Question 1

The Federal Reserve does not target both the money supply and an interest rate because

Accepted Answer

A)  it would be too confusing to Wall Street and would disrupt the financial markets.
B)  it would be too easy for Wall Street to determine what policy the Fed is following and this would destabilize the economy.
C)  it would be illegal according to the Federal Reserve Act.
D)  the Fed cannot achieve a target for both the money supply and an interest rate at the same time.

Question 2

By the 2000s,an important change in the mortgage market had occurred when ________ became significant participants in the secondary market for mortgages.

Accepted Answer

A)  investment banks
B)  Federal Reserve Banks
C)  commercial banks
D)  savings banks

Question 3

Figure 17-4 
-Refer to Figure 17-4.In the figure above,if the economy is at point A,the appropriate monetary policy by the Federal Reserve would be to

Accepted Answer

A)  lower interest rates.
B)  raise interest rates.
C)  lower income taxes.
D)  raise income taxes.

Question 4

From an initial long-run macroeconomic equilibrium,if the Federal Reserve anticipated that next year aggregate demand would grow significantly slower than long-run aggregate supply,then the Federal Reserve would most likely

Accepted Answer

A)  decrease interest rates.
B)  increase interest rates.
C)  decrease income tax rates.
D)  increase income tax rates.

Question 5

When the Fed uses contractionary policy,

Accepted Answer

A)  the price level rises higher than it would if the Fed did not pursue policy.
B)  the price level rises less than it would if the Fed did not pursue policy.
C)  it does not change the price level.
D)  it causes inflation.

Question 6

If the Federal Reserve raises or lowers interest rates too late,it could result in a ________ policy that destabilizes the economy.

Accepted Answer

A)  fiscal
B)  budgetary
C)  procyclical
D)  countercylical

Question 7

Figure 17-7 
-Refer to Figure 17-7.In the dynamic AD-AS model,if the economy is at point A in year 1 and is expected to go to point B in year 2,the Federal Reserve would most likely

Accepted Answer

A)  increase interest rates.
B)  decrease interest rates.
C)  not change interest rates.
D)  increase the inflation rate.

Question 8

In 2008,the Treasury and Federal Reserve took action to save large financial firms such as Bear Stearns and AIG from failing.Which of the following is one reason why these measures were taken?

Accepted Answer

A)  The Emergency Economic Stabilization Act required the Fed and the Treasury to provide financial assistance to firms that participated in regular open market actions with the Fed.
B)  The bankruptcy of a large financial firm would force the firm to sell its holdings of securities,which could cause other firms that hold these securities to also fail.
C)  The Fed and the Treasury wanted to allow Freddie Mac and Fannie Mae more time to buy the firms before they went bankrupt.
D)  The failure of these firms would have forced the Fed to increase interest rates,which could have led to a severe recession.

Question 9

When the Federal Reserve System was established in 1913,its main policy goal was

Accepted Answer

A)  encouraging strong economic growth.
B)  promoting price stability.
C)  preventing bank panics.
D)  keeping employment high.

Question 10

Toll Brothers,a residential home builder,did well during the recession in 2001 but did not do so well in 2007 after the housing bubble burst.The reason for this is

Accepted Answer

A)  the Fed lowered interest rates in 2001 but raised interest rates in 2007 to help fight inflation.
B)  the Fed lowered interest rates in 2001 but did not believe that cutting the interest rate in 2007 would be enough to revive the housing market.
C)  the Fed raised interest rates in 2001 but did not believe that cutting the interest rate in 2007 would be enough to revive the housing market.
D)  the Fed raised interest rates in 2001 but lowered interest rates in 2007 to revive the housing market.
E)  the Fed raised interest rates in 2001 and raised interest rates in 2007 to help fight inflation.

Question 11

Inflation targeting refers to conducting ________ policy so as to commit the central bank to achieving a ________.

Accepted Answer

A)  fiscal;publicly announced level of inflation
B)  fiscal;zero inflation rate
C)  monetary;publicly announced level of inflation
D)  monetary;zero inflation rate

Question 12

Figure 17-2 1 to MS2,at the interest rate of 3 percent households and firms will A) buy Treasury bills. B) sell Treasury bills. C) neither buy nor sell Treasury bills. D) want to hold less money." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 17-2.In the figure above,when the money supply shifts from MS1 to MS2,at the interest rate of 3 percent households and firms will

Accepted Answer

A)  buy Treasury bills.
B)  sell Treasury bills.
C)  neither buy nor sell Treasury bills.
D)  want to hold less money.

Question 13

With a monetary growth rule as proposed by the monetarists,during a recession the rate of growth of the money supply would

Accepted Answer

A)  decrease.
B)  increase.
C)  not change.
D)  decrease or increase depending on economic conditions.

Question 14

Contractionary monetary policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.

Accepted Answer

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

Question 15

The monetary policy target the Federal Reserve focuses primarily on today is

Accepted Answer

A)  the unemployment rate.
B)  M1.
C)  the inflation rate.
D)  the interest rate.
E)  M2.

Question 16

Figure 17-3 1 to MS2,at the interest rate of 3 percent households and firms will A) buy Treasury bills. B) sell Treasury bills. C) neither buy nor sell Treasury bills. D) want to hold more money." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 17-3.In the figure above,when the money supply shifts from MS1 to MS2,at the interest rate of 3 percent households and firms will

Accepted Answer

A)  buy Treasury bills.
B)  sell Treasury bills.
C)  neither buy nor sell Treasury bills.
D)  want to hold more money.

Question 17

Figure 17-1 1 to MD2 if A) real GDP increased. B) the price level decreased. C) the interest rate increased. D) the Federal Reserve sold Treasury securities." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 17-1.In the figure,the money demand curve would move from MD1 to MD2 if

Accepted Answer

A)  real GDP increased.
B)  the price level decreased.
C)  the interest rate increased.
D)  the Federal Reserve sold Treasury securities.

Question 18

Which of the following would most likely induce the Federal Reserve to conduct expansionary monetary policy? A significant decrease in

Accepted Answer

A)  oil prices.
B)  business taxes.
C)  income tax rates.
D)  investment spending.

Question 19

Inflation rates during the years 1979-1981 were the highest the United States has ever experienced during peacetime.

Accepted Answer

A) True 
 B)False

Question 20

In the countries that have adopted inflation targeting,the inflation rate has typically

Accepted Answer

A)  increased.
B)  decreased.
C)  decreased to zero.
D)  not changed.

Exam 17: Monetary Policy

Which of the following would most likely induce the Federal Reserve to conduct expansionary monetary policy? A significant decrease in

Correct AnswerverifiedShow Answer

The Federal Reserve does not target both the money supply and an interest rate because

Correct AnswerverifiedShow Answer

The monetary policy target the Federal Reserve focuses primarily on today is

Correct AnswerverifiedShow Answer

Figure 17-7 -Refer to Figure 17-7.In the dynamic AD-AS model,if the economy is at point A in year 1 and is expected to go to point B in year 2,the Federal Reserve would most likely

Correct AnswerverifiedShow Answer

By the 2000s,an important change in the mortgage market had occurred when ________ became significant participants in the secondary market for mortgages.

Correct AnswerverifiedShow Answer

When the Fed uses contractionary policy,

Correct AnswerverifiedShow Answer

Figure 17-2 -Refer to Figure 17-2.In the figure above,when the money supply shifts from MS1 to MS2,at the interest rate of 3 percent households and firms will

Correct AnswerverifiedShow Answer

If the Federal Reserve raises or lowers interest rates too late,it could result in a ________ policy that destabilizes the economy.

Correct AnswerverifiedShow Answer

From an initial long-run macroeconomic equilibrium,if the Federal Reserve anticipated that next year aggregate demand would grow significantly slower than long-run aggregate supply,then the Federal Reserve would most likely

Correct AnswerverifiedShow Answer

When the Federal Reserve System was established in 1913,its main policy goal was

Correct AnswerverifiedShow Answer

In the countries that have adopted inflation targeting,the inflation rate has typically

Correct AnswerverifiedShow Answer

Toll Brothers,a residential home builder,did well during the recession in 2001 but did not do so well in 2007 after the housing bubble burst.The reason for this is

Correct AnswerverifiedShow Answer

With a monetary growth rule as proposed by the monetarists,during a recession the rate of growth of the money supply would

Correct AnswerverifiedShow Answer

Figure 17-3 -Refer to Figure 17-3.In the figure above,when the money supply shifts from MS1 to MS2,at the interest rate of 3 percent households and firms will

Correct AnswerverifiedShow Answer

Figure 17-4 -Refer to Figure 17-4.In the figure above,if the economy is at point A,the appropriate monetary policy by the Federal Reserve would be to

Correct AnswerverifiedShow Answer

Inflation rates during the years 1979-1981 were the highest the United States has ever experienced during peacetime.

Correct AnswerverifiedShow Answer

Figure 17-1 -Refer to Figure 17-1.In the figure,the money demand curve would move from MD1 to MD2 if

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Contractionary monetary policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.

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Inflation targeting refers to conducting ________ policy so as to commit the central bank to achieving a ________.

Correct AnswerverifiedShow Answer

In 2008,the Treasury and Federal Reserve took action to save large financial firms such as Bear Stearns and AIG from failing.Which of the following is one reason why these measures were taken?

Correct AnswerverifiedShow Answer

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Figure 17-2 -Refer to Figure 17-2.In the figure above,when the money supply shifts from MS₁ to MS₂,at the interest rate of 3 percent households and firms will

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Figure 17-3 -Refer to Figure 17-3.In the figure above,when the money supply shifts from MS₁ to MS₂,at the interest rate of 3 percent households and firms will

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Figure 17-1 -Refer to Figure 17-1.In the figure,the money demand curve would move from MD₁ to MD₂ if

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Contractionary monetary policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be and real GDP to be .

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Inflation targeting refers to conducting policy so as to commit the central bank to achieving a .

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