Question 1

Changes in interest rates affect all four components of aggregate demand.

Accepted Answer

A) True 
 B)False

Question 2

Figure 17-4
 
-Refer to Figure 17-4.In the figure above,a movement from point A to point B would be caused by

Accepted Answer

A)  a decrease in real GDP.
B)  an increase in the price level.
C)  a decrease in the price level.
D)  an increase in the interest rate.

Question 3

Figure 17-16
 
-Refer to Figure 17-16.In the figure above,suppose the economy in Year 1 is at point A and expected in Year 2 to be at point B.Which of the following policies could the Federal Reserve use to move the economy to point C?

Accepted Answer

A)  decrease income taxes
B)  decrease the required-reserve ratio
C)  buy Treasury bills
D)  sell Treasury bills

Question 4

In the following table,fill in the columns for your return on investment if the price of your house increased or decreased by 20 percent,based on the down payments specified in the first column.
Return on Your Investment From
 $$\begin{array} { | c | c | c | } 
\hline \text { Dawn Payment } & \begin{array} { c } 
\text { A 20 Percent Increase } \
\text { in the Price of Your } \
\text { Hause }
\end{array} & \begin{array} { c } 
\text { A 20 Percent } \
\text { Decrewe in the Price } \
\text { uf Your Hause }
\end{array} \
\hline 100 \% & & \
\hline 20 & & \
\hline 10 & & \
\hline 5 & & \
\hline
\end{array}$$

Accepted Answer

Return on Your Investment From
\[\begin ...

Question 5

Expansionary monetary policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be relatively ________ and real GDP to be relatively ________.

Accepted Answer

A)  higher; higher
B)  higher; lower
C)  lower; higher
D)  lower; lower

Question 6

Prior to 1970,mortgages were ________ resold in the secondary market.

Accepted Answer

A)  never
B)  rarely
C)  often
D)  always

Question 7

Using the money demand and money supply model,an open market purchase of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to

Accepted Answer

A)  increase.
B)  decrease.
C)  not change.
D)  increase if the economy is in a recession.

Question 8

The Fed can simultaneously reduce the inflation rate and stimulate growth through lowering interest rates.

Accepted Answer

A) True 
 B)False

Question 9

An increase in real GDP

Accepted Answer

A)  increases the buying and selling of goods and increases the demand for money as a medium of exchange.
B)  increases the buying and selling of goods and decreases the demand for money as a medium of exchange.
C)  decreases the buying and selling of goods and increases the demand for money as a medium of exchange.
D)  decreases the buying and selling of goods and decreases the demand for money as a medium of exchange.

Question 10

Suppose that the economy is producing below potential GDP and the Fed implements the correct change in monetary policy,but not until after the economy has passed the trough of the recession.Then

Accepted Answer

A)  the Fed's contractionary policy will result in too large of a decrease in GDP.
B)  the Fed's contractionary policy will result in too small of a decrease in GDP.
C)  the Fed's expansionary policy will result in too small of a decrease in GDP.
D)  the Fed's expansionary policy will result in too large of an increase in GDP.

Question 11

Which of the following statements about inflation targeting is true?

Accepted Answer

A)  Inflation targeting by the central banks in other countries has not typically lowered inflation.
B)  Inflation targeting would not reduce the flexibility of monetary policy to address other policy goals.
C)  Inflation targeting would not allow the central bank the flexibility to take action against a severe recession.
D)  Inflation targeting would make it easier for households and firms to form accurate expectations of future inflation, improving their planning and the efficiency of the economy.

Question 12

Which of the following describes what the Fed would do to pursue an expansionary monetary policy?

Accepted Answer

A)  use open market operations to buy Treasury bills
B)  use open market operations to sell Treasury bills
C)  use discount policy to raise the discount rate
D)  raise the reserve requirement

Question 13

The federal funds rate

Accepted Answer

A)  is determined administratively by the Fed.
B)  is determined by the supply of and demand for bank reserves.
C)  is determined directly by household demand for funds.
D)  is determined directly by firm demand for funds.

Question 14

During the turmoil in the market for subprime mortgages in 2007 and 2008,the Fed increased the volume of discount loans.The goal of the Fed was to

Accepted Answer

A)  reduce the rate of inflation.
B)  stimulate economic growth.
C)  reduce unemployment.
D)  reassure financial markets and promote financial stability.
E)  reduce the current account deficit.

Question 15

An increase in the interest rate

Accepted Answer

A)  decreases the opportunity cost of holding money.
B)  increases the opportunity cost of holding money.
C)  decreases the percentage yield of holding money.
D)  increases the percentage yield of holding money.

Question 16

Using the Taylor rule,if the current inflation rate exceeds the target inflation rate and real GDP exceeds potential GDP,then the federal funds target rate ________ the sum of the current inflation rate plus the real equilibrium federal funds rate.

Accepted Answer

A)  will be greater than
B)  will be less than
C)  will be the same as
D)  may be greater than or less than

Question 17

A financial asset is considered ________ if it can be sold in a secondary market.

Accepted Answer

A)  a commodity
B)  a security
C)  a liability
D)  durable

Question 18

The supporters of a monetary growth rule believe that active monetary policy

Accepted Answer

A)  stabilizes the economy, decreasing the number of recessions and their severity.
B)  destabilizes the economy, increasing the number of recessions and their severity.
C)  cannot change the inflation rate.
D)  cannot change real GDP.

Question 19

Monetary policy refers to the actions the

Accepted Answer

A)  President and Congress take to manage the money supply and interest rates to pursue their economic objectives.
B)  Federal Reserve takes to manage the money supply and interest rates to pursue its macroeconomic policy objectives.
C)  President and Congress take to manage government spending and taxes to pursue their economic objectives.
D)  Federal Reserve takes to manage government spending and taxes to pursue its economic objectives.

Question 20

The top policy goal for Paul Volcker when he became chairman of the Federal Reserve's Board of Governors in 1979 was

Accepted Answer

A)  fighting inflation.
B)  increasing employment.
C)  increasing economic growth.
D)  increasing regulation of commercial banks.
E)  a low current account deficit.

Exam 17: Monetary Policy

The supporters of a monetary growth rule believe that active monetary policy

Correct Answer
verified

Expansionary monetary policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be relatively and real GDP to be relatively .

Correct Answer
verified

Monetary policy refers to the actions the

Correct Answer
verified

Prior to 1970,mortgages were ________ resold in the secondary market.

Correct Answer
verified

An increase in real GDP

Correct Answer
verified

Which of the following statements about inflation targeting is true?

Correct Answer
verified

Suppose that the economy is producing below potential GDP and the Fed implements the correct change in monetary policy,but not until after the economy has passed the trough of the recession.Then

Correct Answer
verified

Which of the following describes what the Fed would do to pursue an expansionary monetary policy?

Correct Answer
verified

Using the money demand and money supply model,an open market purchase of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to

Correct Answer
verified

An increase in the interest rate

Correct Answer
verified

Using the Taylor rule,if the current inflation rate exceeds the target inflation rate and real GDP exceeds potential GDP,then the federal funds target rate ________ the sum of the current inflation rate plus the real equilibrium federal funds rate.

Correct Answer
verified

Figure 17-4 -Refer to Figure 17-4.In the figure above,a movement from point A to point B would be caused by

Correct Answer
verified

During the turmoil in the market for subprime mortgages in 2007 and 2008,the Fed increased the volume of discount loans.The goal of the Fed was to

Correct Answer
verified

The top policy goal for Paul Volcker when he became chairman of the Federal Reserve's Board of Governors in 1979 was

Correct Answer
verified

A financial asset is considered ________ if it can be sold in a secondary market.

Correct Answer
verified

The Fed can simultaneously reduce the inflation rate and stimulate growth through lowering interest rates.

Correct Answer
verified

The federal funds rate

Correct Answer
verified

Changes in interest rates affect all four components of aggregate demand.

Correct Answer
verified

Figure 17-16 -Refer to Figure 17-16.In the figure above,suppose the economy in Year 1 is at point A and expected in Year 2 to be at point B.Which of the following policies could the Federal Reserve use to move the economy to point C?

Correct Answer
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Correct Answer
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Exam 17: Monetary Policy

The supporters of a monetary growth rule believe that active monetary policy

Correct AnswerverifiedShow Answer

Expansionary monetary policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be relatively ________ and real GDP to be relatively ________.

Correct AnswerverifiedShow Answer

Monetary policy refers to the actions the

Correct AnswerverifiedShow Answer

Prior to 1970,mortgages were ________ resold in the secondary market.

Correct AnswerverifiedShow Answer

An increase in real GDP

Correct AnswerverifiedShow Answer

Which of the following statements about inflation targeting is true?

Correct AnswerverifiedShow Answer

Suppose that the economy is producing below potential GDP and the Fed implements the correct change in monetary policy,but not until after the economy has passed the trough of the recession.Then

Correct AnswerverifiedShow Answer

Which of the following describes what the Fed would do to pursue an expansionary monetary policy?

Correct AnswerverifiedShow Answer

Using the money demand and money supply model,an open market purchase of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to

Correct AnswerverifiedShow Answer

An increase in the interest rate

Correct AnswerverifiedShow Answer

Using the Taylor rule,if the current inflation rate exceeds the target inflation rate and real GDP exceeds potential GDP,then the federal funds target rate ________ the sum of the current inflation rate plus the real equilibrium federal funds rate.

Correct AnswerverifiedShow Answer

Figure 17-4 -Refer to Figure 17-4.In the figure above,a movement from point A to point B would be caused by

Correct AnswerverifiedShow Answer

During the turmoil in the market for subprime mortgages in 2007 and 2008,the Fed increased the volume of discount loans.The goal of the Fed was to

Correct AnswerverifiedShow Answer

The top policy goal for Paul Volcker when he became chairman of the Federal Reserve's Board of Governors in 1979 was

Correct AnswerverifiedShow Answer

A financial asset is considered ________ if it can be sold in a secondary market.

Correct AnswerverifiedShow Answer

The Fed can simultaneously reduce the inflation rate and stimulate growth through lowering interest rates.

Correct AnswerverifiedShow Answer

The federal funds rate

Correct AnswerverifiedShow Answer

Changes in interest rates affect all four components of aggregate demand.

Correct AnswerverifiedShow Answer

Figure 17-16 -Refer to Figure 17-16.In the figure above,suppose the economy in Year 1 is at point A and expected in Year 2 to be at point B.Which of the following policies could the Federal Reserve use to move the economy to point C?

Correct AnswerverifiedShow Answer

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Expansionary monetary policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be relatively and real GDP to be relatively .

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