Question 1

With an upward sloping SAS curve, an expansionary monetary policy that affects the price level but not real output could be the result of a shift of:

Accepted Answer

A) both the AD and SAS curves. 
B) only the AD curve. 
C) only the SAS curve. 
D) neither the SAS curve nor the AD curve. 
A) both the AD and SAS curves. 
B) only the AD curve. 
C) only the SAS curve. 
D) neither the SAS curve nor the AD curve.

Question 2

To increase the nation's money supply, the Fed can:

Accepted Answer

A) increase the required reserve ratio. 
B) decrease the discount rate. 
C) increase the discount rate. 
D) sell bonds. 
A) increase the required reserve ratio. 
B) decrease the discount rate. 
C) increase the discount rate. 
D) sell bonds.

Question 3

If the actual federal funds rate is 9 percent and the Fed's target federal funds rate is 8 percent, the Fed is most likely to adopt which of the following policies?

Accepted Answer

A) A sale of government bonds 
B) An increase in the discount rate 
C) A reduction in the reserve requirement 
D) A more contractionary monetary policy 
A) A sale of government bonds 
B) An increase in the discount rate 
C) A reduction in the reserve requirement 
D) A more contractionary monetary policy

Question 4

The central bank of the United States is:

Accepted Answer

A) the Treasury. 
B) the Fed. 
C) the Bank of the United States. 
D) Old Lady of Threadneedle Street. 
A) the Treasury. 
B) the Fed. 
C) the Bank of the United States. 
D) Old Lady of Threadneedle Street.

Question 5

An expansionary monetary policy is most likely to:

Accepted Answer

A) increases interest rates, raises investment, and increases income. 
B) decreases interest rates, raises investment, and increases income. 
C) increases interest rates, reduces investment, and decreases income. 
D) decreases interest rates, reduces investment, and decreases income. 
A) increases interest rates, raises investment, and increases income. 
B) decreases interest rates, raises investment, and increases income. 
C) increases interest rates, reduces investment, and decreases income. 
D) decreases interest rates, reduces investment, and decreases income.

Question 6

Some experts have argued that the Fed contributed to the housing bubble by:

Accepted Answer

A) approving the purchase of high-risk assets by banks, even though there was a risk of them defaulting. 
B) lowering interest rates, despite the fact that the Taylor rule indicated keeping them high. 
C) not regulating non bank financial institutions who were coming up with innovative mortgages. 
D) following the Taylor Rule, which during the 2000s indicated that rates should be kept low. 
A) approving the purchase of high-risk assets by banks, even though there was a risk of them defaulting. 
B) lowering interest rates, despite the fact that the Taylor rule indicated keeping them high. 
C) not regulating non bank financial institutions who were coming up with innovative mortgages. 
D) following the Taylor Rule, which during the 2000s indicated that rates should be kept low.

Question 7

Suppose the real interest rate in Brazil is 40 percent, actual inflation is 20 percent, and expected inflation is 20 percent. The nominal interest must then be:

Accepted Answer

A) 20 percent. 
B) 40 percent. 
C) 60 percent. 
D) 80 percent. 
A) 20 percent. 
B) 40 percent. 
C) 60 percent. 
D) 80 percent.

Question 8

Suppose that investment is not very responsive to interest rates, so that a sizable increase in interest rates has only a minor effect on investment. In this case, monetary policy would have:

Accepted Answer

A) no effect on output. 
B) a modest effect on output. 
C) a substantial effect on output. 
D) a massive effect on output. 
A) no effect on output. 
B) a modest effect on output. 
C) a substantial effect on output. 
D) a massive effect on output.

Question 9

The difference between a standard and an inverted yield curve is that when the yield curve is inverted, the longer-term bond pays a lower interest rate than a short-term bond.

Accepted Answer

A) True 
 B)False

Question 10

Using the Taylor rule, if inflation is 3 percent, desired inflation is 2 percent, and output is 2 percentage points above potential, the Fed should target a federal funds rate of:

Accepted Answer

A) 6.5. 
B) 4.5. 
C) 3.5. 
D) 3.0. 
A) 6.5. 
B) 4.5. 
C) 3.5. 
D) 3.0.

Question 11

Describe the various documents that are prepared for,and presented at,a typical FOMC meeting.

Accepted Answer

There is a tremendous amount of preparat

Question 12

In recent years the Fed has begun paying interest on reserves.How has this changed the conduct of monetary policy?

Accepted Answer

Paying interest on reserves increases ex

Question 13

The primary tool of monetary policy is:

Accepted Answer

A) the discount rate. 
B) the reserve requirement. 
C) the prime rate. 
D) open market operations. 
A) the discount rate. 
B) the reserve requirement. 
C) the prime rate. 
D) open market operations.

Question 14

Open market operations are related to:

Accepted Answer

A) actions taken by the Fed to close or merge weakened banks. 
B) changes in the reserve requirement. 
C) changes in the discount rate. 
D) the Fed's buying and selling of government securities. 
A) actions taken by the Fed to close or merge weakened banks. 
B) changes in the reserve requirement. 
C) changes in the discount rate. 
D) the Fed's buying and selling of government securities.

Question 15

Suppose the reserve requirement is 20 percent and banks hold no excess reserves. A $1 billion sale of government securities by the Fed will:

Accepted Answer

A) increase checkable deposits in the banking system by $5 billion. 
B) increase checkable deposits in the banking system by $1 billion. 
C) reduce checkable deposits in the banking system by $1 billion. 
D) reduce checkable deposits in the banking system by $5 billion. 
A) increase checkable deposits in the banking system by $5 billion. 
B) increase checkable deposits in the banking system by $1 billion. 
C) reduce checkable deposits in the banking system by $1 billion. 
D) reduce checkable deposits in the banking system by $5 billion.

Question 16

Using the Taylor rule, if inflation is 3 percent, desired inflation is 2 percent, and output is 2 percentage points below potential, the Fed should target a federal funds rate of:

Accepted Answer

A) 6.5. 
B) 4.5. 
C) 3.5. 
D) 3.0. 
A) 6.5. 
B) 4.5. 
C) 3.5. 
D) 3.0.

Question 17

In the AS/AD model, a contractionary monetary policy:

Accepted Answer

A) reduces investment but increases aggregate demand. 
B) increases both investment and aggregate demand. 
C) reduces both investment and aggregate demand. 
D) increases investment but reduces aggregate demand. 
A) reduces investment but increases aggregate demand. 
B) increases both investment and aggregate demand. 
C) reduces both investment and aggregate demand. 
D) increases investment but reduces aggregate demand.

Question 18

In general, the yield curve is:

Accepted Answer

A) flat. 
B) upward sloping. 
C) downward sloping. 
D) shaped like a mountain. 
A) flat. 
B) upward sloping. 
C) downward sloping. 
D) shaped like a mountain.

Question 19

The federal funds rate is the rate banks charge one another for overnight loans.

Accepted Answer

A) True 
 B)False

Question 20

If output falls 1.0 percentage point below its potential, the Taylor rule predicts that the Fed should:

Accepted Answer

A) reduce the federal funds rate by 0.5 percentage points. 
B) reduce the federal funds rate by 1.0 percentage points. 
C) raise the federal funds rate by 1.5 percentage points. 
D) raise the federal funds rate by 1.0 percentage points. 
A) reduce the federal funds rate by 0.5 percentage points. 
B) reduce the federal funds rate by 1.0 percentage points. 
C) raise the federal funds rate by 1.5 percentage points. 
D) raise the federal funds rate by 1.0 percentage points.

Exam 29: Monetary Policy

With an upward sloping SAS curve, an expansionary monetary policy that affects the price level but not real output could be the result of a shift of:

To increase the nation's money supply, the Fed can:

If the actual federal funds rate is 9 percent and the Fed's target federal funds rate is 8 percent, the Fed is most likely to adopt which of the following policies?

The central bank of the United States is:

An expansionary monetary policy is most likely to:

Some experts have argued that the Fed contributed to the housing bubble by:

Suppose the real interest rate in Brazil is 40 percent, actual inflation is 20 percent, and expected inflation is 20 percent. The nominal interest must then be:

Suppose that investment is not very responsive to interest rates, so that a sizable increase in interest rates has only a minor effect on investment. In this case, monetary policy would have:

The difference between a standard and an inverted yield curve is that when the yield curve is inverted, the longer-term bond pays a lower interest rate than a short-term bond.

Using the Taylor rule, if inflation is 3 percent, desired inflation is 2 percent, and output is 2 percentage points above potential, the Fed should target a federal funds rate of:

Describe the various documents that are prepared for,and presented at,a typical FOMC meeting.

In recent years the Fed has begun paying interest on reserves.How has this changed the conduct of monetary policy?

The primary tool of monetary policy is:

Open market operations are related to:

Suppose the reserve requirement is 20 percent and banks hold no excess reserves. A $1 billion sale of government securities by the Fed will:

Using the Taylor rule, if inflation is 3 percent, desired inflation is 2 percent, and output is 2 percentage points below potential, the Fed should target a federal funds rate of:

In the AS/AD model, a contractionary monetary policy:

In general, the yield curve is:

The federal funds rate is the rate banks charge one another for overnight loans.

If output falls 1.0 percentage point below its potential, the Taylor rule predicts that the Fed should:

Economics and Economic Reasoning

The Production Possibility Model, Trade, and Globalization

Economic Institutions

Supply and Demand

Using Supply and Demand

Describing Supply and Demand: Elasticities

Taxation and Government Intervention

Market Failure Versus Government Failure

Comparative Advantage, Exchange Rates, and Globalization

International Trade Policy

Production and Cost Analysis I

Production and Cost Analysis II

Perfect Competition

Monopoly and Monopolistic Competition

Oligopoly and Antitrust Policy

Real-World Competition and Technology

Work and the Labor Market

Who Gets What the Distribution of Income

The Logic of Individual Choice: the Foundation of Supply and Demand

Game Theory, Strategic Decision Making, and Behavioral Economics

Thinking Like a Modern Economist

Behavioral Economics and Modern Economic Policy

Microeconomic Policy, Economic Reasoning, and Beyond

Economic Growth, Business Cycles, and Unemployment

Measuring and Describing the Aggregate Economy

The Keynesian Short-Run Policy Model: Demand-Side Policies

The Classical Long-Run Policy Model: Growth and Supply-Side Policies

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Financial Crises, Panics, and Unconventional Monetary Policy

Deficits and Debt: the Austerity Debate

The Fiscal Policy Dilemma

Jobs and Unemployment

Inflation, Deflation, and Macro Policy

International Financial Policy

Macro Policy in a Global Setting

Structural Stagnation and Globalization

Macro Policy in Developing Countries

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