Macroeconomics, 3e (Williamson)
Chapter 10 A Monetary Intertemporal Model: Money, Prices, and Monetary Policy
1) Buying an item with cash would be an example of money's role as a
A) medium of exchange.
B) store of value.
C) unit of account.
D) none of the above
Answer: A
Question Status: Previous Edition
2) Use of money to save up for a future cash purchase would be an example of money's role as
a
A) medium of exchange.
B) store of value.
C) unit of account.
D) none of the above
Answer: B
Question Status: Previous Edition
3) Price tags attached to goods for purchase at a store would be an example of money's role as
a
A) medium of exchange.
B) store of value.
C) unit of account.
D) none of the above
Answer: C
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4) The most distinguishing economic feature of money is its
A) medium of exchange role.
B) store of value role.
C) unit of account role.
D) standard of deferred payment role.
Answer: A
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5) The two most common types of money in circulation in the United States today consist of
A) private bank notes and commodity-backed paper currency.
B) commodity-backed paper currency and fiat money.
C) fiat money and transaction deposits at banks.
D) transaction deposits at banks and commodity money.
Answer: C
Question Status: Previous Edition
6) Credit cards are not a form of money because
A) money needs to be tangible (not virtual).
B) credit cards just extend a loan.
C) credit cards just relate to an account.
D) credit card balances are in fact counted as money.
Answer: B
Question Status: New
7) The most narrowly defined monetary aggregate is
A) M0.
B) M1.
C) M2.
D) L.
Answer: A
Question Status: Previous Edition
8) Which of the following is included in M0, but not in M1?
A) demand deposits
B) deposits of depository institutions at the Federal Reserve
C) currency held by the U.S. public
D) U.S. currency held by foreigners
Answer: B
Question Status: Previous Edition
9) Which of the following is included in M1, but not in M2?
A) currency (outside the U.S. Treasury, the Federal Reserve, and the vaults of depository
institutions)
B) travelers' checks
C) demand deposits
D) savings deposits
Answer: D
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10) M1 is M0 plus
A) bank notes.
B) saving accounts.
C) checking accounts.
D) certificates of deposit.
Answer: C
Question Status: New
11) Going from M0 to M1 and to M2, what is the principle?
A) from household money demand to firm money demand
B) from illiquid to liquid
C) from most usable to least usable for transaction purposes
D) from most usable to least usable as a store of value
Answer: C
Question Status: New
12) The double coincidence of wants problem is solved by
A) credit markets.
B) government intervention.
C) the use of money.
D) specialization.
Answer: C
Question Status: Previous Edition
13) The Fisher relationship may be described by the following equation in which R is the
nominal rate of interest, r is the real rate of interest, and i is the inflation rate.
A) i = r + R
B)
1 r
1+i=
(1  R )
C)
D)
1+r=
1 i
(1  R )
1+r=
1 r
1 i
Answer: D
Question Status: Previous Edition
14) The real return on money is
A) 0.
B) -r.
C) -i.
D) -R.
Answer: C
Question Status: New
15) The opportunity cost of money is
A) zero.
B) the inflation rate.
C) the real interest rate.
D) the nominal interest rate.
Answer: D
Question Status: New
16) To determine the real interest rate in the data, one should take the interest rate on Treasury
bonds
A) and leave it at that.
B) and add the inflation rate.
C) and subtract the inflation rate.
D) and divide by the inflation rate.
Answer: C
Question Status: New
17) The most significant problem in trying to empirically measure the real rate of interest is that
A) there are so many different types of bonds.
B) expected inflation is unobservable.
C) interest rates fluctuate so much from day to day.
D) banks infrequently change the prime rate of interest.
Answer: B
Question Status: Previous Edition
18) In monetary macroeconomics, CIA stands for
A) currency in arrears.
B) cash in advance.
C) common index of assets.
D) consumption-investment allocation.
Answer: B
Question Status: New
19) The cash-in-advance assumption means
A) money needs to be printed before it can be used.
B) some goods require currency to be purchased.
C) households obtain labor income at the start of the period.
D) households obtain money transfers from the government at the start of the period.
Answer: B
Question Status: New
20) Without the cash-in-advance constraint, money would not be held by households in the
intertemporal model with money because
A) it is not in the utility function.
B) its return is too high.
C) its return is too low.
D) We cannot tell.
Answer: C
Question Status: New
21) Without the cash-in-advance constraint, money would not be held by firms in the
intertemporal model with money because
A) firms need the money for the production function.
B) its return is too high.
C) its return is too low.
D) We cannot tell.
Answer: C
Question Status: New
22) A model in which some goods must be purchased with cash on hand is called a
A) monetary model.
B) cash-in-advance model.
C) circulating cash model.
D) real business cycle model.
Answer: B
Question Status: Previous Edition
23) A household uses banking services until the marginal cost of banking services equals
A) the inflation rate.
B) the real interest rate.
C) the nominal interest rate.
D) zero.
Answer: C
Question Status: New
24) A reduction in the cost of banking services leads to
A) an increase in money demand.
B) a decreases in money demand.
C) no change in money demand.
D) We cannot know.
Answer: B
Question Status: New
25) With a higher nominal interest rate, households will
A) use more money and more banking services.
B) use more money and less banking services.
C) use less money and more banking services.
D) use less money and less banking services.
Answer: C
Question Status: New
26) What would decrease the cost of banking services?
A) preventing banks from paying interest on transaction accounts
B) increasing the perceived riskiness of banks
C) replacing checks by debit cards
D) increasing the interest rate on certificates of deposits
Answer: C
Question Status: New
27) The current demand for money increases when
A) current real income increases.
B) future real income decreases.
C) the nominal rate of interest increases.
D) none of the above.
Answer: A
Question Status: Previous Edition
28) The current demand for money increases when
A) current real income decreases.
B) future real income increases.
C) the nominal rate of interest increases.
D) none of the above.
Answer: B
Question Status: Previous Edition
29) The current demand for money increases when
A) current real income decreases.
B) future real income decreases.
C) the nominal rate of interest decreases.
D) none of the above.
Answer: C
Question Status: Previous Edition
30) In the intertemporal model with money, money demand can increase if
A) total factor productivity decreases.
B) the money supply increases.
C) the stock market becomes less risky.
D) more ATMs are put in place.
Answer: D
Question Status: New
31) Liquidity demand increase with income in the cash-in-advance model because
A) rich people do not like to go to the bank.
B) of the income effect on consumption.
C) of Ricardian equivalence.
D) money is neutral.
Answer: B
Question Status: New
32) The money supply is
A) endogenous.
B) determined by policy.
C) irrelevant.
D) indeterminate.
Answer: B
Question Status: New
33) The money supply is vertical because
A) prices are indeterminate.
B) prices have no real impact.
C) the money supply is set by policy.
D) prices are counter-cyclical.
Answer: C
Question Status: New
34) The Federal Reserve System
A) issues bank notes.
B) issues coins.
C) collects taxes.
D) issues commemorative plates.
Answer: A
Question Status: New
35) A central bank is
A) a commercial bank with monopoly power.
B) a commercial bank with the power to influence markets.
C) a bank with money issuing powers.
D) a bank issuing treasury bonds.
Answer: C
Question Status: New
36) To increase the nominal money supply, the government may do any of the following except
A) drop money out of helicopters.
B) increase government spending and taxes by the same amount.
C) reduce the quantity of government bonds, with no change in either government
spending or taxes.
D) temporarily increase government spending, with no change in either taxes or the
quantity of government bonds.
Answer: B
Question Status: Previous Edition
37) The money supply can be increased by
A) increasing taxes.
B) buying more goods for the government.
C) issuing Treasury bonds.
D) decree.
Answer: B
Question Status: New
38) Government printing of money to finance government spending is called
A) irresponsible.
B) an open-market purchase.
C) sterilization.
D) seigniorage.
Answer: D
Question Status: Previous Edition
39) Seigniorage is government revenue raised by
A) a tax on transactions.
B) issuance of treasury bonds.
C) issuance of money.
D) lump-sum taxation.
Answer: C
Question Status: New
40) An open-market operation refers to
A) changing the money supply by changing taxes.
B) changing the money supply by changing government spending.
C) an exchange of money for interest-bearing debt by the monetary authority.
D) an exchange of domestic money for foreign money by the monetary authority.
Answer: C
Question Status: Previous Edition
41) When the Federal Reserve buys Treasury bonds, it is called
A) a swap.
B) an open market operation.
C) a bond roll-over.
D) bonding.
Answer: B
Question Status: New
42) If an increase in the level of the money supply results in a proportionate increase in prices
with no effect on any real variables, we say that
A) the Fisher relationship holds.
B) money is neutral.
C) money is superneutral.
D) money is the most preferred store of value.
Answer: B
Question Status: Previous Edition
43) Money is neutral in the model economy we discussed because
A) the money supply is exogenous.
B) the money supply is intertemporal.
C) prices are fully flexible.
D) it is a barter economy.
Answer: C
Question Status: New
44) Money neutrality states that
A) with money, one can still use the representative agent.
B) changes in money do not affect real aggregates.
C) changes in inflation do not affect real aggregates.
D) monetary policy is independent from politics.
Answer: B
Question Status: New
45) In a model with money neutrality, a 10% increase in the money supply leads to an increase
of output by
A) more than 10%.
B) 10%.
C) less than 10%, but more than zero.
D) zero.
Answer: D
Question Status: New
46) In a model with money neutrality, a 10% increase in the money supply leads to an increase
of prices by
A) more than 10%.
B) 10%.
C) less than 10%, but more than zero.
D) zero.
Answer: B
Question Status: New
47) The classical dichotomy states that
A) money is superneutral.
B) goods markets are separated from labor markets.
C) demand is separate from supply.
D) real markets determine nominal outcomes, not the reverse.
Answer: D
Question Status: New
48) In the intertemporal model with money, the optimal amount of money is
A) equal to total output.
B) equal to consumption and investment.
C) zero.
D) irrelevant as long as it is not zero.
Answer: D
Question Status: New
49) If an increase in the level of money supply leads to a proportionate increase in prices with
no effect on real variables ,we say that
A) the Fisher relationship holds.
B) money is neutral.
C) money is superneutral.
D) money is a medium of exchange.
Answer: B
Question Status: New
50) In the intertemporal monetary model, the effects of a temporary decrease in total factor
productivity include
A) an increase in the real interest rate and an increase in prices.
B) an increase in the real interest rate and a decrease in prices.
C) a decrease in the real interest rate and an increase in prices.
D) a decrease in the real interest rate and a decrease in prices.
Answer: A
Question Status: Previous Edition
51) With money supply shocks in the intertemporal model with money, the price level is
A) procyclical.
B) acyclical.
C) countercyclical.
D) somewhat cyclical.
Answer: B
Question Status: New
52) The cash-in-advance model with temporary total factor productivity shocks replicates which
stylized fact?
A) procyclical government expenses
B) acyclical investment
C) countercyclical real wages
D) countercyclical prices
Answer: D
Question Status: New
53) In the intertemporal monetary model, the effects of an increase in the cost of converting
other assets into money include
A) an increase in the nominal interest rate.
B) a decrease in the nominal interest rate.
C) an increase in prices.
D) a decrease in prices.
Answer: C
Question Status: Previous Edition
54) An important potential problem for a central bank that wishes to stabilize the price level is
the inability of the central bank to
A) observe the nominal interest rate.
B) observe the real interest rate.
C) predict shifts in the money demand function and to immediately observe changes in
output and prices.
D) predict shifts in the money supply and to immediately observe changes in output and
prices.
Answer: C
Question Status: Previous Edition
55) The conventional wisdom is that a central bank should target an inflation rate of
A) -2 to -4%.
B) around 0%.
C) 1% to 3%.
D) 3% to 5%.
Answer: C
Question Status: New
56) In the monetarist approach to monetary policy, the Federal Reserve should set a target for
A) the money growth rate.
B) the inflation rate.
C) the real interest rate.
D) the nominal interest rate.
Answer: A
Question Status: New
57) Money supply targeting has been abandoned because
A) the money supply is very difficult to measure.
B) people could not agree which monetary measure to target.
C) counterfeit money made it impossible to conduct policy.
D) it leads to price instability in the face of real shocks.
Answer: D
Question Status: New
58) With nominal interest targeting, the goal is
A) to let the nominal interest fluctuate such that unemployment is minimized.
B) to fix the nominal interest rate and thus inflation.
C) to make sure the money growth rate is low and constant.
D) to prevent changes in the marginal cost of banking services.
Answer: B
Question Status: New
59) The Taylor rule is named as such because
A) it allows the central bank to taylor policy to external circumstances.
B) it allows the central bank to get a close fit to inflation forecasts, like a taylor fits a dress.
C) it was proposed by an economist named Taylor.
D) it was used under a Federal Reserve governor named Taylor.
Answer: C
Question Status: New
60) The Taylor rule stipulates that the nominal interest rate
A) should stay constant.
B) should correspond to an inverted Phillips curve.
C) should track potential inflation.
D) should follow inflation and deviations from potential output.
Answer: D
Question Status: New