Question 1

All other things unchanged, we expect that an increase in interest rates will tend to

Accepted Answer

A)   increase the quantity of money demanded and increase velocity.
B)   increase the quantity of money demanded and reduce velocity.
C)   reduce the quantity of money demanded and increase velocity.
D)   reduce the quantity of money demanded and reduce velocity.

Question 2

Changing the required reserve ratio is an often-used monetary tool to influence the federal funds rate.

Accepted Answer

A) True 
 B)False

Question 3

If the velocity of money is constant, then a 2% increase in the money supply

Accepted Answer

A)   must be the result of a 2% increase in the price level.
B)   would change nominal GDP by a smaller percentage.
C)   would change nominal GDP by an equal percentage.
D)   would change nominal GDP by a larger percentage.

Question 4

Figure 11-1 
-Refer to Figure 11-1. Suppose the Fed takes action that shifts the demand curve from D to D′, as illustrated in Panel (a) . As a result, the interest rate

Accepted Answer

A)   increases and investment increases.
B)   increases and investment decreases.
C)   decreases and investment increases.
D)   decreases and investment decreases.

Question 5

Figure 11-4 
-Refer to Figure 11-4. If the Fed acts to close the output gap in Panel (a) , it would

Accepted Answer

A)   sell government bonds which will lead to the shift in demand for bonds in Panel (b) . This action will raise the price of bonds and lower the interest rate.
B)   buy government bonds which will lead to the shift in demand for bonds in Panel (b) . This action will raise the price of bonds and increase the interest rate.
C)   buy government bonds which will lead to the shift in demand for bonds in Panel (b) . This action will raise the price of bonds and lower the interest rate.
D)   sell government bonds which will lead to the shift in demand for bonds in Panel (b) . This action will raise the price of bonds and increase the interest rate.

Question 6

The major tools of monetary policy available to the Federal Reserve System are

Accepted Answer

A)   reserve requirements, margin regulations, and moral suasion.
B)   reserve requirements, open-market operations, and the discount rate.
C)   open-market operations, margin regulations, and moral suasion.
D)   the discount rate, margin regulations, and moral suasion.

Question 7

Figure 11-4 1 to D2, in Panel (b)  will result in a A)  lower interest rate and no change in investment. B)  higher interest rate and lower investment. C)  lower interest rate and higher investment. D)  higher interest rate and higher investment." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 11-4. The shift in the demand for bonds from D1 to D2, in Panel (b)  will result in a

Accepted Answer

A)   lower interest rate and no change in investment.
B)   higher interest rate and lower investment.
C)   lower interest rate and higher investment.
D)   higher interest rate and higher investment.

Question 8

Suppose the economy experiences a recessionary gap. Expansionary monetary policy will

Accepted Answer

A)   increase interest rates and increase exchange rates.
B)   increase interest rates and decrease exchange rates.
C)   decrease interest rates and increase exchange rates.
D)   decrease interest rates and decrease exchange rates.

Question 9

If velocity is constant, which of the following results flow from the quantity equation?

Accepted Answer

A)   Nominal GDP could change only if there were a change in the money supply.
B)   In the short run, nominal GDP could change only if there were a change in the money supply and in the long run, nominal GDP could change only if there were a change in the money supply.
C)   In the short run, nominal GDP could change only if there were a change in the money supply but in the long run, nominal GDP is affected by changes in any component of GDP.
D)   In the short run, nominal GDP is affected by changes in any component of GDP but in the long run, nominal GDP could change only if there were a change in the money supply.

Question 10

Figure 11-4 
-Refer to Figure 11-4. If a nonintervention policy were adopted in Panel (a) ,

Accepted Answer

A)   the aggregate demand curve would have eventually shifted as shown.
B)   the short-run aggregate supply curve would have eventually shifted to the left and restored full employment.
C)   the short-run aggregate supply curve would have eventually shifted to the right and restored full employment.
D)   both the aggregate demand curve and the short-run aggregate supply curve would have eventually shifted to the left.

Question 11

The congressional act passed in 1946 that contained the first official statement of goals for economic performance in the United States was the

Accepted Answer

A)   Federal Reserve Act.
B)   Gramm-Rudman Act.
C)   Employment Act.
D)   Humphrey-Hawkins Act.

Question 12

In the equation of exchange, the variable whose value must be computed from the other variables is the

Accepted Answer

A)   price level.
B)   quantity of output.
C)   quantity of money.
D)   velocity of money.

Question 13

All other things unchanged, we expect that a reduction in interest rates will tend to

Accepted Answer

A)   increase the quantity of money demanded and increase velocity.
B)   increase the quantity of money demanded and reduce velocity.
C)   reduce the quantity of money demanded and increase velocity.
D)   reduce the quantity of money demanded and reduce velocity.

Question 14

Adjusting monetary growth based on previous changes in nominal GDP

Accepted Answer

A)   is relatively easy for the Fed to undertake because the implementation lag is quitelong.
B)   could be destabilizing because of the uncertainty of the length of impact lags.
C)   is an effective policy because it allows the Fed to influence future macroeconomic performance.
D)   raises the price level proportionately.

Question 15

Figure 11-6 
-Refer to Figure 11-6. If rational expectations exist and the economy is initially operating at
Point d. If the Fed undertakes contractionary monetary policy the economy will

Accepted Answer

A)   spend some time at c with a recessionary gap.
B)   spend no time at c and move directly to b.
C)   bypass c and move to a, because the short-run aggregate supply curve shifts to the left.
D)   bypass c and move to a, because the short-run aggregate supply curve shifts immediately to the right and the economy moves down the long-run aggregate supply curve.

Question 16

The equation of exchange always holds because

Accepted Answer

A)   the quantity of money is determined by the amount of spending on goods and services.
B)   the quantity of money dictates the size of nominal GDP, since money is a social usage.
C)   the number of times money is spent to obtain goods and services measures total spending on GDP.
D)   MV measures total spending on GDP and PY also measures of total spending on GDP.

Question 17

When the Fed sells bonds in the open market, we can expect

Accepted Answer

A)   investment and net exports to rise.
B)   investment to rise and net exports to fall.
C)   investment to fall and net exports to rise.
D)   investment and net exports to fall.

Question 18

In December 2008, the Federal Reserve announced that it would take extraordinary measures to address the financial crisis in the economy. These measures include all of the following except

Accepted Answer

A)   buying mortgage-backed securities.
B)   buying long-term Treasury bills.
C)   creating other new credit facilities to make credit more easily available to households and small businesses.
D)   lowering the reserve requirement to encourage banks to create loans.

Question 19

Suppose the economy experiences a recessionary gap. Expansionary monetary policy will

Accepted Answer

A)   increase real GDP and increase the price level.
B)   increase real GDP and decrease the price level.
C)   decrease real GDP and increase the price level.
D)   decrease real GDP and decrease the price level.

Question 20

If inflation is a threat, then the Fed will be expected to engage in

Accepted Answer

A)   expansionary monetary policy.
B)   contractionary monetary policy.
C)   policies to increase the money supply.
D)   policies to lower the rate of interest.

Exam 11: Monetary Policy and the Fed

Suppose the economy experiences a recessionary gap. Expansionary monetary policy will

Correct AnswerverifiedShow Answer

When the Fed sells bonds in the open market, we can expect

Correct AnswerverifiedShow Answer

The congressional act passed in 1946 that contained the first official statement of goals for economic performance in the United States was the

Correct AnswerverifiedShow Answer

Figure 11-4 -Refer to Figure 11-4. If the Fed acts to close the output gap in Panel (a) , it would

Correct AnswerverifiedShow Answer

The equation of exchange always holds because

Correct AnswerverifiedShow Answer

Figure 11-6 -Refer to Figure 11-6. If rational expectations exist and the economy is initially operating at Point d. If the Fed undertakes contractionary monetary policy the economy will

Correct AnswerverifiedShow Answer

If the velocity of money is constant, then a 2% increase in the money supply

Correct AnswerverifiedShow Answer

If velocity is constant, which of the following results flow from the quantity equation?

Correct AnswerverifiedShow Answer

The major tools of monetary policy available to the Federal Reserve System are

Correct AnswerverifiedShow Answer

Suppose the economy experiences a recessionary gap. Expansionary monetary policy will

Correct AnswerverifiedShow Answer

Figure 11-1 -Refer to Figure 11-1. Suppose the Fed takes action that shifts the demand curve from D to D′, as illustrated in Panel (a) . As a result, the interest rate

Correct AnswerverifiedShow Answer

Figure 11-4 -Refer to Figure 11-4. The shift in the demand for bonds from D1 to D2, in Panel (b) will result in a

Correct AnswerverifiedShow Answer

If inflation is a threat, then the Fed will be expected to engage in

Correct AnswerverifiedShow Answer

All other things unchanged, we expect that an increase in interest rates will tend to

Correct AnswerverifiedShow Answer

Figure 11-4 -Refer to Figure 11-4. If a nonintervention policy were adopted in Panel (a) ,

Correct AnswerverifiedShow Answer

In December 2008, the Federal Reserve announced that it would take extraordinary measures to address the financial crisis in the economy. These measures include all of the following except

Correct AnswerverifiedShow Answer

All other things unchanged, we expect that a reduction in interest rates will tend to

Correct AnswerverifiedShow Answer

In the equation of exchange, the variable whose value must be computed from the other variables is the

Correct AnswerverifiedShow Answer

Changing the required reserve ratio is an often-used monetary tool to influence the federal funds rate.

Correct AnswerverifiedShow Answer

Adjusting monetary growth based on previous changes in nominal GDP

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Figure 11-4 -Refer to Figure 11-4. The shift in the demand for bonds from D₁ to D₂, in Panel (b) will result in a

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified