Question 1

A decrease in the supply of loanable funds decreases the real interest rate.

Accepted Answer

A) True 
 B)False

Question 2

-In the above figure, if the economy is initially at point c, the short- run effect of a hike in the federal funds rate is given by movement from point

Accepted Answer

A)  c to point b, increasing output and decreasing the unemployment rate. 
B)  c to point d, increasing output and decreasing the unemployment rate. 
C)  c to point a, keeping output and the unemployment rate constant. 
D)  c to point d, decreasing output and increasing the unemployment rate. 
A)  c to point b, increasing output and decreasing the unemployment rate. 
B)  c to point d, increasing output and decreasing the unemployment rate. 
C)  c to point a, keeping output and the unemployment rate constant. 
D)  c to point d, decreasing output and increasing the unemployment rate.

Question 3

Open market purchases by the Federal Reserve System (the Fed)

Accepted Answer

A)  raise the federal funds rate. 
B)  occur when the Fed wants to decrease the quantity of money. 
C)  increase bank reserves. 
D)  All of the above answers are correct. 
A)  raise the federal funds rate. 
B)  occur when the Fed wants to decrease the quantity of money. 
C)  increase bank reserves. 
D)  All of the above answers are correct.

Question 4

Suppose the equilibrium real interest rate is 2 percent per year, inflation is 2.5 percent and the output gap is 1 percent. Using the Taylor rule, what is the federal funds rate?

Accepted Answer

A)  3.5 percent 
B)  5.25 percent 
C)  3 percent 
D)  5.5 percent 
A)  3.5 percent 
B)  5.25 percent 
C)  3 percent 
D)  5.5 percent

Question 5

Monetary policy includes adjustments in _ so as to change .

Accepted Answer

A)  the federal funds rate; short- run aggregate supply 
B)  the quantity of money; short- run aggregate supply 
C)  open market operations; long- run aggregate supply 
D)  the federal funds rate; aggregate demand 
A)  the federal funds rate; short- run aggregate supply 
B)  the quantity of money; short- run aggregate supply 
C)  open market operations; long- run aggregate supply 
D)  the federal funds rate; aggregate demand

Question 6

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

Accepted Answer

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

Question 7

In an effort to address the troubled economy, ..."For the ninth time in just over a year, the Federal Re is expected to cut interest rates, quite possibly its last reduction in this downturn." Rates have not this low "... since 2003, when the economy was growing at a snail's pace. "
HYPERLINK "http://www.csmonitor.com/" www.csmonitor.com, 10/28/20
These rate cuts are designed to

Accepted Answer

A)  increase bank reserves and the exchange rate. 
B)  increase the exchange rate and decrease government spending. 
C)  decrease the real long- term interest rate and increase real GDP. 
D)  decrease the exchange rate and investment. 
A)  increase bank reserves and the exchange rate. 
B)  increase the exchange rate and decrease government spending. 
C)  decrease the real long- term interest rate and increase real GDP. 
D)  decrease the exchange rate and investment.

Question 8

In November 2008, the Reserve Bank of India (RBI) reduced interest rates. Experts are concern thou because it appears that "... its efforts to keep the banking system liquid are somewhat stymied by an cause it holds dear: stabilizing the rupee."
The Economist, 11/6/200
According to the story, the RBI is following

Accepted Answer

A)  the Taylor rule 
B)  the McCallum rule 
C)  an exchange rate targeting rule 
D)  Friedman's k- percent rule 
A)  the Taylor rule 
B)  the McCallum rule 
C)  an exchange rate targeting rule 
D)  Friedman's k- percent rule

Question 9

Which of the following is a problem in pursuing monetary policy?

Accepted Answer

A)  Monetary policy must be approved by the Congress. 
B)  The lag between a change in the quantity of money and its effect on economic activity may be long. 
C)  The Fed cannot control the federal funds rate. 
D)  None of the above answers is correct. 
A)  Monetary policy must be approved by the Congress. 
B)  The lag between a change in the quantity of money and its effect on economic activity may be long. 
C)  The Fed cannot control the federal funds rate. 
D)  None of the above answers is correct.

Question 10

In the short run, if the Fed wants to fight a recession, should it buy or sell government securities? Why?

Accepted Answer

The Fed should buy government securities

Question 11

-In the above figure, the economy experiences a decrease in aggregate demand so that the aggregate demand curve shifts from AD0 to AD1. If the Fed wants to offset this change, it would _ .

Accepted Answer

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

Question 12

Why does the Fed pursue price stability as its ultimate goal?

Accepted Answer

The economy works best when the price le

Question 13

Explain how the Fed's response to a recession works its through the economy to ultimately affecting real GDP and the price level.

Accepted Answer

When the Fed is concerned with recession

Question 14

"As Greenspan Chases Inflation, Critics Shout, 'Faster!'
"For weeks, the Fed has broadcast its intention to raise interest rates glacially." The Fed was moving slowly, according to an economist because "... the declining price of oil, economic fundamentals, incl productivity and global competition, will keep inflation in check." The Fed, recognizing that the eco was improving stated it planned to "respond to changes in economic prospects as needed to fulfill i obligation to maintain price stability." Other economists disagree with the Fed's restrained policy "mistake"
Www)nytimes, 7/1/20
As a result of the Fed's policy, which of the rates will increase?

Accepted Answer

A)  the short- term interest rate 
B)  the long- term interest rate 
C)  the exchange rate 
D)  all of the interest rates listed above will increase 
A)  the short- term interest rate 
B)  the long- term interest rate 
C)  the exchange rate 
D)  all of the interest rates listed above will increase

Question 15

-In the above figure, if the economy is initially at point d, the short- run effect of a hike in the federal funds rate is given by movement from point

Accepted Answer

A)  d to point b, keeping output and the unemployment rate constant. 
B)  d to point a, increasing output and decreasing the unemployment rate. 
C)  d to point b, increasing output and decreasing the unemployment rate. 
D)  d to point c, increasing output and decreasing the unemployment rate. 
A)  d to point b, keeping output and the unemployment rate constant. 
B)  d to point a, increasing output and decreasing the unemployment rate. 
C)  d to point b, increasing output and decreasing the unemployment rate. 
D)  d to point c, increasing output and decreasing the unemployment rate.

Question 16

The initial effect of a decrease in the federal funds rate

Accepted Answer

A)  increases aggregate demand. 
B)  increases aggregate supply. 
C)  decreases aggregate supply. 
D)  decreases the inflation rate as firms produce more goods and services. 
A)  increases aggregate demand. 
B)  increases aggregate supply. 
C)  decreases aggregate supply. 
D)  decreases the inflation rate as firms produce more goods and services.

Question 17

-In the above figure, suppose the economy is at point B. Which of the following policy options for the Fed will move the economy toward its LAS?

Accepted Answer

A)  decrease the government's budget deficit 
B)  raise the federal funds rate 
C)  decrease taxes 
D)  lower the federal funds rate 
A)  decrease the government's budget deficit 
B)  raise the federal funds rate 
C)  decrease taxes 
D)  lower the federal funds rate

Question 18

Which of the following is the most important Federal Reserve monetary policy goal?

Accepted Answer

A)  price level stability 
B)  minimum unemployment. 
C)  moderate long- term interest rates 
D)  maximum employment 
A)  price level stability 
B)  minimum unemployment. 
C)  moderate long- term interest rates 
D)  maximum employment

Question 19

List and briefly explain the steps in how monetary policy affects real GDP in the AS/AD model. Tell what is the impact when the Fed eases monetary policy to fight a recession.

Accepted Answer

There are several steps. Step one is a c

Question 20

Federal Reserve open market operations directly influence

Accepted Answer

A)  firms. 
B)  banks. 
C)  Congress. 
D)  consumers. 
A)  firms. 
B)  banks. 
C)  Congress. 
D)  consumers.

A decrease in the supply of loanable funds decreases the real interest rate.

-In the above figure, if the economy is initially at point c, the short- run effect of a hike in the federal funds rate is given by movement from point

Open market purchases by the Federal Reserve System (the Fed)

Suppose the equilibrium real interest rate is 2 percent per year, inflation is 2.5 percent and the output gap is 1 percent. Using the Taylor rule, what is the federal funds rate?

Monetary policy includes adjustments in _ so as to change .

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

Which of the following is a problem in pursuing monetary policy?

In the short run, if the Fed wants to fight a recession, should it buy or sell government securities? Why?

-In the above figure, the economy experiences a decrease in aggregate demand so that the aggregate demand curve shifts from AD₀to AD₁. If the Fed wants to offset this change, it would _ .

Why does the Fed pursue price stability as its ultimate goal?

Explain how the Fed's response to a recession works its through the economy to ultimately affecting real GDP and the price level.

-In the above figure, if the economy is initially at point d, the short- run effect of a hike in the federal funds rate is given by movement from point

The initial effect of a decrease in the federal funds rate

-In the above figure, suppose the economy is at point B. Which of the following policy options for the Fed will move the economy toward its LAS?

Which of the following is the most important Federal Reserve monetary policy goal?

List and briefly explain the steps in how monetary policy affects real GDP in the AS/AD model. Tell what is the impact when the Fed eases monetary policy to fight a recession.

Federal Reserve open market operations directly influence

What Is Economics

The Economic Problem

Demand and Supply

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, the Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers: They Keynesian Model

U.S. Inflation, Unemployment, and Business Cycle

Fiscal Policy

International Trade Policy

Filters

Exam 14: Monetary Policy

A decrease in the supply of loanable funds decreases the real interest rate.

-In the above figure, if the economy is initially at point c, the short- run effect of a hike in the federal funds rate is given by movement from point

Open market purchases by the Federal Reserve System (the Fed)

Suppose the equilibrium real interest rate is 2 percent per year, inflation is 2.5 percent and the output gap is 1 percent. Using the Taylor rule, what is the federal funds rate?

Monetary policy includes adjustments in _ so as to change .

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

Which of the following is a problem in pursuing monetary policy?

In the short run, if the Fed wants to fight a recession, should it buy or sell government securities? Why?

-In the above figure, the economy experiences a decrease in aggregate demand so that the aggregate demand curve shifts from AD0 to AD1. If the Fed wants to offset this change, it would _ .

Why does the Fed pursue price stability as its ultimate goal?

Explain how the Fed's response to a recession works its through the economy to ultimately affecting real GDP and the price level.

-In the above figure, if the economy is initially at point d, the short- run effect of a hike in the federal funds rate is given by movement from point

The initial effect of a decrease in the federal funds rate

-In the above figure, suppose the economy is at point B. Which of the following policy options for the Fed will move the economy toward its LAS?

Which of the following is the most important Federal Reserve monetary policy goal?

List and briefly explain the steps in how monetary policy affects real GDP in the AS/AD model. Tell what is the impact when the Fed eases monetary policy to fight a recession.

Federal Reserve open market operations directly influence

What Is Economics

The Economic Problem

Demand and Supply

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, the Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers: They Keynesian Model

U.S. Inflation, Unemployment, and Business Cycle

Fiscal Policy

International Trade Policy

Filters

-In the above figure, the economy experiences a decrease in aggregate demand so that the aggregate demand curve shifts from AD₀to AD₁. If the Fed wants to offset this change, it would _ .