Macro Ch 15 – Flashcards

People forgo interest and hold money: because they are required to. to reduce their transaction costs. because there are no substitutes for money. because banks are too risky

The slope of the demand curve for money is: vertical. horizontal. positive. negative.

If Congress imposes a $5 tax on each ATM transaction, the demand for money will likely: increase. decrease. fluctuate randomly. be unaffected.

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 ATMs are open all night. the average price level is lower in Japan.

If the equilibrium interest rate in the money market is 5%, then at an interest rate of 2%, money demanded is _____ than money supplied. less than greater than equal to It is impossible to predict which is greater, money demanded or money supplied.

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

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 increase; left decrease; left increase; right

Long-term interest rates and short-term interest rates: usually move in lockstep. always move closely together. don't always move closely together. are independent of one another.

Monetary policy affects aggregate demand through changes in: government spending. consumer and investment spending. tax receipts. export demand.

If the economy is in a recessionary gap, the Federal Reserve should conduct _____ monetary policy by _____ the money supply. expansionary; decreasing expansionary; increasing contractionary; decreasing contractionary; increasing

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

When nominal wages increase, the short-run aggregate supply curve: shifts to the right. shifts to the left. remains constant. disappears.

Contractionary monetary policy causes _____ in the price level in the short run and _____ in the price level in the long run. no change; a decrease a decrease; a decrease a decrease; no change no change; no change

If the money supply decreases by 5%, in the long run: interest rates rise by 5%. the unemployment rate rises by 10%. the price level drops by 5%. real GDP drops by 5%

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

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

For money supply curve to shift to the right, the Federal Reserve must have ____________ Treasury bills in the open market sold bought issued new borrowed

If the economy is in a recessionary gap, in order to move the price level up in the long-run what must occur? decrease in government spending increase in the discount rate decrease in the money supply purchases of government securities in the open market