Question 1

Currently the Fed targets

Accepted Answer

A)   both the monetary base and the federal funds rate simultaneously.
B)   the exchange rate.
C)   the federal funds rate.
D)   the price level.

Question 2

In December, the Bank of England reduced interest rates by another 50 basis points after points (a basis point is 0.01 percentage point) it had cut them by 150 basis points in November. But the rate cut may even be larger. Economists "... expect the Monetary Policy Committee [MPC] to cut rates to 2.5 percent,"...while others "...saw a bigger 75 point cut"...or "a 100 basis point move." Data show that "... inflation staged its biggest drop since records began ...potentially opening the door to even bigger cuts."
Reuters, 11/27/2008
If the Bank's policies given above can ________ the real long-term interest rate,the Bank will be able to ________.

Accepted Answer

A)   lower; decrease investment
B)   lower; increase aggregate demand
C)   raise; increase short-run aggregate supply
D)   lower; raise the exchange rate

Question 3

Suppose that initially real GDP equals potential GDP. Then a decrease in aggregate demand occurs. According to the Taylor rule, the Fed should ________ the federal funds rate by ________ government securities in the open market.

Accepted Answer

A)   raise; selling
B)   lower; selling
C)   raise; buying
D)   lower; buying

Question 4

Does an open market operation in which the Fed buys securities from the general public decrease or increase the banking system's reserves?

Accepted Answer

An open market purchase of gov...

Question 5

When the Fed lowers the federal funds rate, it increases reserves and increases the quantity of deposits and loans created.

Accepted Answer

A) True 
 B)False

Question 6

If the interest rate on Treasury bills is higher than the federal funds rate, the quantity of overnight loans supplied ________ and the ________ for Treasury bills increases.

Accepted Answer

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

Question 7

In the short-run, lowering the federal funds rate will shift the ________ and ________ real GDP.

Accepted Answer

A)   aggregate demand curve leftward; decrease
B)   aggregate demand curve rightward; increase
C)   aggregate supply curve rightward; increase
D)   aggregate demand curve leftward; increase

Question 8

If the Fed sells U.S. government securities

Accepted Answer

A)   the federal funds rate rises.
B)   the U.S. Treasury gains some revenue.
C)   bank reserves increase.
D)   None of the above answers is correct.

Question 9

An open market sale of government securities by the Federal Reserve shifts the ________ reserves curve ________.

Accepted Answer

A)   supply of; leftward
B)   supply of; rightward
C)   demand for; rightward
D)   demand for; leftward

Question 10

If the Fed wants to decrease the quantity of money, it can

Accepted Answer

A)   decrease the government budget deficit.
B)   purchase U.S. government securities.
C)   sell U.S. government securities.
D)   raise income tax rates.

Question 11

When the Federal Reserve fights inflation via open market operations, the supply of reserves curve shifts ________ and the supply of money curve shifts ________.

Accepted Answer

A)   leftward; leftward
B)   leftward; rightward
C)   rightward; leftward
D)   rightward; rightward

Question 12

In the short run, the Federal Reserve faces a tradeoff between

Accepted Answer

A)   economic growth and employment.
B)   inflation and price stability.
C)   inflation and real GDP.
D)   interest rates and unemployment.

Question 13

When the Federal Reserve increases the Federal funds rate, the U.S. interest rate differential ________ and the U.S. exchange rate ________.

Accepted Answer

A)   rises; appreciates
B)   rises; depreciates
C)   falls; appreciates
D)   falls; depreciates

Question 14

-In the above figure, the economy experiences an increase in aggregate demand so that the aggregate demand curve shifts from AD? to AD?. If the Fed wants to offset this change, it would ________.

Accepted Answer

A)   purchase government securities on the open market
B)   sell government securities on the open market
C)   raise taxes
D)   increase government expenditures

Question 15

In the short run, a rise in the federal funds rate ________ the price level and ________ real GDP.

Accepted Answer

A)   lowers; decreases
B)   lowers; does not change
C)   lowers; increases
D)   does not change; increases

Question 16

The monetary policy instrument the Federal Reserve choose to use is the

Accepted Answer

A)   quantity of money.
B)   exchange rate.
C)   federal funds rate.
D)   required reserves rate.

Question 17

A rise in the federal funds rate

Accepted Answer

A)   raises the long-term real interest rate.
B)   does not change the long-term real interest rate.
C)   lowers the long-term real interest rate.
D)   may raise or lower the long-term real interest rate, depending on whether the demand for loanable funds curve has a negative or a positive slope.

Question 18

When the Fed lowers the federal funds rate, the U.S. dollar ________ on the foreign exchange market and ________.

Accepted Answer

A)   depreciates; aggregate demand decreases
B)   appreciates; aggregate demand decreases
C)   depreciates; the increase in imports is greater than the increase in exports
D)   depreciates; aggregate demand increases

Question 19

Federal Reserve monetary policy goals include

Accepted Answer

A)   ensuring banks can meet their profit maximization objectives.
B)   discount rate stability.
C)   zero percent unemployment in the domestic economy.
D)   price level stability.

Question 20

In September 2012 the Fed announced that it would buy $40 billion of mortgage backed securities per month. One goal of this policy was to ________ the price of these securities and thereby help ________.

Accepted Answer

A)   raise; prices of housing to fall to their new equilibrium
B)   raise; lower long-term interest rates
C)   lower; make the short-term interest rate more responsive to Fed actions
D)   raise; raise long-term interest rates

Exam 14: Monetary Policy

If the Fed wants to decrease the quantity of money, it can

Correct Answer
verified

In September 2012 the Fed announced that it would buy $40 billion of mortgage backed securities per month. One goal of this policy was to the price of these securities and thereby help .

Correct Answer
verified

When the Federal Reserve fights inflation via open market operations, the supply of reserves curve shifts and the supply of money curve shifts .

Correct Answer
verified

In the short run, a rise in the federal funds rate the price level and real GDP.

Correct Answer
verified

When the Fed lowers the federal funds rate, it increases reserves and increases the quantity of deposits and loans created.

Correct Answer
verified

The monetary policy instrument the Federal Reserve choose to use is the

Correct Answer
verified

When the Federal Reserve increases the Federal funds rate, the U.S. interest rate differential and the U.S. exchange rate .

Correct Answer
verified

When the Fed lowers the federal funds rate, the U.S. dollar on the foreign exchange market and .

Correct Answer
verified

If the Fed sells U.S. government securities

Correct Answer
verified

Does an open market operation in which the Fed buys securities from the general public decrease or increase the banking system's reserves?

Correct Answer
verified
An open market purchase of gov...
View Answer

In the short run, the Federal Reserve faces a tradeoff between

Correct Answer
verified

Currently the Fed targets

Correct Answer
verified

In the short-run, lowering the federal funds rate will shift the and real GDP.

Correct Answer
verified

Suppose that initially real GDP equals potential GDP. Then a decrease in aggregate demand occurs. According to the Taylor rule, the Fed should the federal funds rate by government securities in the open market.

Correct Answer
verified

If the interest rate on Treasury bills is higher than the federal funds rate, the quantity of overnight loans supplied and the for Treasury bills increases.

Correct Answer
verified

An open market sale of government securities by the Federal Reserve shifts the reserves curve .

Correct Answer
verified

Federal Reserve monetary policy goals include

Correct Answer
verified

A rise in the federal funds rate

Correct Answer
verified

Correct Answer
verified

-In the above figure, the economy experiences an increase in aggregate demand so that the aggregate demand curve shifts from AD? to AD?. If the Fed wants to offset this change, it would ________.

Correct Answer
verified

Exam 14: Monetary Policy

If the Fed wants to decrease the quantity of money, it can

Correct AnswerverifiedShow Answer

In September 2012 the Fed announced that it would buy $40 billion of mortgage backed securities per month. One goal of this policy was to ________ the price of these securities and thereby help ________.

Correct AnswerverifiedShow Answer

When the Federal Reserve fights inflation via open market operations, the supply of reserves curve shifts ________ and the supply of money curve shifts ________.

Correct AnswerverifiedShow Answer

In the short run, a rise in the federal funds rate ________ the price level and ________ real GDP.

Correct AnswerverifiedShow Answer

When the Fed lowers the federal funds rate, it increases reserves and increases the quantity of deposits and loans created.

Correct AnswerverifiedShow Answer

The monetary policy instrument the Federal Reserve choose to use is the

Correct AnswerverifiedShow Answer

When the Federal Reserve increases the Federal funds rate, the U.S. interest rate differential ________ and the U.S. exchange rate ________.

Correct AnswerverifiedShow Answer

When the Fed lowers the federal funds rate, the U.S. dollar ________ on the foreign exchange market and ________.

Correct AnswerverifiedShow Answer

If the Fed sells U.S. government securities

Correct AnswerverifiedShow Answer

Does an open market operation in which the Fed buys securities from the general public decrease or increase the banking system's reserves?

Correct AnswerverifiedAn open market purchase of gov...View AnswerShow Answer

In the short run, the Federal Reserve faces a tradeoff between

Correct AnswerverifiedShow Answer

Currently the Fed targets

Correct AnswerverifiedShow Answer

In the short-run, lowering the federal funds rate will shift the ________ and ________ real GDP.

Correct AnswerverifiedShow Answer

Suppose that initially real GDP equals potential GDP. Then a decrease in aggregate demand occurs. According to the Taylor rule, the Fed should ________ the federal funds rate by ________ government securities in the open market.

Correct AnswerverifiedShow Answer

If the interest rate on Treasury bills is higher than the federal funds rate, the quantity of overnight loans supplied ________ and the ________ for Treasury bills increases.

Correct AnswerverifiedShow Answer

An open market sale of government securities by the Federal Reserve shifts the ________ reserves curve ________.

Correct AnswerverifiedShow Answer

Federal Reserve monetary policy goals include

Correct AnswerverifiedShow Answer

A rise in the federal funds rate

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

-In the above figure, the economy experiences an increase in aggregate demand so that the aggregate demand curve shifts from AD? to AD?. If the Fed wants to offset this change, it would ________.

Correct AnswerverifiedShow Answer

Correct Answer
verified

In September 2012 the Fed announced that it would buy $40 billion of mortgage backed securities per month. One goal of this policy was to the price of these securities and thereby help .

Correct Answer
verified

When the Federal Reserve fights inflation via open market operations, the supply of reserves curve shifts and the supply of money curve shifts .

Correct Answer
verified

In the short run, a rise in the federal funds rate the price level and real GDP.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

When the Federal Reserve increases the Federal funds rate, the U.S. interest rate differential and the U.S. exchange rate .

Correct Answer
verified

When the Fed lowers the federal funds rate, the U.S. dollar on the foreign exchange market and .

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
An open market purchase of gov...
View Answer

Correct Answer
verified

Correct Answer
verified

In the short-run, lowering the federal funds rate will shift the and real GDP.

Correct Answer
verified

Suppose that initially real GDP equals potential GDP. Then a decrease in aggregate demand occurs. According to the Taylor rule, the Fed should the federal funds rate by government securities in the open market.

Correct Answer
verified

If the interest rate on Treasury bills is higher than the federal funds rate, the quantity of overnight loans supplied and the for Treasury bills increases.

Correct Answer
verified

An open market sale of government securities by the Federal Reserve shifts the reserves curve .

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified