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Exam 17: Monetary Policy

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Question 21

Multiple Choice

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An increase in money supply _____ investment spending and _____ aggregate demand.

A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases

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Question 22

Multiple Choice

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_____ Treasury securities and _____ reserve requirements are examples of the expansionary monetary policy of the Federal Reserve.

A) Buying; increasing
B) Buying; decreasing
C) Selling; increasing
D) Selling; decreasing

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Question 23

Multiple Choice

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Monetary policy refers to the policies that the _____ uses to manage _____ in efforts to stabilize the economy.

Assume that all money in the economy is deposited with banks and that banks hold no excess reserves. If the Federal Reserve buys $25 million worth of Treasury securities and the money supply increases by $250 million, then the reserve requirement is _____ percent.

Use Figure: Money Market Equilibrium I. Which of the following can shift the equilibrium from point B to point A? ​ Money Market Equilibrium I

Which of the following is a member of the Federal Open-Market Committee?

Which of the following statements is NOT true?

If the total expenditure in an economy is $10,000 per year and the velocity of money is 5, then the supply of money in the economy is:

A policy that _____ the money supply and _____ interest rate is known as a contractionary monetary policy.

Suppose that the Federal Reserve sets the supply of money at $3 trillion and the money demand curve intersects the money supply curve at an interest rate of 5 percent. a. Draw the money supply curve and money demand curve to illustrate the above money market equilibrium. Label the money supply curve and money demand curve with the equilibrium quantity of money and the interest rate. b. What will happen to the equilibrium interest rate if, all else equal, the real GDP in the economy goes up? Justify your answer, and show the impact on the graph. c. If the Federal Reserve wants the interest rate to return to 5 percent and wants to achieve this through open-market operations, then should it buy or sell Treasury securities? Show the impact of the open-market operations on the graph assuming that the interest rate returns to 5 percent.

Use Figure: Money Market Equilibrium II. Which of the following can shift the equilibrium from point C to point D? ​ Money Market Equilibrium II

Which of the following is NOT a function of the Federal Reserve System?

Use Figure: Money Market Equilibrium II. Which of the following can shift the equilibrium from point D to point C? ​ Money Market Equilibrium II

Which one of the following is NOT a tool of monetary policy?

According to the monetarists, in the equation of exchange, ______ are relatively unchanged in the short run.

All else equal, if the real GDP of an economy decreases, then the equilibrium interest rate will _____. In this case, the Federal Reserve can _____ the money supply to bring the interest rate back to its original value.

A decrease in the money supply _____ investment spending and _____ aggregate demand.

If more checking account deposits start paying interest, then we can expect the demand for money to _____ and the money demand curve to shift:

If the total expenditure in an economy is $10,000 per year and the money supply is $2,000, then the velocity of money is:

Which one of the following is a tool of monetary policy?