People will hold __________ money as the interest rate __________ because they will __________ other financial assets.
more; decreases; sell
Which of the following would cause a downward movement along the money demand curve?
a decrease in the interest rate
Which of the following is not assumed to be constant along the money demand curve?
the interest rate
When people exchange money for financial assets, the interest rate rises.
False
An increase in the money supply will
lead people to try to exchange money for interest-bearing assets
If the quantity of money supplied exceeds the quantity of money demanded,
the interest rate will fall
In the aggregate demand-aggregate supply model, a decrease in the money supply will cause a short-run
decrease in both the price level and real GDP
If the Fed sells U.S. government securities to drain reserves from banks, which of the following will probably occur?
The interest rate will rise and the quantity of money demanded will fall.
If the Fed sells government securities to banks, eventually we expect
planned investment expenditures to decrease
If interest rates are __________ to changes in the money supply and planned investment expenditures are __________ to interest rate changes, then monetary policy will be effective in changing aggregate demand.
responsive; sensitive
In the situation shown in Exhibit 15-1, how could the Fed return the economy to potential output?
Decrease money supply
The economy shown in Exhibit 15-3 is in equilibrium where AD=SRAS. To bring the economy to its potential output level, the Fed could
decrease the money supply and decrease the price level to P'
According to the equation of exchange, if nominal GDP equals $6 trillion and the money supply equals $1 trillion, the velocity of money
must be 6
In the long run, an increase in aggregate demand
affects only the price level
In an economy in which real output grows at an average rate of 3 percent per year, a 7 percent average rate of growth in the money supply would result in a(n)
inflation rate of 4 percent, if velocity were constant
The quantity theory of money
states that the quantity of money in circulation determines only the price level in the long run
Velocity will be higher
the less effective money is as a store of value
In the United States over the last decade, the velocity of
both 3) and 4) are true
If the Fed is targeting interest rates and money demand shifts from Dm to Dm' in Exhibit 15-4, the Fed will
increase the money supply to restore its target of i
In the history of monetary policy, the period of October 1979 to October 1982 was notable for
the emphasis placed on controlling the money supply during that period