Chapter 16 - 3e

Chapter 16—Monetary Theory and Policy
MULTIPLE CHOICE
1. The demand for money is depicted by a curve downward sloping curve because if the interest rate
falls, the opportunity cost of holding assets in the form of money decreases.
a. True
b. False
ANS: A PTS: 1 DIF: Moderate NAT: Analytic
LOC: Monetary and fiscal policy TOP: The Demand for Money
2. If the price level rises, the money demand curve will shift to the right.
a. True
b. False
3. Speaking of the demand for money

a. makes no sense in a modern society in which most people use credit cards
b. makes no sense in a modern society in which most people use checks
c. makes sense in a modern society in which most people use checks, since demand deposits
are included in M1, but it does not make sense in a society in which the primary payment
is by credit card
d. makes sense in a modern society in which most people use credit cards, since credit cards
are included in M1, but it does not make sense in a society in which the primary payment
is by check
e. is relevant even in a society in which primary payment is by credit card, since eventually
all accounts must be settled with money
ANS: E PTS: 1 DIF: Hard NAT: Reflective Thinking
4. The demand for money

a. d and e are correct
b. all of the following are correct
c. decreases as the average selling price of a unit of output increases
d. increases as GDP increases
e. is increased by credit card usage
ANS: D PTS: 1 DIF: Moderate NAT: Analytic
5. In deciding how much money to hold, you should compare the

a. disadvantage of liquidity with the advantage of earning more interest
b. advantage of liquidity with the disadvantage of losing interest
c. disadvantage of storing wealth with the advantage of having a medium of exchange
d. advantage of storing wealth with the advantage of having a medium of exchange
e. advantage of liquidity with the disadvantage of storing wealth
ANS: B PTS: 1 DIF: Moderate NAT: Analytic
6. The opportunity cost of holding money is measured by the

a. interest rate
b. liquidity lost by holding money
c. money supply curve
d. inflation rate
e. cost of cashing in financial assets
ANS: A PTS: 1 DIF: Easy NAT: Analytic
7. The opportunity cost of holding money increases when

a. the interest rate rises
b. the interest rate falls
c. the price level falls
d. nominal GDP rises
e. nominal GDP falls
8. What is the opportunity cost of holding money rather than some other financial asset?
a. the forgone interest income
b. the forgone utility
c. time
d. the forgone leisure
e. the forgone profit
9. The demand for money is based primarily on money's role as a(n)

a. store of wealth
b. medium of exchange
c. standard of value
d. interest-bearing asset
e. non-interest-bearing asset
ANS: B PTS: 1 DIF: Easy NAT: Analytic
10. The money demand curve shifts to the right whenever there is a decrease in the interest rate.
a. True
b. False
LOC: Monetary and fiscal policy TOP: Money Demand and Interest Rates
11. The higher the interest rate, the more of their wealth people will hold as money.
a. True
b. False
12. The money demand curve will shift when there is a change in
a. interest rates
b. velocity
c. the money supply
d. the opportunity cost of holding money
e. nominal GDP
ANS: E PTS: 1 DIF: Moderate NAT: Analytic
13. Which of the following best explains why the demand for money depends upon the interest rate?
a. Money is an interest-earning asset.
b. Money is not an interest-earning asset.
c. The alternatives to holding money are not interest-earning assets.
d. The alternatives to holding money earn more interest than money does.
e. People must pay interest on loans.
ANS: D PTS: 1 DIF: Easy NAT: Analytic
14. The money demand curve describes how the quantity of money demanded varies with
a. nominal GDP
b. real GDP
c. the price level
d. the interest rate
e. consumption
15. When the demand for money is shown on a graph, the __________ is on the vertical axis, and the
__________ is on the horizontal axis.
a. quantity of money; interest rate
b. interest rate; quantity of money
c. real GDP; quantity of money
d. nominal GDP; quantity of money
e. price level; quantity of money
16. The money demand curve slopes

a. downward because the cost of holding money decreases as the interest rate decreases
b. downward because the cost of holding money increases as the interest rate decreases
c. upward because people demand more money as GDP increases
d. upward because people demand more money as GDP decreases
e. downward because people demand more money as the price level increases
17. The demand for money varies

a. directly with both the price level and the level of real GDP
b. inversely with both the price level and the level of real GDP
c. inversely with the price level and directly with the level of real GDP
d. directly with the price level and inversely with the level of real GDP
e. inversely with the level of nominal GDP
18. An increase in the price level will

a. shift the money demand curve to the right
b. shift the money demand curve to the left
c. increase the quantity of money people want to hold
d. decrease the quantity of money people want to hold
e. have no impact on the money demand curve
19. People will hold __________ money as the interest rate __________ because they will __________
other financial assets.
a. more; decreases; buy
b. more; increases; sell
c. more; decreases; sell
d. less; increases; sell
e. less; decreases; buy
ANS: C PTS: 1 DIF: Moderate NAT: Reflective Thinking
20. The relationship between the interest rate and the quantity of money demanded
a. is a direct relationship
b. is an inverse relationship
c. is nonexistent
d. is a direct relationship when the interest rate is low and an inverse relationship when the
interest rate is high
e. is an inverse relationship when the interest rate is low and a direct relationship when the
interest rate is high
21. If the interest rate rises, people hold

a. less money because its opportunity cost has increased
b. more money because its opportunity cost has increased
c. less money because its opportunity cost has declined
d. more money because its opportunity cost has declined
e. the same amount of money
22. A decrease in the interest rate will

a. shift the money demand curve to the right
b. shift the money demand curve to the left
c. increase the quantity of money people want to hold
d. decrease the quantity of money people want to hold
e. have no impact on the money demand curve
ANS: C PTS: 1 DIF: Easy NAT: Analytic
23. Which of the following is not assumed to be constant along the money demand curve?
a. the price level
b. the interest rate
c. real GDP
d. nominal GDP
e. individual's tastes and preferences
ANS: B PTS: 1 DIF: Hard NAT: Analytic
24. Which of the following, other things constant, will shift the money demand curve to the right?
a. an increase in the interest rate
b. a decrease in the interest rate
c. an increase in real GDP
d. a decrease in real GDP
e. a decrease in the price level
ANS: C PTS: 1 DIF: Hard NAT: Reflective Thinking
25. Which of the following, other things constant, will shift the money demand curve to the left?
c. a decrease in real GDP
d. an increase in real GDP
e. an increase in the price level
ANS: C PTS: 1 DIF: Hard NAT: Analytic
26. Which of the following would cause a downward movement along the money demand curve?
e. an increase in the price level
27. A movement upward and to the left along the money demand curve is caused by
e. an increase in the average price level
28. If the demand for money increases,

a. the interest rate will fall
b. there will be a movement downward along the money demand curve
c. there will be a movement upward (to the left) along the money demand curve
d. there will be a rightward shift of the money demand curve
e. there will be a leftward shift of the money demand curve
29. If the price level rises, then the

a. money supply will increase
b. money supply will decrease
c. quantity of money supplied will increase
d. quantity of money supplied will decrease
e. demand for money will increase
30. The opportunity cost of holding money

a. includes bank service charges
b. is the interest foregone on potential interest-earning assets
c. varies inversely with the rate of interest
d. affects relatively few individuals
e. is determined exclusively by the Fed
NARRBEGIN: Exhibit 30-5

Exhibit 16-1
NARREND
31. Referring to Exhibit 16-1, an increase in the interest rate will cause a move from
a. B to A
b. A to B
c. DM to DM’
d. DM to DM*
e. C to D
ANS: A PTS: 1 DIF: Hard NAT: Analytic
32. Referring to Exhibit 16-1, an increase in the price level will cause a move from
a. B to A
b. A to B
c. DM to DM’
d. DM to DM*
e. E to F
33. Referring to Exhibit 16-1, an increase in the level of real GDP will cause a move from
a. B to A
b. A to B
c. DM to DM’
d. DM to DM*
e. E to F
34. When the money supply increases, people get rid of their excess money by buying real assets, such as
durable goods.
a. True
b. False
LOC: Monetary and fiscal policy
TOP: Supply of Money and the Equilibrium Interest Rate
35. When people exchange money for financial assets, the interest rate rises.
a. True
b. False
36. The supply of money is depicted diagrammatically as a vertical line because the quantity of money
supplied is totally dependent on the rate of interest.
a. True
b. False
37. As the price level rises, money __________ causing interest rates to __________ and investment
spending to __________.
a. demand rises; fall; fall
b. demand rises; rise; fall
c. demand falls; rise; rise
d. supply rises; rise; fall
e. supply falls; fall; rise
ANS: B PTS: 1 DIF: Hard NAT: Reflective Thinking
38. If the money supply decreases, the opportunity cost of holding money __________ and people will
want to hold __________ quantity of money.
a. rises; a greater
b. rises; a smaller
c. does not change; the same
d. falls; a greater
e. falls; a smaller
39. If the money supply increases, the interest rate will __________ and people will want to hold a
__________ quantity of money.
a. rise; greater
b. rise; smaller
c. not change; greater
d. fall; greater
e. fall; smaller
40. The equilibrium interest rate is determined by

a. the Fed
b. Congress
c. the demand for money alone
d. the supply of money alone
e. both the supply of and demand for money
ANS: E PTS: 1 DIF: Easy NAT: Analytic
41. An increase in the money supply will

a. increase the demand for money at each interest rate
b. decrease the demand for money at each interest rate
c. lead people to try to exchange money for interest-bearing assets
d. lead people to try to exchange interest-bearing assets for money
e. increase the interest rate
42. Which one of the following statements is correct?

a. The lower the interest rate, the higher the opportunity cost of holding assets in the form of
money.
b. A vertical money supply curve means that the quantity of money supplied is independent
of the interest rate.
c. The larger the supply of money, the higher the interest rate, all things equal.
d. Travelers checks and government bonds are equally liquid assets.
e. The transactions demand for money increases whenever the price level decreases.
ANS: B PTS: 1 DIF: Moderate NAT: Reflective Thinking
43. Of the following, the major influence on the supply of money is

a. interest rates
b. prices
c. the transactions demand for money
d. GDP
e. the Fed
44. If the quantity of money supplied exceeds the quantity of money demanded,
a. this is evidence of a failed fiscal policy
b. this indicates that the supply of money curve is horizontal
c. the interest rate will fall
d. the quantity of money demanded will increase
e. the transactions money demand curve will shift to the right
ANS: C PTS: 1 DIF: Moderate NAT: Analytic
45. If there is a decrease in the supply of money, which one of the following is most likely to happen?
a. the demand for money will increase
b. planned investment spending will increase
c. interest rates will rise
d. aggregate expenditure will increase
e. the demand for money will decrease

Exhibit 16-2
NARREND
46. Given the demand for money in Exhibit 16-2, if the supply of money is given by the supply curve
labelled S, the equilibrium interest rate and quantity of money would be
a. r and m
b. r* and m*
c. r’ and m’
d. r and m’
e. cannot tell from the information given
47. Each of the following can cause the supply of money to shift from S to S* in Exhibit 16-2, except
a. an increase in the required reserve ratio
b. the sale of US Treasury securities by the Fed
c. a decrease in the required reserve ratio
d. a decrease in the discount rate
e. an increase in excess reserves in the banking system
48. When an increase in the money supply reduces the interest rate, investment and nominal GDP
increase.
a. True
b. False
LOC: Monetary and fiscal policy TOP: Interest Rates and Investment
49. In a macroeconomic model, increases in the money supply decrease the interest rate, increase
investment, and thus raise employment and real GDP.
a. True
b. False
50. An increase in the money supply will cause a decrease in planned investment spending.
a. True
b. False
51. In the short run, a decrease in the money supply will cause a decrease in Gross Domestic Product and a
decrease in the price level.
a. True
b. False
52. In the aggregate demand-aggregate supply model, an increase in the money supply will cause in the
short run a(n)
a. increase in both the price level and real GDP
b. decrease in both the price level and real GDP
c. increase in real GDP and a decrease in the price level
d. decrease in real GDP and an increase in the price level
e. increase in the price level only
53. In the aggregate demand-aggregate supply model, a decrease in the money supply will cause a short-
run
a. increase in both the price level and real GDP
b. decrease in both the price level and real GDP
c. increase in real GDP and a decrease in the price level
d. decrease in real GDP and an increase in the price level
e. increase in the price level only
54. If the Fed wanted to stimulate the economy, it might

a. buy bonds to lower the money supply
b. sell bonds to lower the money supply
c. raise the discount rate to increase the money supply
d. lower the discount rate to increase the money supply
e. increase the required reserve ratio to lower the money supply
ANS: D PTS: 1 DIF: Moderate NAT: Reflective Thinking
55. If the Fed increases the money supply, then

a. the interest rate declines and the quantity of money demanded increases
b. the interest rate declines and the quantity of money demanded declines
c. the interest rate increases and the quantity of money demanded increases
d. the interest rate increases and the quantity of money demanded declines
e. nothing happens to the quantity of money demanded
56. If the Fed buys bonds, then the money supply

a. increases, the interest rate falls, and the quantity of money demanded increases
b. falls, the interest rate falls, and the quantity of money demanded increases
c. increases, the interest rate increases, and the quantity of money demanded increases
d. falls, the interest rate increases, and the quantity of money demanded falls
e. falls, the interest rate falls, and the quantity of money demanded falls
ANS: A PTS: 1 DIF: Hard NAT: Reflective Thinking
57. An increase in the interest rate will

a. have no effect on investment, since investment is autonomous
b. increase investment, since it will be more profitable to hold stocks and bonds
c. increase investment, since people will be less willing to hold money
d. decrease investment only if firms have to borrow money to make investments
e. decrease investment regardless of whether firms have to borrow money to make an
investment
58. The demand curve for investment is graphed with __________ on the vertical axis and __________ on
the horizontal axis.
a. the interest rate; investment
b. investment; the interest rate
c. the price level; investment
d. investment; the price level
e. real GDP; investment
59. As the interest rate increases,

a. the demand for investment curve shifts to the right
b. the demand for investment curve shifts to the left
c. there is a movement downward along the demand for investment curve
d. there is a movement upward along the demand for investment curve
e. GDP increases
ANS: D PTS: 1 DIF: Hard NAT: Reflective Thinking
60. As the interest rate decreases,

a. the demand for investment curve shifts to the right
b. the demand for investment curve shifts to the left
c. there is a downward movement along the demand for investment curve
d. there is an upward movement along the demand for investment curve
e. GDP decreases
61. Planned investment expenditures will eventually decrease after

a. the money supply decreases
b. the demand for money decreases
c. the interest rate falls
d. the Fed buys government securities
e. business managers become more optimistic about future market conditions for their
products
62. Planned investment expenditures will eventually increase after

a. the money supply decreases
b. the demand for money increases
c. the interest rate falls
d. the Fed sells government securities
e. business managers are pessimistic about future market conditions for their product
63. What is the effect of an expansionary monetary policy on the demand for investment curve?
a. It causes the curve to shift left.
b. It causes the curve to shift right.
c. It causes downward movement along the curve.
d. It causes an upward movement along the curve.
e. It has no effect on the quantity of investment demanded.
64. If the Fed decreases the money supply, causing the interest rate to rise, GDP
a. increases by the same amount as the increase in the interest rate
b. decreases by more than the increase in the interest rate because of the multiplier
c. decreases by the same amount as the decrease in investment
d. decreases by more than the decrease in investment because of the multiplier
e. decreases by less than the decrease in investment because of the multiplier
65. If the Fed increases the money supply, GDP

a. increases because the resulting increase in the interest rate leads to a decrease in
investment
b. increases because the resulting decrease in the interest rate leads to an increase in
investment
c. decreases because the resulting increase in the interest rate leads to a decrease in
investment
d. decreases because the resulting increase in the interest rate leads to an increase in
investment
e. decreases because the resulting decrease in the interest rate leads to an increase in
investment
66. If the Fed decreases the money supply, GDP

a. increases because the resulting increase in the interest rate leads to a decrease in
investment
b. increases because the resulting decrease in the interest rate leads to an increase in
investment
c. decreases because the resulting increase in the interest rate leads to a decrease in
investment
d. decreases because the resulting increase in the interest rate leads to an increase in
investment
e. decreases because the resulting decrease in the interest rate leads to an increase in
investment
67. As a result of expansionary monetary policy,

a. both aggregate expenditure and aggregate demand increase
b. both aggregate expenditure and aggregate demand decrease
c. aggregate expenditure increases and aggregate demand decreases
d. aggregate expenditure decreases and aggregate demand increases
e. aggregate expenditure remains unchanged; aggregate demand increases
68. If the Fed sells U.S. government securities to drain reserves from banks, which of the following will
probably occur?
a. The demand for money will increase and the interest rate will rise.
b. The money supply will increase and the interest rate will fall.
c. The interest rate will rise and the quantity of money demanded will fall.
d. The money supply will decrease and the interest rate will fall.
e. The interest rate will fall and the quantity of money demanded will increase.
69. If the Fed sells government securities to banks, eventually we expect

a. aggregate demand to increase
b. short-run aggregate supply to decrease
c. interest rates to decrease
d. planned investment expenditures to decrease
e. real Gross Domestic Product to increase
70. If the Fed sells government securities to banks, eventually we expect

a. the price level to increase
b. planned investment expenditures to increase
c. aggregate demand to increase
d. short-run aggregate supply to increase
e. interest rates to increase
ANS: E PTS: 1 DIF: Easy NAT: Analytic
71. An increase in the money supply leads to a(n)

a. decline in interest rates, an increase in investment, and an increase in aggregate demand
b. decline in interest rates, a decrease in investment, and an increase in aggregate demand
c. decline in interest rates, an increase in investment, and a decline in aggregate demand
d. increase in interest rates, an increase in investment, and an increase in aggregate demand
e. decline in interest rates, a decline in investment, and a decline in aggregate demand
72. If investment is not sensitive to changes in the interest rate, then changes in the money supply
a. will have no effect on interest rates
b. will have a major impact on investment
c. will have no effect on aggregate demand
d. will have a major impact on aggregate demand
e. mean the money supply curve will not be vertical
73. If interest rates are __________ to changes in the money supply and planned investment expenditures
are __________ to interest rates, then monetary policy will be __________ in changing Gross
Domestic Product.
a. sensitive; sensitive; effective
b. responsive; insensitive; ineffective
c. responsive; insensitive; effective
d. not responsive; sensitive; effective
e. not responsive; insensitive; effective
74. An increase in the money supply causes interest rates to __________, investment spending to
__________ and aggregate demand to __________.
a. rise; rise; rise
b. rise; fall; rise
c. rise; fall; fall
d. fall; rise; fall
e. fall; rise; rise
ANS: E PTS: 1 DIF: Moderate NAT: Reflective Thinking
75. A decrease in the money supply causes interest rates to __________, investment spending to
__________ and Gross Domestic Product to __________.
a. fall; rise; fall
b. fall; fall; rise
c. rise; rise; rise
d. rise; fall; fall
e. rise; fall; rise
76. For monetary policy to be effective in changing planned investment spending,

a. interest rates must not be responsive to changes in the money supply
b. interest rates must be sensitive to changes in Gross Domestic Product
c. investment must be sensitive to changes in interest rates
d. investment must be sensitive to changes in the spending multiplier
e. the spending multiplier must be stable
are __________ to interest rate changes, then monetary policy will be effective in changing aggregate
demand.
a. responsive; sensitive
b. responsive; insensitive
c. not responsive; sensitive
d. not responsive; insensitive
e. none of the above
are __________ to interest rate changes, then monetary policy will be ineffective in changing
aggregate demand.
a. responsive; sensitive
b. responsive; insensitive
c. not responsive; sensitive
d. not responsive; insensitive
79. What would be the ultimate effect of a reduction in the money supply?
a. a leftward shift of the aggregate demand curve
b. a rightward shift of the short-run aggregate supply curve
c. a movement upward along the aggregate demand curve
d. a movement downward along the aggregate demand curve
e. such a monetary policy would have no impact at all
ANS: A PTS: 1 DIF: Moderate NAT: Reflective Thinking
80. To eliminate a contractionary gap, the Fed can __________ the money supply, which would
__________.
a. increase; increase the interest rate and investment
b. increase; decrease the interest rate and increase investment
c. decrease; increase the interest rate and investment
d. decrease; decrease the interest rate and investment
e. decrease; increase the interest rate and decrease investment
81. Which monetary policy would be appropriate to close a contractionary gap?

a. a tax cut
b. a decrease in government purchases
c. an increase in reserve requirements
d. the Fed's purchase of U.S. government securities
e. the Fed's raising the discount rate
82. What happens to the aggregate demand curve when the Fed reduces the money supply?
a. It shifts leftward, lowering real GDP and the price level.
b. It shifts leftward, raising real GDP and the price level.
c. It shifts leftward, lowering real GDP but raising the price level.
d. It shifts rightward, raising real GDP and the price level.
e. It shifts rightward, lowering real GDP but raising the price level.
83. If the Fed decreases the money supply,

a. aggregate demand and aggregate supply both increase
b. aggregate demand increases, which leads to movement along the short-run aggregate
supply curve
c. aggregate demand decreases, which leads to movement along the short-run aggregate
supply curve
d. aggregate supply increases, which leads to movement along the aggregate demand curve
e. aggregate supply decreases, which leads to movement along the aggregate demand curve
84. If the Fed wants to close a contractionary gap, it might

a. increase government spending
b. increase taxes
c. decrease taxes
d. sell U.S. government bonds to banks
e. lower the discount rate

Exhibit 16-3
NARREND
85. In the situation shown in Exhibit 16-3, how could the Fed return the economy to potential output?
a. decrease government spending
b. increase taxes
c. decrease taxes
d. decrease the money supply
e. increase the money supply
b. decrease taxes
c. sell U.S. government bonds to banks
d. lower the discount rate
e. lower the required reserve ratio
b. decrease taxes
d. increase the discount rate
e. increase the required reserve ratio
b. decrease excess reserves in the banking system
d. increase the discount rate
e. lower the required reserve ratio
89. Which of the following is an example of an expansionary monetary policy?

a. Government purchases of goods and services decline.
b. The discount rate is increased.
c. The Fed sells U.S. government securities in the open market.
d. The required reserve ratio is lowered.
e. The income tax is lowered.
90. Which of the following is an example of a contractionary monetary policy?

a. Transfer payments to poor families are reduced.
b. The Fed buys government securities in the open market.
c. The discount rate is raised.
d. The required reserve ratio is lowered.
e. Anything the Fed does to shift the money supply to the right is a contractionary policy.
91. An increase in the money supply can increase the price level, real GDP, or both, but it is impossible to
tell exactly what will happen without knowing the slope of the aggregate supply curve.
a. True
b. False
LOC: Monetary and fiscal policy TOP: Adding the Short-Run Aggregate Supply Curve
92. The steeper the short-run aggregate supply curve, the __________ the change in price level and the
__________ the change in real Gross Domestic Product for a given shift in the aggregate demand
curve.
a. larger; larger
b. larger; smaller
c. smaller; larger
d. smaller; smaller
e. real GDP and the price level are not affected by the shape of the aggregate supply curve
93. When the short-run aggregate supply curve is steep, then for a given increase in aggregate demand,
a. the increase in real GDP will be relatively small and the increase in the price level will be
relatively large
b. the increase in real GDP will be relatively large and the increase in the price level will be
relatively small
c. the increases in real GDP and the price level will be large
d. the increases in real GDP and the price level will be small
e. the decrease in real GDP will be larger than the decrease in the price level
94. If the short-run aggregate supply curve is positively sloped and the Fed increases the money supply,
aggregate demand
a. increases, which increases real GDP and the price level
b. increases, which decreases real GDP and the price level
c. falls, which decreases real GDP and increases the price level
d. increases, which decreases real GDP and increases the price level
e. falls, which increases real GDP and the price level

Exhibit 16-4
NARREND
95. In Exhibit 16-4, short-run equilibrium occurs

a. at point a
b. at point b
c. at point c, where the actual price level exceeds the expected price level
d. at point c, where the actual price level is less than the expected price level
e. at point c, where there is a contractionary gap
ANS: C PTS: 1 DIF: Easy NAT: Reflective Thinking
96. In Exhibit 16-4, the Fed can return the economy to its potential output by
a. selling US Treasury securities inthe open market
b. lowering the discount rate
c. by lowering the reserve requirenment
d. buying US Treasury securities in the open market
e. printing money
ANS: D PTS: 1 DIF: Easy NAT: Reflective Thinking
Exhibit 16-5
NARREND
97. If the economy pictured in Exhibit 16-5 is in equilibrium where AD = SRAS, then it
a. is experiencing a contractionary gap
b. will experience an increase in the price level if no government action is taken
c. is operating at the potential level of output
d. will experience a stable price level if no government action is taken
e. is operating at less than the economy's potential level of output
98. The economy pictured in Exhibit 16-5 is

a. in a long-run equilibrium at the price level P and income level Y
b. in a short-run equilibrium at the price level P and income level Y
c. experiencing a contractionary gap at price level P and income level Y
d. not able to reach a long-run equilibrium without government intervention
e. in a short-run equilibrium at the price level P' and income level Y
99. To bring the economy shown in Exhibit 16-5 to its potential output level, the Fed could
a. do nothing and the price level would fall to P'
b. do nothing and the price level would remain at its current level
c. increase the money supply and increase the price level to P"
d. increase the money supply and decrease the price level to P'
e. decrease the money supply and decrease the price level to P'
100. Over the past 40 years, the most frequent target for the Fed’s monetary policy has been
a. the prime interest rate
b. the federal funds rate
c. the M1 money supply
d. the M2 money supply
e. the M3 money supply
LOC: Monetary and fiscal policy TOP: Targets After 1982
101. If the Fed changes the federal funds rate

a. inflation is brought to an immediate halt
b. the inflation rate increases for several months, but then begins to decreases
c. major banks try to offset this change by lowering the interest rates they charge on loans
d. major banks try to offset this change by lowering the interest rates they pay on savings
deposits
e. major banks raise the prime interest rate that they charge to their best customers
LOC: Monetary and fiscal policy TOP: Contrasting Policies
102. The quantity theory of money states that increases in the money supply result in proportional increases
in real GDP.
a. True
b. False
LOC: Monetary and fiscal policy TOP: The Equation of Exchange
103. When calculating by how much changes in the money supply will change nominal GDP, we use the
money multiplier instead of the spending multiplier.
a. True
b. False
104. According to the equation of exchange, M  V = P  C.

a. True
b. False
105. The equation of exchange states that the quantity of money multiplied by the velocity of money equals
a. real Gross Domestic Product
b. the price level
c. nominal Gross Domestic Product
d. the turnover rate
e. the demand for money
106. The equation of exchange
a. states that the price level times velocity equals GDP divided by the interest rate
b. states that total spending equals real GDP
c. states that money supply times velocity equals real GDP
d. is an identity, not a theory
e. becomes the quantity theory of money on the assumption that the price level is always
constant
107. The equation of exchange states that

a. money in circulation  prices = velocity  income
b. money in circulation  income = velocity  prices
c. real GDP = money in circulation  velocity
d. nominal GDP = money in circulation  velocity
e. real GDP = prices  money in circulation  velocity

108. The equation of exchange is

a. quantity supplied equals quantity demanded
b. quantity bought equals quantity sold
c. M  V = P  Y
d. C  I + G = Y
e. input equals output
109. Velocity measures

a. the average length of time that people hold wealth
b. how fast aggregate spending will increase for a given decline in money demand
c. how fast inflation will rise for a given increase in the money supply
d. how quickly money changes hands
e. how quickly banks can create money
110. If the money supply equals $1,000 and nominal GDP equals $3,000, then V
a. equals 1/3
b. equals 3
c. equals 3 million
d. cannot be determined since we do not know anything about prices
e. cannot be determined since we do not know anything about real GDP
111. If the money supply is $1,000, the price level is 3, and real income (or output) is $5,000, then the
velocity of money is
a. 0.2
b. 0.6
c. 1.67
d. 5
e. 15
112. According to the equation of exchange, if nominal GDP equals $6 trillion and the money supply equals
$1 trillion, the velocity of money
a. must be 6
b. must be 1/6
c. must be 6 trillion
d. must be 1/6 trillion
e. cannot be determined unless we know the price level
113. According to the equation of exchange, if real GDP is $2 trillion and the money supply is $0.5 trillion,
the velocity of money
a. must be 4
b. must be 1/4
c. must be 4 trillion
d. must be 1/4 trillion
e. cannot be determined unless we know the price level
114. If the money supply is $300, the price level is $4, and real GDP is $1,500, what is the nominal value of
output?
a. $1,200
b. $4,500
c. $6,000
d. $180,000
e. $500
115. If the money supply is $600, the price level is $2, and real GDP is $300, what is velocity?
a. 1
b. 150
c. 300
d. 600
e. 1,200
116. According to the equation of exchange, if the amount of money in the economy of Monetania times
the velocity of money equals 800 million Monetanian dollars ($), then Monetania's
a. real GDP equals $800 million
b. nominal GDP equals $800 million
c. real GDP equals $800 million times the price level
d. nominal GDP equals $800 million times the price level
e. price level equals 8 Monetanian dollars
117. In the long run, increases in the money supply increase the economy's potential output level.
a. True
b. False
LOC: Monetary and fiscal policy TOP: The Quantity Theory of Money
118. In order for changes in the money supply to affect real GDP, the aggregate supply curve cannot be
vertical.
a. True
b. False
119. In the quantity theory of money, it is assumed that M and P are the only elements in the equation that
are free to fluctuate.
a. True
b. False
120. If the money supply increases when there is much idle capacity in the economy,
a. most of the resulting rise in nominal GDP will be a result of price increases
b. most of the resulting rise in nominal GDP will be a result of increases in real output
c. most of the resulting rise in real GDP will be a result of increases in the price level
d. most of the resulting rise in real GDP will be a result of increases in the interest rate
e. only nominal GDP will change; real GDP will be unaffected
121. Suppose the economy is in long-run equilibrium at the level of potential output. What will be the long-
run effect of an expansionary monetary policy?
a. a higher price level
b. a higher level of real output
c. both a higher price level and a higher level of real output
d. a lower price level
e. a lower level of real output
122. If the Fed expands the money supply, a short-run aggregate supply curve __________ would yield the
largest short-run increase in real GDP.
a. that is vertical
b. with a steep slope
c. that coincides with the 45-degree line
d. that is relatively flat
e. that shifts leftward
123. If the Fed expands the money supply, a short-run aggregate supply curve __________ would yield the
largest short-run increase in the price level.
a. that is vertical
b. with a steep slope
c. that coincides with the 45-degree line
d. that is relatively flat
e. that is horizontal
124. An increase in aggregate demand will have the greatest short-run effect on real output if the
a. aggregate demand curve is horizontal
b. aggregate demand curve is vertical
c. aggregate demand curve is horizontal and the short-run aggregate supply curve is vertical
d. short-run aggregate supply curve is vertical
e. short-run aggregate supply curve is horizontal
125. The extent to which a given increase in nominal income is the result of a price level change or a
change in real income is primarily determined by
a. the quantity theory of money
b. the equation of exchange
c. the slope of the aggregate demand curve
d. the slope of the short-run aggregate supply curve
126. An increase in aggregate demand will have a smaller long-run effect on real GDP if the
a. aggregate demand curve is flat
b. short-run aggregate supply curve is horizontal
c. economy is well below potential output
d. economy is already at potential output
e. aggregate demand curve is fairly steep
127. In the long run, an increase in aggregate demand

a. increases the price level and real output, but the effect on the price level is larger
b. increases the price level and real output, but the effect on output is larger
c. affects only real output
d. affects only the price level
e. has no effect at all
128. In an economy in which velocity is constant and the same level of real output is produced year after
year, a slow increase in the money supply would result in a
a. constant price level
b. slowly increasing price level
c. rapidly increasing price level
d. slowly increasing real GDP
e. rapidly increasing real GDP
129. In an economy in which velocity is constant and real output grows at an average rate of 4 percent per
year, a 4 percent average rate of growth in the money supply would result in
a. a constant price level
b. a slowly increasing price level
c. a rapidly increasing price level
d. constant real GDP
e. constant nominal GDP
130. In an economy in which velocity is constant and real output grows at an average rate of 3 percent per
year, a 5 percent average rate of growth in the money supply would result in a
a. constant price level
b. slowly increasing price level
c. slowly decreasing price level
d. stable 4 percent growth in real GDP
e. stable 4 percent growth in nominal GDP
131. 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)
a. inflation rate of 4 percent, if velocity were constant
b. inflation rate of -4 percent, if velocity were constant
c. $4 increase in the price level per year
d. $4 decrease in the price level per year
e. change in the velocity of money
132. If the money supply is increasing at a constant 8 percent, velocity is constant, real GDP is increasing at
5 percent, and the inflation rate is 3 percent, which of the following is true?
a. The growth rate of GDP is too low to be maintained.
b. The inflation rate is too low to be maintained.
c. Velocity is too low to be maintained.
d. The money supply growth rate is too low to be maintained.
e. This situation can continue indefinitely.
133. If real output and velocity are stable and predictable, then the equation of exchange can be used to
derive a simple relationship between
a. the money supply and the price level
b. the money supply and the interest rate
c. the money supply and the foreign exchange rate
d. velocity and real GDP
e. velocity and nominal GDP
134. The quantity theory of money states that

a. MV = PY
b. since velocity is reasonably stable, we can predict the effects of an increase in the money
supply on nominal income
c. since velocity is not stable, changes in the money supply have unpredictable impacts on
income
d. since velocity is reasonably stable, we can predict the effects of an increase in the money
supply on employment
e. since velocity is reasonably stable, we can predict the effects of an increase in the money
supply on interest rates
135. The quantity theory of money

a. states that fiscal policy plays an important role in determining economic activity
b. states that the quantity of money in circulation determines aggregate spending
c. argues that velocity is unpredictable
d. states that the quantity of money in circulation determines only the price level in the long
run
e. states that the quantity of money in circulation determines only real spending in the short
run
136. For the quantity theory of money to yield useful predictions,

a. fiscal policy must be ineffective in altering aggregate demand
b. fiscal policy must be effective in altering aggregate demand
c. the economy must be operating at the potential level of real Gross Domestic Product
d. velocity must be stable or predictable
e. velocity must be unstable
137. In the long run, changes in the money supply affect only the price level because
a. the aggregate demand curve is vertical
b. the aggregate demand curve is downward sloping
c. the long-run aggregate supply curve is vertical
d. the long-run aggregate supply curve is upward sloping
e. current real GDP is less than the economy's potential GDP
138. Which of the following statements best describes the historical relationship between increases in the
money supply (M1) and inflation in the U.S.?
a. All three major episodes of inflation since 1914 were preceded and accompanied by an
increase in the growth rate of M1.
b. There is no strong evidence of any relationship between inflation and increases in the
money supply in the 20th century.
c. Since the formation of the Fed in 1914, there have been no significant periods of inflation
d. In all three major episodes of inflation since 1914, increases in the growth rate of M1
occurred after the inflation subsided.
e. There were significant periods of inflation during each decade of the 20th century and
each was preceded and accompanied by an increase in the growth rate of M1.
139. The opportunity cost of money is the interest foregone.

a. True
b. False
140. The advantage of money as a store of value is

a. its purchasing power
b. its liquidity
c. its portability
d. its uniformity
e. its availability
141. The demand for money

a. is unrelated to the interest rate
b. is directly related to the interest rate
c. is inversely related to the interest rate
d. is inversely related to the volume of transactions
e. is largely independent of the volume of transactions
142. Economic theory suggests that

a. increases in the money supply lead to increases in the inflation rate
b. a higher price level leads to a higher inflation rate
c. rapid growth in the money supply leads to rapid growth in the price level
d. the inflation rate always increases whenever the money supply increases
e. the inflation rate always decreases whenever the money supply increases
143. Increases in the expected inflation rate cause

a. the velocity of money to increase
b. the velocity of money to decrease
c. money to become a better store of wealth
d. decreases in the actual price level
e. the money supply to increase
LOC: Monetary and fiscal policy TOP: What Determines the Velocity of Money?
144. Which of the following would cause an increase in the velocity of money?
a. increased use of credit cards
b. an increase in the money supply
c. an increase in demand for money
d. a decrease in interest rates
e. a decrease in nominal GDP and a constant money supply
145. Which of the following would most likely lower the velocity of money?
a. commercial innovations that facilitate exchange
b. a lower inflation rate
c. a decline in the effectiveness of money as a store of wealth
d. a higher inflation rate
e. paying workers once a week instead of once a month
146. Velocity will be higher

a. the less frequently workers are paid
b. the fewer transactions there are to make
c. the less effective money is as a store of value
d. the less people use credit cards to make purchases
e. the slower the physical transportation of money between one person and another
147. If something causes the velocity of money to increase, the same amount of money will
a. be able to support more transactions, so nominal GDP can increase
b. be forced to support more transactions, so nominal GDP will decrease
c. be able to support fewer transactions, so nominal GDP will decrease
d. no longer have to support so many transactions, so nominal GDP can increase
e. mean nothing can happen to nominal GDP
148. The velocity of money is defined as

a. the time it takes the average worker to get to the bank with his/her paycheck
b. the time it takes banks to clear checks
c. the average number of times per year each dollar is used to purchase final goods and
services
d. M  P ÷ Y
e. the average number of times per year each dollar is spent for goods, payrolls, Social
Security payments, etc.
149. A rising rate of inflation

a. makes people more willing to hold money as an asset
b. reduces the usefulness of money as a store of value and thus increases the velocity of
money
c. increases the usefulness of money as a medium of exchange and thus reduces the velocity
of money
d. is usually preceded by a reduction in the money supply
e. does not, apparently, have any effect on the velocity of money
150. Historical evidence has shown that the M1 velocity of money in the United States
a. has remained constant
b. has remained predictable but not constant
c. has varied over the century but is currently near constant
d. has varied over the century and has recently fluctuated a quite a bit
e. is not correctly placed within the equation of exchange
LOC: Monetary and fiscal policy TOP: How Stable is Velocity?
151. In the United States over the last decade, the velocity of
a. M1 has been more stable than the velocity of M2, possibly because of the deregulation of
the interest paid on checkable deposits
b. M1 has been more stable than the velocity of M2, leading the Fed to rely more on M1
targets
c. M2 has been more stable than the velocity of M1, but the Fed still relies on M1 targets
d. M2 has been more stable than the velocity of M1, possibly because of the deregulation of
the interest paid on checkable deposits
e. both c and d are true
152. The velocity of M1 money has moved erratically in the past several years because
a. of low and stable rates of inflation
b. of regulatory changes allowing banks to pay interest on checkable deposits
c. interest rates have been stable
d. monetary policy has been highly erratic
e. a large number of banks and savings and loan associations have gone bankrupt
153. The behavior of the M1 velocity of money in recent years can be explained by
a. stability of interest rates
b. a low and stable rate of inflation
c. monetary policy that has been successful in stabilizing the economy
d. financial innovation creating new substitutes for money M1
e. a large number of banks and savings and loan associations going bankrupt
154. The velocity of money increases for all of the following reasons except
a. use of electronic transmission of funds
b. increased use of charge accounts
c. increased use of automatic teller machines
d. a rising inflation rate
e. decreased use of credit cards
155. Which of the following statements about the velocity of money in the U.S. is correct?
a. From 1915 to 1947, the velocity of M1 increased.
b. From 1947 to 1973, the velocity of M1 decreased.
c. In the 1970s, velocity growth was extremely stable at approximately 3% to 4%.
d. During most of this century, the velocity of money has remained unchanged.
e. The velocity of money has decreased because of ATM machines and credit cards.
156. There is considerable disagreement about whether the Fed should

a. engage in open market operations
b. have the power to set reserve requirements
c. reduce the money supply when the economy is growing
d. allow banks to invest in the stock market
e. attempt to control interest rates or should instead attempt to control the money supply
157. If the Fed is targeting the money supply, it loses control over the interest rate.
a. True
b. False
158. Suppose the money demand curve shifts rightward. Which of the following is true about the Fed's
options?
a. The Fed can keep the interest rate from rising only if it increases the money supply.
b. The Fed cannot prevent the interest rate from rising.
c. The Fed can prevent the interest rate from rising without changing the money supply.
d. If the Fed expands the money supply, the interest rate will rise even further.
e. The Fed should reduce the money supply if it wishes to prevent the interest rate from
rising.
159. Suppose that the demand and supply of money are initially in equilibrium, and that the demand for
money increases. A monetary authority interested in keeping the money supply constant and the
interest rate low must
a. increase the money supply
b. decrease the money supply
c. increase the demand for money
d. decrease the demand for money
e. give up pursuing both goals at the same time and choose one or the other
160. If the Fed had to choose between fixing the interest rate and fixing the supply of money, it would
a. always fix the money supply, so that the price level would be stable
b. always fix the money supply, so that spending would be stable
c. always fix the interest rate, so that investment would be stable
d. always fix the interest rate, so that demand for money would be stable
e. find neither alternative would be clearly better than the other
161. If interest rates are to remain constant, the money supply should change
a. in the opposite direction to a change in aggregate demand
b. in the same direction as a change in money demand
c. only when investment changes
d. only when the demand for money decreases
e. only when the inflation rate changes
162. For interest rates to remain stable during economic expansions, the money supply should
a. decrease at a faster rate than the demand for money
b. grow at the same rate as money demand
c. grow at a faster rate than money demand
d. grow at a slower rate than money demand
e. decrease at a slower rate than the demand for money
163. If the Fed targets the interest rate, then

a. the money supply will grow at a more controlled rate
b. monetary policy will reinforce fluctuations in economic activity
c. the price level will be more stable in the long run
d. money demand will be more stable
e. velocity will be less stable
164. Those who argue against interest rate targets for monetary policy claim that
a. the necessary changes in money supply reinforce business cycles
b. the necessary changes in money supply dampen expansions
c. increased crowding out reduces private investment even more
d. inflation would fall
e. monetary policy is too effective
165. For interest rates to remain stable during economic expansions, the growth rate of the money supply
should
a. exceed the growth in the demand for money
b. just match the growth in the demand for money
c. be less than the growth in the demand for money
d. be zero
e. just match the growth in nominal GDP
166. For interest rates to remain stable during economic contractions, monetary authorities should
a. reduce the demand for money
b. increase the demand for money
c. match the rate of growth in the money supply to the rate of growth in nominal GDP
d. reduce the rate of growth in the money supply below the rate of growth in the demand for
money
e. slow the growth of the money supply, or even let the money supply shrink
167. If money demand increases and the Fed does not alter its monetary policy, then
a. the money supply will increase
b. the money supply will decrease
c. interest rates will decrease
d. interest rates will increase
e. velocity will decrease
168. If money demand increases and the Fed attempts to keep interest rates stable, then
a. the money supply will increase
b. the money supply will decrease
c. velocity will increase
d. velocity will decrease
e. the Fed will sell government securities

Exhibit 16-6
NARREND
169. If the Fed is targeting interest rates and money demand shifts from Dm to Dm' in Exhibit 16-6, the Fed
will
a. do nothing and the interest rate will rise to i'
b. do nothing and the interest rate will settle at i
c. decrease the money supply to restore its target of i
d. increase the money supply to restore its target of i
e. decrease money demand back to Dm to restore its target of i
170. If the Fed is targeting the money supply and the money demand shifts from Dm to Dm' in Exhibit 16-6,
the Fed will
a. do nothing and the interest rate will rise to i'
b. do nothing and the interest rate will settle at i
c. decrease the money supply to restore its target of i
d. increase the money supply to restore its target of i
e. decrease money demand back to Dm to restore its target of i
ANS: A PTS: 1 DIF: Easy NAT: Reflective Thinking
171. If the Federal Reserve is targeting the interest rate when the demand for money increases, their proper
response is to
a. decrease the money supply
b. keep the money supply constant
c. increase the money supply
d. stimulate inflation to increase the demand for money
e. stimulate a decrease in the price level to increase the demand for money
172. If the Federal Reserve is targeting the money supply when the demand for money decreases, their
proper response is to
a. decrease the money supply
b. keep the money supply on a path of constant, predictable growth
c. increase the money supply to match the increase in the demand for money
d. stimulate inflation to increase the demand for money
e. stimulate a decrease in the price level to increase the demand for money
173. In October 1979 the Fed announced that it would focus on

a. stabilizing interest rates
b. specified targets for slowly falling interest rates
c. specified targets for the long-run equilibrium price level
d. specified targets for growth of the money supply
e. stabilizing the long-run equilibrium price level
LOC: Monetary and fiscal policy TOP: Targets Before 1982
174. In the history of monetary policy, the period of October 1979 to October 1982 was notable for
a. being a period of steady prices and low unemployment
b. the emphasis placed on controlling interest rates during that period
c. the emphasis placed on controlling the money supply during that period
d. the rapid increase in the growth of the money supply during that period
e. the rapid rise in prices during that period
LOC: Monetary and fiscal policy TOP: Targets Before 1982
175. In recent years, much of the emphasis of Fed policy has been on
a. controlling short-term interest rates
b. implementing a system of price controls
c. regulating bank managers
d. controlling the money supply
e. making changes in the international financial markets
176. According to the equation of exchange, increases in the money supply are translated into
a. increases in the velocity of money
b. decreases in real GDP
c. incrreases in real GDP
d. increases in the price level
e. increases in inflation
177. The interest rate that banks charge one another for overnight lending of reserves is the
a. federal funds rate
b. interbank credit card rate
c. subprime mortgage rate
d. prime rate
e. local funds rate
LOC: Monetary and fiscal policy TOP: Targets for Monetary Policy
178. Because __________ the federal funds rate __________ the cost of covering any reserve shortfall,
banks are __________ willing to lend to the public.
a. lowering, reduces, less
b. raising, increases, more
c. lowering, reduces, more
d. raising, decreases, more
e. lowering, increases, more
179. Since the Federal Reserve was established in 1913 the US has experienced 3 periods of high inflation
and each was preceeded and accompanied by a period of sharp increases in the money supply.
a. True
b. False
180. The Fed’s grip is tightest on the

a. prime rate
b. federal funds rate
c. mortgage rate
d. credit card rate
e. student loan rate
181. During the 2007-2009 financial crisis the Federal Reserve took some unusual steps in its conduct of
monetary policy. Which of the following was not one of them?
a. invested in AIG
b. invested more than $1 trillion in mortgage-backed securities
c. worked with the U.S. Treasury and with other regulators to stabilize banks and thaw
frozen credit lines
d. worked with the U.S. Treasury and other regulators to help conduct a stress test of the 19
largest banks
e. bailed out General Motors
ANS: E PTS: 1 DIF: Easy NAT: Reflective Thinking
LOC: Monetary and fiscal policy TOP: Other Fed Actions and Concerns
182. The velocity of money is the number of times per year that each dollar is used to purchase goods and
services.
a. True
b. False
183. While monetary targets are important, also significant is what Fed officials have to say. Sometimes
reassurance is all that’s required to calm market jitters.
a. True
b. False
184. Which of the following is the last step in the sequence?

a. A strong dollar relative to foreign currencies hurts U.S. exporters
b. As the money supply increases, interest rates fall in the short run
c. The value of the dollar declines
d. Low U.S. interest rates makes the dollar less attractive to foreign investors
e. The Fed chooses an expansionary monetary policy
LOC: Monetary and fiscal policy TOP: International Considerations
185. Because monetary policy is the main focus of the Fed, it ignores international considerations.
a. True
b. False
LOC: Monetary and fiscal policy TOP: International Considerations

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Chapter 16—Monetary Theory and Policy

3. Speaking of the demand for money

4. The demand for money

5. In deciding how much money to hold, you should compare the

6. The opportunity cost of holding money is measured by the

7. The opportunity cost of holding money increases when

9. The demand for money is based primarily on money's role as a(n)

16. The money demand curve slopes

17. The demand for money varies

18. An increase in the price level will

21. If the interest rate rises, people hold

22. A decrease in the interest rate will

28. If the demand for money increases,

29. If the price level rises, then the

30. The opportunity cost of holding money

NARRBEGIN: Exhibit 30-5

40. The equilibrium interest rate is determined by

41. An increase in the money supply will

42. Which one of the following statements is correct?

43. Of the following, the major influence on the supply of money is

NARRBEGIN: Exhibit 30-6

54. If the Fed wanted to stimulate the economy, it might

55. If the Fed increases the money supply, then

56. If the Fed buys bonds, then the money supply

57. An increase in the interest rate will

59. As the interest rate increases,

60. As the interest rate decreases,

61. Planned investment expenditures will eventually decrease after

62. Planned investment expenditures will eventually increase after

65. If the Fed increases the money supply, GDP

66. If the Fed decreases the money supply, GDP

67. As a result of expansionary monetary policy,

69. If the Fed sells government securities to banks, eventually we expect

70. If the Fed sells government securities to banks, eventually we expect

71. An increase in the money supply leads to a(n)

76. For monetary policy to be effective in changing planned investment spending,

81. Which monetary policy would be appropriate to close a contractionary gap?

83. If the Fed decreases the money supply,

84. If the Fed wants to close a contractionary gap, it might

NARRBEGIN: Exhibit 30-1

89. Which of the following is an example of an expansionary monetary policy?

90. Which of the following is an example of a contractionary monetary policy?

NARRBEGIN: Exhibit 30-2

95. In Exhibit 16-4, short-run equilibrium occurs

98. The economy pictured in Exhibit 16-5 is

101. If the Fed changes the federal funds rate

104. According to the equation of exchange, M  V = P  C.

107. The equation of exchange states that

ANS: D PTS: 1 DIF: Moderate NAT: Analytic

108. The equation of exchange is

109. Velocity measures

127. In the long run, an increase in aggregate demand

134. The quantity theory of money states that

135. The quantity theory of money

136. For the quantity theory of money to yield useful predictions,

139. The opportunity cost of money is the interest foregone.

140. The advantage of money as a store of value is

141. The demand for money

142. Economic theory suggests that