Question 1

A reduction in the price level will shift the money demand curve to the right.

Accepted Answer

A) True 
 B)False

Question 2

Figure 14.2
-Refer to Figure 14.2. At an interest rate of 5%, there is:

Accepted Answer

A)  an excess supply of money and the interest rate will decrease. 
B)  an equilibrium and the interest rate will not change. 
C)  an equilibrium and the interest rate will increase. 
D)  an excess demand for money and the interest rate will not change. 
A)  an excess supply of money and the interest rate will decrease. 
B)  an equilibrium and the interest rate will not change. 
C)  an equilibrium and the interest rate will increase. 
D)  an excess demand for money and the interest rate will not change.

Question 3

Which of the following pairs of events will definitely lead to an increase in the equilibrium interest rate?

Accepted Answer

A)  a decrease in the required reserve ratio and an increase in the level of real GDP 
B)  an increase in the discount rate and an increase in the price level 
C)  the purchase of government bonds by the Federal Reserve and a decrease in the level of real GDP 
D)  the sale of government bonds by the Federal Reserve and a decrease in the price level 
A)  a decrease in the required reserve ratio and an increase in the level of real GDP 
B)  an increase in the discount rate and an increase in the price level 
C)  the purchase of government bonds by the Federal Reserve and a decrease in the level of real GDP 
D)  the sale of government bonds by the Federal Reserve and a decrease in the price level

Question 4

Draw a graph of a money demand curve and a money supply curve. On the graph, indicate the equilibrium interest rate. Also indicate the new equilibrium interest rate if the Fed increases the money supply.

Accepted Answer

If the Fed increases

Question 5

A depreciation of the U.S. dollar will likely cause U.S. exports to _______ and U.S. imports to _______.

Accepted Answer

A)  decrease; decrease 
B)  decrease; increase 
C)  increase; decrease 
D)  increase; increase 
A)  decrease; decrease 
B)  decrease; increase 
C)  increase; decrease 
D)  increase; increase

Question 6

Recall Application 1, "Beyond Purchasing Treasury Securities," to answer the following questions:
-According to the application, how did the Fed conduct monetary policy prior to 2008?

Accepted Answer

A)  The Fed's asset holdings were less than $1 trillion. 
B)  The Fed only held U.S. Treasury securities as its assets. 
C)  The Fed never intervened in a specific credit or security market. 
D)  All of the above are correct. 
A)  The Fed's asset holdings were less than $1 trillion. 
B)  The Fed only held U.S. Treasury securities as its assets. 
C)  The Fed never intervened in a specific credit or security market. 
D)  All of the above are correct.

Question 7

Identify the determinants of the demand for money.

Accepted Answer

The demand for money depends o

Question 8

Which of the following is true when the US dollar appreciates against the euro?

Accepted Answer

A)  It takes fewer euros to buy the dollar. 
B)  It becomes more expensive for Americans to buy goods from Germany. 
C)  It takes fewer dollars to buy the euro. 
D)  All of the above are correct. 
A)  It takes fewer euros to buy the dollar. 
B)  It becomes more expensive for Americans to buy goods from Germany. 
C)  It takes fewer dollars to buy the euro. 
D)  All of the above are correct.

Question 9

An appreciation of the U.S. dollar will likely cause U.S. exports to _______ and U.S. imports to _______.

Accepted Answer

A)  decrease; decrease 
B)  decrease; increase 
C)  increase; increase 
D)  increase; decrease 
A)  decrease; decrease 
B)  decrease; increase 
C)  increase; increase 
D)  increase; decrease

Question 10

(a) Explain how the Federal Reserve might carry out contractionary monetary policy.
(b) Explain how the Federal Reserve might carry out expansionary monetary policy.
(c) How would each of the policies affect the equilibrium interest rate?

Accepted Answer

(a) A contractionary monetary policy mea

Question 11

When the Fed conducts open market operations, the Fed buys and sells government securities to:

Accepted Answer

A)  the US. Treasury. 
B)  foreign countries only. 
C)  state and local government agencies only. 
D)  the private sector. 
A)  the US. Treasury. 
B)  foreign countries only. 
C)  state and local government agencies only. 
D)  the private sector.

Question 12

Fed actions that increase the money supply:

Accepted Answer

A)  tends to lead to a depreciation of a nation's currency. 
B)  tends to lead to an appreciation of a nation's currency. 
C)  tends to lead to a depreciation of the currencies of other nations. 
D)  usually has no effect on a currency's exchange value. 
A)  tends to lead to a depreciation of a nation's currency. 
B)  tends to lead to an appreciation of a nation's currency. 
C)  tends to lead to a depreciation of the currencies of other nations. 
D)  usually has no effect on a currency's exchange value.

Question 13

A reduction in the British interest rate relative to the U.S. interest rate will cause a(n):

Accepted Answer

A)  depreciation of the dollar and an appreciation of the British pound. 
B)  appreciation of the dollar and an appreciation of the British pound. 
C)  appreciation of the dollar and a depreciation of the British pound. 
D)  depreciation of the dollar and a depreciation of the British pound. 
A)  depreciation of the dollar and an appreciation of the British pound. 
B)  appreciation of the dollar and an appreciation of the British pound. 
C)  appreciation of the dollar and a depreciation of the British pound. 
D)  depreciation of the dollar and a depreciation of the British pound.

Question 14

Recall Application 1, "Beyond Purchasing Treasury Securities," to answer the following questions:
-According to the application, which of the following is an example of the sharp change in the Fed's conduct of monetary policy in 2008?

Accepted Answer

A)  The Fed increased total asset holdings by $1 trillion. 
B)  The Fed intervened in the credit and the mortgage markets. 
C)  The Fed held mortgage backed securities. 
D)  All of the above are correct. 
A)  The Fed increased total asset holdings by $1 trillion. 
B)  The Fed intervened in the credit and the mortgage markets. 
C)  The Fed held mortgage backed securities. 
D)  All of the above are correct.

Question 15

Recall Application 2, "Rising Interest Rates During an Economic Recovery," to answer the following questions:
-According to the application, another reason why a recovering economy (and hence, a higher income) is usually associated with higher interest rates is that:

Accepted Answer

A)  during a recovery, the Fed raises interest rates to prevent the economy from heading back into a recession. 
B)  during a recovery, the Fed lowers interest rates to prevent the economy from overheating. 
C)  during a recovery, the Fed raises interest rates to prevent the economy from overheating. 
D)  during a recovery, the Fed lowers interest rates to prevent the economy from heading back into a recession. 
A)  during a recovery, the Fed raises interest rates to prevent the economy from heading back into a recession. 
B)  during a recovery, the Fed lowers interest rates to prevent the economy from overheating. 
C)  during a recovery, the Fed raises interest rates to prevent the economy from overheating. 
D)  during a recovery, the Fed lowers interest rates to prevent the economy from heading back into a recession.

Question 16

If the Fed wishes to decrease long- term investment spending, it must:

Accepted Answer

A)  cut the current short- term interest rate. 
B)  convince the public that the expected future short- term rates would be low. 
C)  raise the short- term interest rates and the expected short- term future rates. 
D)  A and B are correct. 
A)  cut the current short- term interest rate. 
B)  convince the public that the expected future short- term rates would be low. 
C)  raise the short- term interest rates and the expected short- term future rates. 
D)  A and B are correct.

Question 17

An increase in the British interest rate relative to the U.S. interest rate will cause a(n):

Accepted Answer

A)  depreciation of the dollar and an appreciation of the British pound. 
B)  appreciation of the dollar and a depreciation of the British pound. 
C)  appreciation of the dollar and an appreciation of the British pound. 
D)  depreciation of the dollar and a depreciation of the British pound. 
A)  depreciation of the dollar and an appreciation of the British pound. 
B)  appreciation of the dollar and a depreciation of the British pound. 
C)  appreciation of the dollar and an appreciation of the British pound. 
D)  depreciation of the dollar and a depreciation of the British pound.

Question 18

Recall Application 3, "The Effectiveness of Committees," to answer the following questions:
-According to the application, individuals make decisions quicker than committees.

Accepted Answer

A) True 
 B)False

Question 19

Figure 14.5
-Refer to Figure 14.5. Assume the interest rate equals 8%. If the money supply shifts exogeneously from   what can the Fed do to bring the money market back to equilibrium at

Accepted Answer

A)  lower the discount rate 
B)  lower the reserve requirement 
C)  sell bonds 
D)  raise the fed funds rate 
A)  lower the discount rate 
B)  lower the reserve requirement 
C)  sell bonds 
D)  raise the fed funds rate

Question 20

Explain the impact of a decrease in the required reserve ratio on money supply.

Accepted Answer

Banks will be required to keep a smaller

A reduction in the price level will shift the money demand curve to the right.

Figure 14.2 -Refer to Figure 14.2. At an interest rate of 5%, there is:

Which of the following pairs of events will definitely lead to an increase in the equilibrium interest rate?

Draw a graph of a money demand curve and a money supply curve. On the graph, indicate the equilibrium interest rate. Also indicate the new equilibrium interest rate if the Fed increases the money supply.

A depreciation of the U.S. dollar will likely cause U.S. exports to _ and U.S. imports to _.

Recall Application 1, "Beyond Purchasing Treasury Securities," to answer the following questions: -According to the application, how did the Fed conduct monetary policy prior to 2008?

Identify the determinants of the demand for money.

Which of the following is true when the US dollar appreciates against the euro?

An appreciation of the U.S. dollar will likely cause U.S. exports to _ and U.S. imports to _.

(a) Explain how the Federal Reserve might carry out contractionary monetary policy. (b) Explain how the Federal Reserve might carry out expansionary monetary policy. (c) How would each of the policies affect the equilibrium interest rate?

When the Fed conducts open market operations, the Fed buys and sells government securities to:

Fed actions that increase the money supply:

A reduction in the British interest rate relative to the U.S. interest rate will cause a(n):

Recall Application 1, "Beyond Purchasing Treasury Securities," to answer the following questions: -According to the application, which of the following is an example of the sharp change in the Fed's conduct of monetary policy in 2008?

Recall Application 2, "Rising Interest Rates During an Economic Recovery," to answer the following questions: -According to the application, another reason why a recovering economy (and hence, a higher income) is usually associated with higher interest rates is that:

If the Fed wishes to decrease long- term investment spending, it must:

An increase in the British interest rate relative to the U.S. interest rate will cause a(n):

Recall Application 3, "The Effectiveness of Committees," to answer the following questions: -According to the application, individuals make decisions quicker than committees.

Figure 14.5 -Refer to Figure 14.5. Assume the interest rate equals 8%. If the money supply shifts exogeneously from what can the Fed do to bring the money market back to equilibrium at

Explain the impact of a decrease in the required reserve ratio on money supply.

Introduction: What Is Economics

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nations Production and Income

Unemployment and Inflation

The Economy at Full Employment

Why Do Economies Grow

Aggregate Demand and Aggregate Supply

Fiscal Policy

The Income-Expenditure Model

Investment and Financial Markets

Money and the Banking System

Modern Macroeconomics: From the Short Run to the Long Run

The Dynamics of Inflation and Unemployment

Macroeconomic Policy Debates

International Trade and Public Policy

The World of International Finance

Filters

Exam 14: The Federal Reserve and Monetary Policy

A reduction in the price level will shift the money demand curve to the right.

Figure 14.2 -Refer to Figure 14.2. At an interest rate of 5%, there is:

Which of the following pairs of events will definitely lead to an increase in the equilibrium interest rate?

Draw a graph of a money demand curve and a money supply curve. On the graph, indicate the equilibrium interest rate. Also indicate the new equilibrium interest rate if the Fed increases the money supply.

A depreciation of the U.S. dollar will likely cause U.S. exports to _______ and U.S. imports to _______.

Recall Application 1, "Beyond Purchasing Treasury Securities," to answer the following questions: -According to the application, how did the Fed conduct monetary policy prior to 2008?

Identify the determinants of the demand for money.

Which of the following is true when the US dollar appreciates against the euro?

An appreciation of the U.S. dollar will likely cause U.S. exports to _______ and U.S. imports to _______.

(a) Explain how the Federal Reserve might carry out contractionary monetary policy. (b) Explain how the Federal Reserve might carry out expansionary monetary policy. (c) How would each of the policies affect the equilibrium interest rate?

When the Fed conducts open market operations, the Fed buys and sells government securities to:

Fed actions that increase the money supply:

A reduction in the British interest rate relative to the U.S. interest rate will cause a(n):

Recall Application 1, "Beyond Purchasing Treasury Securities," to answer the following questions: -According to the application, which of the following is an example of the sharp change in the Fed's conduct of monetary policy in 2008?

Recall Application 2, "Rising Interest Rates During an Economic Recovery," to answer the following questions: -According to the application, another reason why a recovering economy (and hence, a higher income) is usually associated with higher interest rates is that:

If the Fed wishes to decrease long- term investment spending, it must:

An increase in the British interest rate relative to the U.S. interest rate will cause a(n):

Recall Application 3, "The Effectiveness of Committees," to answer the following questions: -According to the application, individuals make decisions quicker than committees.

Figure 14.5 -Refer to Figure 14.5. Assume the interest rate equals 8%. If the money supply shifts exogeneously from what can the Fed do to bring the money market back to equilibrium at

Explain the impact of a decrease in the required reserve ratio on money supply.

Introduction: What Is Economics

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nations Production and Income

Unemployment and Inflation

The Economy at Full Employment

Why Do Economies Grow

Aggregate Demand and Aggregate Supply

Fiscal Policy

The Income-Expenditure Model

Investment and Financial Markets

Money and the Banking System

Modern Macroeconomics: From the Short Run to the Long Run

The Dynamics of Inflation and Unemployment

Macroeconomic Policy Debates

International Trade and Public Policy

The World of International Finance

Filters

A depreciation of the U.S. dollar will likely cause U.S. exports to _ and U.S. imports to _.

An appreciation of the U.S. dollar will likely cause U.S. exports to _ and U.S. imports to _.