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Modern Macroeconomics and Monetary Policy

12.01.2023

Modern Macroeconomics and Monetary Policy

Modern macroeconomics is a branch of economics that studies the behavior and performance of the economy as a whole, with a focus on understanding the causes of economic growth and fluctuations, and the role of government policies in addressing these issues. It builds on classical macroeconomics, which focused on the long-run determinants of economic growth but incorporates insights from other fields such as microeconomics, finance, and behavioral economics.

Monetary policy refers to the actions taken by central banks, such as the Federal Reserve in the United States, to influence the economy through the control of the money supply and interest rates. The goal of monetary policy is to promote economic stability, including low inflation and low unemployment, and to encourage economic growth. Modern macroeconomics and monetary policy are closely related as monetary policy is one of the most powerful tools to influence the economy and stabilize it.

In modern macroeconomics, monetary policy is seen as a crucial tool for managing the economy in the short run, by influencing aggregate demand, interest rates, and inflation. Central banks use various tools to achieve this, such as open market operations, reserve requirements, and interest on reserves, to control the money supply and interest rates and influence economic activity.

Overall, modern macroeconomics and monetary policy are important areas of study for understanding how the economy works and how government policies can be used to promote economic stability and growth.

1.A lower interest rate in a country will tend to cause:
2.Suppose the Fed increases the interest paid to banks on their reserve deposits with the Fed. This will cause a (an):
3.If the Fed shifts to a more expansionary monetary policy when the economy is already at full employment, this policy will:
4.Suppose Joey won $2,000 in a lottery. Instead of putting the money in a bank, he decides to hold it as cash. If he had deposited the money in the bank, it could have earned an interest of 5 percent. In this case, the opportunity cost of holding the $2,000 in cash for a year is:
5.Identify the correct statement regarding the quantity theory of money.
6.Which of the following is an example of an expansionary monetary policy?
7.Suppose the central bank of a country shifts to a more expansionary monetary policy. Which of the following is most likely to be true in the long run?
8.If interest rates decline, the velocity of the M1 money supply will:
9.According to the monetarists, changes in the money supply will influence:
10.If the nominal interest rate increases, then:
11.Suppose Corinthia is a major trading partner of Vanadia and there is a sudden decrease in the real interest rate in Vanadia. This will cause:
12.An increase in the real interest rate in a country is most likely to:
13.Which of the following is true of monetary policy?
14.Which of the following will be true when a country’s currency appreciates in the foreign exchange market?
15.Countries that persistently expand the money supply rapidly relative to real output generally experience:
16.Which of the following is true of the relationship between increases in the money supply and the general level of prices?
17.Which of the following would be most likely to increase the supply of loanable funds and lead to a lengthy period of low interest rates?
18.According to the quantity theory of money, for a given level of nominal gross domestic product (GDP), an increase in the demand for money will cause:
19.Suppose the nominal gross domestic product of a hypothetical economy is $50 billion and the velocity of money is 10. The money supply in the economy is:
20.When the interest rate declines, the opportunity cost of holding money:
21.Suppose the Central Bank of a country injects additional reserves into the banking system. This action will:
22.When a country’s real interest rate increases, other things constant, the prices of:
23.Which of the following reflects the precautionary motive for holding money?
24.Suppose the money interest rate is lower than the equilibrium interest rate. This will cause:
25.In the long run, an expansionary monetary policy leads to a:
26.Which of the following is most likely to occur in the short run if the Fed purchases bonds issued by the U.S. treasury?
27.The quantity theory of money highlights the linkage between:
28.What is the most important thing the Fed can do to establish a stable environment for the smooth operation of a market economy?
29.When there is an excess supply of money, the:
30.When the Fed purchases bonds and expands the availability of bank reserves, it will lead to a(n):
31.Suppose the monetary authorities of a country decide to increase the annual growth rate of the money supply from 5 percent to 9 percent. Which of the following is likely to be true in the short run?
32.Suppose the equilibrium money interest rate is 12 percent and the expected rate of inflation is 6 percent in a country. The real interest rate in the country is:
33.The quantity theory of money predicts that:
34.A shift to a more restrictive monetary policy is most likely to cause:
35.If there is an unanticipated increase in aggregate demand, then:
36.In response to the COVID-19 crisis and accompanying severe recession of 2020, the Fed:
37.Suppose in a hypothetical economy, nominal gross domestic product in 2020 was $20 billion and the money supply was $4 billion. The velocity of money was:
38.Identify the correct statement about monetary policy.
39.Which of the following is true?
40.Which of the following will cause the demand for money balances to increase in an economy?
41.The demand curve for money shows the:
42.Which of the following would be most indicative of a shift to a more restrictive monetary policy?
43.The money supply curve is:
44.The equation of exchange is given as:
45.Which of the following will cause the money supply to increase?
46.The velocity of money is:
47.Which of the following is most likely to cause entrepreneurs to increase their investment expenditures?
48.An increase in the use of credit and debit cards will cause a(n):
49.A shift to a more expansionary monetary policy will:
50.Suppose the Fed purchases additional bonds in order to expand the reserves of banks. This will cause:

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