest rate of 10 percent. As part of the
adjustment to the new equilibrium, we would expect the:
ou Answered price of bonds to fall.
orrect Answer price of bonds to rise.
price of bonds to remain unchanged.
none of these.
When the Fed increases the money supply, interest rates:
rise and then fall.
fall and then rise.
rise.
Correct! fall.
are unaffected.
Starting from equilibrium in the money market, suppose the money

supply increases. Other things being equal, this will cause an excess
supply of money, leading people to buy bonds.
Correct! True
False
Starting from an equilibrium at E1 in Exhibit 16-1, a leftward shift of the

money supply curve from MS1 to MS2 would cause an excess:
ou Answered supply of money, leading people to buy bonds.
orrect Answer demand for money, leading people to sell bonds.
supply of money, leading people to sell bonds.
demand for money, leading people to buy bonds.
If the investment curve is relatively flat, the Keynesian conclusion is

that the transmission mechanism has little effect on the economy.
Correct! False
True
Which of the following is a belief of the monetarists?
They do not believe monetary policy is transmitted to the economy only

through its effect on interest rates and planned investment.
Correct! All of these.
They believe that the interest-investment curve is vertical.
They think the Great Depression was made worse by poor conduct of
monetary policy.
According to Keynesian economists, which of the following is not a

consequence of increasing the money supply?
Greater investment.
Correct! Lower real GDP.
A lower interest rate.
Higher real GDP.
The velocity of money is the:
number of times a dollar is taken out of the country during a year.
rate at which the price index for consumer goods rises.
multiple by which an increase in government expenditures will cause

output to expand.
Correct!
average number of times a dollar is used to buy goods and services
included in GDP.
Beginning from an equilibrium at E1 in Exhibit 16-1, a decrease in the

money supply from $150 billion to $100 billion causes people to:
buy bonds and drive the price of bonds down.
ou Answered sell bonds and drive the price of bonds up.
orrect Answer sell bonds and drive the price of bonds down.
buy bonds and drive the price of bonds up.
Quiz Score: 38 out of 50

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2020. 10. 3. Quiz # 4:Ch.

16 & Instr material: SC 2018 FALL-ECN211 21556

Quiz # 4:Ch.16 & Instr material

1. Read Ch.16 (all pages) from the text.

3. Go through the power point slides for Ch.16:

4. Take the print practice test found given out in class.

6. Finally take Practice Quiz # 4 by following the instructions listed below.

Instructions for taking Quiz # 4

Quiz # 4 is worth 50 points of your grade. It is now available on Canvas from

This quiz was locked Oct 29, 2018 at 11:59pm.

LATEST Attempt 2 81 minutes 38 out of 50

Attempt 1 4 minutes 0 out of 50 *

* Some questions not yet graded

Score for this attempt: 38 out of 50

Submitted Oct 27, 2018 at 11:29pm

precautionary motive falls.

orrect Answer speculative motive falls.

ou Answered speculative motive rises.

precautionary motive rises.

transactions motive falls.

a reduction in the required reserves imposed on the banking system

Correct! sale of government bonds by the Federal Reserve

a reduction in the discount rate

an increase in the size of the federal budget deficit

Speculative demand for money is a(n):

inverse function of prices.

ou Answered positive function of interest rates.

function of unexpected needs.

orrect Answer inverse function of interest rates.

positive function of prices.

When a household takes extra (unbudgeted) money on a trip,

ou Answered transactions demand.

orrect Answer precautionary demand.

Other things being equal, an increase in the rate of interest causes

rightward shift of the demand for money curve.

leftward shift of the demand for money curve.

Correct! upward movement along the demand for money curve.

downward movement along the demand for money curve.

The Keynesian cause-and-effect sequence predicts that an increase in

rise, cutting investment and shifting the AD curve rightward, leading to

rise, boosting investment and shifting the AD curve rightward, leading to

fall, boosting investment and shifting the AD curve rightward, leading to

fall, cutting investment and shifting the AD curve leftward, leading to a

Which of the following characterizes the Monetarist viewpoint?

orrect Answer Neither a nor b are part of the debate.

Both a and b are part of the debate.

They believe that money can never affect investment.

Monetarists and classical economists:

assume that the Keynesian description of monetary policy

According to the quantity theory of money, if M's growth is lower than

P stays the same

orrect Answer P falls.

The number of times per year each dollar is used to transact an

quantity theory of money.

the quantity of money explains velocity.

the quantity of money explains real GDP.

prices are never flexible

changes in M cause changes in V.

decrease money demand.

increase money demand.

increase the money supply.

quantity theory of money.

According to the equation of exchange, if M = 200, P = 100, and Q =

rational expectations school