Question 1

If the inflation rate is equal to the target inflation rate, then the Fed

Accepted Answer

A) does not have to change monetary policy as long as the rate of inflation remains constant. 
B) will only change monetary policy if it wants to change the target inflation rate. 
C) will change monetary policy if it feels that aggregate demand is too high or low. 
D) does not have to worry about changing monetary policy. 
E) will change monetary policy only if it believes that potential GDP is changing. 
A) does not have to change monetary policy as long as the rate of inflation remains constant. 
B) will only change monetary policy if it wants to change the target inflation rate. 
C) will change monetary policy if it feels that aggregate demand is too high or low. 
D) does not have to worry about changing monetary policy. 
E) will change monetary policy only if it believes that potential GDP is changing.

Question 2

In 2009, QE1 involved

Accepted Answer

A) cutting some interest rates to below zero. 
B) the bailing out of major banks. 
C) the federal government's increased spending and tax cuts. 
D) the Fed's purchase of mortgage backed and long-term government securities. 
E) no action. 
A) cutting some interest rates to below zero. 
B) the bailing out of major banks. 
C) the federal government's increased spending and tax cuts. 
D) the Fed's purchase of mortgage backed and long-term government securities. 
E) no action.

Question 3

The main instrument of monetary policy at central banks around the world is the

Accepted Answer

A) money supply. 
B) overnight interest rate. 
C) discount rate. 
D) prime rate. 
E) reserve requirement. 
A) money supply. 
B) overnight interest rate. 
C) discount rate. 
D) prime rate. 
E) reserve requirement.

Question 4

The interest rate is the opportunity cost of holding money.

Accepted Answer

A) True 
 B)False

Question 5

Suppose Congress had the power to set monetary policy instead of the Federal Reserve. Do you think we might more frequently observe the "short-run gain, long-run pain" scenario? Please explain.

Accepted Answer

On the one hand, you might answer yes to

Question 6

When financial market analysts say that the Fed is "trying to cool off the economy," they are referring to the case in which the Fed

Accepted Answer

A) raises the target rate of inflation. 
B) lowers the target rate of inflation. 
C) raises the federal funds rate because aggregate demand is greater than potential GDP at the target rate of inflation. 
D) raises the federal funds rate because aggregate demand is less than potential GDP at the target rate of inflation. 
E) lowers the federal funds rate because aggregate demand is less than potential at the target rate of inflation. 
A) raises the target rate of inflation. 
B) lowers the target rate of inflation. 
C) raises the federal funds rate because aggregate demand is greater than potential GDP at the target rate of inflation. 
D) raises the federal funds rate because aggregate demand is less than potential GDP at the target rate of inflation. 
E) lowers the federal funds rate because aggregate demand is less than potential at the target rate of inflation.

Question 7

Answer the questions below:

Accepted Answer

The answer of Answer the questions below:
  
...

Question 8

Because of its devastating effects, the temptation to use monetary policy for short-run gain is easy to resist for governments around the world.

Accepted Answer

A) True 
 B)False

Question 9

The money demand curve does not tend to move around much.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following would cause the Fed to raise interest rates?

Accepted Answer

A) An increase in imports 
B) An increase in consumer confidence 
C) An increase in saving 
D) An increase in taxes 
E) A decrease in exports 
A) An increase in imports 
B) An increase in consumer confidence 
C) An increase in saving 
D) An increase in taxes 
E) A decrease in exports

Question 11

Assume the Fed has complete control over the money supply. If the demand for money were less than the supply of money, we would expect

Accepted Answer

A) an increase in the quantity of money demanded and a decline in the rate of interest. 
B) a decrease in the quantity of money demanded and an increase in the rate of interest. 
C) a decrease in the quantity of money supplied, a decrease in the quantity of money demanded, and an increase in the rate of interest. 
D) a decrease in the quantity of money demanded and a decrease in the rate of interest. 
E) an increase in the quantity of money supplied, a decrease in the quantity of money demanded, and an increase in the rate of interest. 
A) an increase in the quantity of money demanded and a decline in the rate of interest. 
B) a decrease in the quantity of money demanded and an increase in the rate of interest. 
C) a decrease in the quantity of money supplied, a decrease in the quantity of money demanded, and an increase in the rate of interest. 
D) a decrease in the quantity of money demanded and a decrease in the rate of interest. 
E) an increase in the quantity of money supplied, a decrease in the quantity of money demanded, and an increase in the rate of interest.

Question 12

Which of the following statements is true?

Accepted Answer

A) The Federal Reserve is less independent than the Bank of England or the Bank of Japan. 
B) Each president has the right to appoint all the Federal Reserve officials. 
C) The Federal Reserve seldom conducts policy concerned with long-run stability. 
D) The Treasury supervises Federal Reserve activities. 
E) The Federal Reserve can prevent the government from using monetary policy for short-run political gain. 
A) The Federal Reserve is less independent than the Bank of England or the Bank of Japan. 
B) Each president has the right to appoint all the Federal Reserve officials. 
C) The Federal Reserve seldom conducts policy concerned with long-run stability. 
D) The Treasury supervises Federal Reserve activities. 
E) The Federal Reserve can prevent the government from using monetary policy for short-run political gain.

Question 13

The fact that the average unemployment rate during the 1950s and early 1960s was roughly the same as the average unemployment rate during the late 1960s and 1970s, which was roughly the same as the average unemployment rate during the 1980s and 1990s, shows that

Accepted Answer

A) there is not even a short-run tradeoff between unemployment and inflation. 
B) it is also possible for there to be a long-run tradeoff between inflation and unemployment. 
C) there are many issues that the AD-IA analysis cannot address. 
D) it is possible to have high inflation monetary policy without long-run pain. 
E) there is no long-run tradeoff between inflation and unemployment. 
A) there is not even a short-run tradeoff between unemployment and inflation. 
B) it is also possible for there to be a long-run tradeoff between inflation and unemployment. 
C) there are many issues that the AD-IA analysis cannot address. 
D) it is possible to have high inflation monetary policy without long-run pain. 
E) there is no long-run tradeoff between inflation and unemployment.

Question 14

It is easy for the Fed to keep real GDP near potential GDP by varying the interest rate.

Accepted Answer

A) True 
 B)False

Question 15

One type of private security held by the Fed is commercial paper. Which of the following is the most appropriate definition of this type of private asset?

Accepted Answer

A) A public bond with very short maturity. 
B) A public bond with long term maturity. 
C) A private bond with very short maturity. 
D) A private bond backed by the federal government. 
E) None of these. 
A) A public bond with very short maturity. 
B) A public bond with long term maturity. 
C) A private bond with very short maturity. 
D) A private bond backed by the federal government. 
E) None of these.

Question 16

Describe the "gain then pain" scenario whereby the Fed raises the target inflation rate. Identify the short-run, medium-run, and long-run effects.

Accepted Answer

If the Fed raises the target inflation r

Question 17

All else held equal, an increase in the amount of transactions (goods and services purchased) in the economy results in

Accepted Answer

A) a decrease in the demand for money. 
B) a steeper demand-for-money curve. 
C) an increase in the demand for money. 
D) an increase in the quantity demanded of money. 
E) no change in the demand for money. 
A) a decrease in the demand for money. 
B) a steeper demand-for-money curve. 
C) an increase in the demand for money. 
D) an increase in the quantity demanded of money. 
E) no change in the demand for money.

Question 18

The interest rate effectively hit zero in the U.S. in December 2008.

Accepted Answer

A) True 
 B)False

Question 19

The Bretton Woods system from the end of World War II until the early 1970s was an example of a fixed exchange rate system.

Accepted Answer

A) True 
 B)False

Question 20

In setting interest rates, the Fed reacts directly to

Accepted Answer

A) the output gap. 
B) the price level. 
C) the level of potential GDP. 
D) the level of real GDP. 
E) the level of investment. 
A) the output gap. 
B) the price level. 
C) the level of potential GDP. 
D) the level of real GDP. 
E) the level of investment.

Exam 27: Monetary Policy

If the inflation rate is equal to the target inflation rate, then the Fed

In 2009, QE1 involved

The main instrument of monetary policy at central banks around the world is the

The interest rate is the opportunity cost of holding money.

Suppose Congress had the power to set monetary policy instead of the Federal Reserve. Do you think we might more frequently observe the "short-run gain, long-run pain" scenario? Please explain.

When financial market analysts say that the Fed is "trying to cool off the economy," they are referring to the case in which the Fed

Answer the questions below:

Because of its devastating effects, the temptation to use monetary policy for short-run gain is easy to resist for governments around the world.

The money demand curve does not tend to move around much.

Which of the following would cause the Fed to raise interest rates?

Assume the Fed has complete control over the money supply. If the demand for money were less than the supply of money, we would expect

Which of the following statements is true?

The fact that the average unemployment rate during the 1950s and early 1960s was roughly the same as the average unemployment rate during the late 1960s and 1970s, which was roughly the same as the average unemployment rate during the 1980s and 1990s, shows that

It is easy for the Fed to keep real GDP near potential GDP by varying the interest rate.

One type of private security held by the Fed is commercial paper. Which of the following is the most appropriate definition of this type of private asset?

Describe the "gain then pain" scenario whereby the Fed raises the target inflation rate. Identify the short-run, medium-run, and long-run effects.

All else held equal, an increase in the amount of transactions (goods and services purchased) in the economy results in

The interest rate effectively hit zero in the U.S. in December 2008.

The Bretton Woods system from the end of World War II until the early 1970s was an example of a fixed exchange rate system.

In setting interest rates, the Fed reacts directly to

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

The Efficiency of Markets

Costs and the Changes at Firms Over Time

The Rise and Fall of Industries

Monopoly

Product Differentiation, Monopolistic Competition, and Oligopoly

Antitrust Policy and Regulation

Labor Markets

Taxes, Transfers, and Income Distribution

Public Goods, Externalities, and Government Behavior

Capital and Financial Markets

Macroeconomics: the Big Picture

Measuring the Production, Income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

The Economic Fluctuations Model

Using the Economic Fluctuations Model

Fiscal Policy

Economic Growth Around the World

International Trade

International Finance

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