Question 1

The AS/AD model implies that monetary policy should be used to:

Accepted Answer

A) make adjustments so that savings equal investment. 
B) keep the money supply growing at a constant rate. 
C) keep the interest rate constant. 
D) keep the price level constant. 
A) make adjustments so that savings equal investment. 
B) keep the money supply growing at a constant rate. 
C) keep the interest rate constant. 
D) keep the price level constant.

Question 2

If the Fed decreases the reserve requirement, it will likely:

Accepted Answer

A) decrease the amount of excess reserves, which will eventually increase the money supply. 
B) decrease the amount of excess reserves which will eventually decrease the money supply. 
C) increase the amount of excess reserves which will eventually increase the money supply. 
D) increase the amount of excess reserves which will eventually decrease the money supply. 
A) decrease the amount of excess reserves, which will eventually increase the money supply. 
B) decrease the amount of excess reserves which will eventually decrease the money supply. 
C) increase the amount of excess reserves which will eventually increase the money supply. 
D) increase the amount of excess reserves which will eventually decrease the money supply.

Question 3

Explain how distinction between the real and nominal interest rate poses problems for the conduct of monetary policy.

Accepted Answer

Expansionary monetary policy can lead to

Question 4

Refer to the graph shown. Suppose the economy is initially at A but then the Fed adopts a contractionary monetary policy. The long-term effect of this policy will be to move the economy to:

Accepted Answer

A) E. 
B) B. 
C) C. 
D) D. 
A) E. 
B) B. 
C) C. 
D) D.

Question 5

The art of monetary policy requires acting in accordance with the Taylor Rule.

Accepted Answer

A) True 
 B)False

Question 6

How many regional banks are in the Federal Reserve System?

Accepted Answer

A) 6 
B) 8 
C) 12 
D) 15 
A) 6 
B) 8 
C) 12 
D) 15

Question 7

By law, a commercial bank is allowed to lend out of all its:

Accepted Answer

A) deposits. 
B) excess reserves. 
C) required reserves. 
D) demand (checkable)deposits. 
A) deposits. 
B) excess reserves. 
C) required reserves. 
D) demand (checkable)deposits.

Question 8

The Fed took action in late 2008 to significantly decrease the federal funds rate. This action is best considered:

Accepted Answer

A) an offensive action. 
B) a defensive action. 
C) both offensive and defensive actions. 
D) neither offensive nor defensive actions. 
A) an offensive action. 
B) a defensive action. 
C) both offensive and defensive actions. 
D) neither offensive nor defensive actions.

Question 9

If the Fed simultaneously reduces the discount rate and the required reserve ratio, the money supply will:

Accepted Answer

A) contract. 
B) remain unchanged. 
C) expand. 
D) take on a value that cannot be determined from the information given. 
A) contract. 
B) remain unchanged. 
C) expand. 
D) take on a value that cannot be determined from the information given.

Question 10

During an inflationary period, policy makers who use the AS/AD model would probably recommend an open market:

Accepted Answer

A) sale of government securities that reduces interest rates. 
B) purchase of government securities that reduces interest rates. 
C) sale of government securities that raises interest rates. 
D) purchase of government securities that raises interest rates. 
A) sale of government securities that reduces interest rates. 
B) purchase of government securities that reduces interest rates. 
C) sale of government securities that raises interest rates. 
D) purchase of government securities that raises interest rates.

Question 11

Which of the following is a Fed tool?

Accepted Answer

A) Interest rate spreads 
B) Discount rate 
C) Stock prices 
D) Federal funds rate 
A) Interest rate spreads 
B) Discount rate 
C) Stock prices 
D) Federal funds rate

Question 12

The Federal Open Market Committee:

Accepted Answer

A) makes decisions that affect excess reserves available to banks. 
B) reports directly to Congress. 
C) makes decisions that influence the nation's fiscal policy. 
D) determines who may buy and sell government bonds. 
A) makes decisions that affect excess reserves available to banks. 
B) reports directly to Congress. 
C) makes decisions that influence the nation's fiscal policy. 
D) determines who may buy and sell government bonds.

Question 13

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

Accepted Answer

A) increase reserve requirements. 
B) decrease reserve requirements. 
C) decrease the discount rate. 
D) buy government securities in the open market. 
A) increase reserve requirements. 
B) decrease reserve requirements. 
C) decrease the discount rate. 
D) buy government securities in the open market.

Question 14

Demonstrate graphically and explain verbally that the impact of expansionary monetary policy on the economy depends upon the position of equilibrium output in relation to potential output.

Accepted Answer

To demonstrate this we need to use AS/AD

Question 15

What is the yield curve? What happens when one moves out along the yield curve? How does its shape reflect the fact that the Federal Reserve's ability to control the economy through controlling short-term interest rates is limited?

Accepted Answer

The yield curve is a curve that shows th

Question 16

One of the Fed's ultimate targets is:

Accepted Answer

A) the Fed funds rate. 
B) the reserve requirement. 
C) stable prices. 
D) the Taylor rule. 
A) the Fed funds rate. 
B) the reserve requirement. 
C) stable prices. 
D) the Taylor rule.

Question 17

Expansionary monetary policy results in a shift of the aggregate demand curve to the right. The effect of the monetary policy on the aggregate demand is:

Accepted Answer

A) direct from the money supply to the aggregate demand. 
B) indirect through the short-term and long-term interest rates. 
C) direct from the money supply to the aggregate supply. 
D) indirect through the government expenditures. 
A) direct from the money supply to the aggregate demand. 
B) indirect through the short-term and long-term interest rates. 
C) direct from the money supply to the aggregate supply. 
D) indirect through the government expenditures.

Question 18

All of the following are components of the Federal Reserve system except the:

Accepted Answer

A) 12 regional Federal Reserve banks. 
B) Federal Open Market Committee. 
C) Federal Deposit Insurance Corporation. 
D) Board of Governors. 
A) 12 regional Federal Reserve banks. 
B) Federal Open Market Committee. 
C) Federal Deposit Insurance Corporation. 
D) Board of Governors.

Question 19

Federal Reserve sales of government securities:

Accepted Answer

A) increase bank reserves and increase the money supply. 
B) decrease bank reserves and decrease the money supply. 
C) decrease bank reserves and increase the money supply. 
D) increase bank reserves and decrease the money supply. 
A) increase bank reserves and increase the money supply. 
B) decrease bank reserves and decrease the money supply. 
C) decrease bank reserves and increase the money supply. 
D) increase bank reserves and decrease the money supply.

Question 20

In the fall of 2008, the Federal Reserve lowered its target for the federal funds rate to nearly 0 percent. What is the name of the group within the Federal Reserve that made this decision?

Accepted Answer

A) Federal Advisory Committee 
B) Federal Deposit Insurance Corporation 
C) Federal Funds Operating Group 
D) Federal Open Market Committee 
A) Federal Advisory Committee 
B) Federal Deposit Insurance Corporation 
C) Federal Funds Operating Group 
D) Federal Open Market Committee

Exam 29: Monetary Policy

The AS/AD model implies that monetary policy should be used to:

If the Fed decreases the reserve requirement, it will likely:

Explain how distinction between the real and nominal interest rate poses problems for the conduct of monetary policy.

Refer to the graph shown. Suppose the economy is initially at A but then the Fed adopts a contractionary monetary policy. The long-term effect of this policy will be to move the economy to:

The art of monetary policy requires acting in accordance with the Taylor Rule.

How many regional banks are in the Federal Reserve System?

By law, a commercial bank is allowed to lend out of all its:

The Fed took action in late 2008 to significantly decrease the federal funds rate. This action is best considered:

If the Fed simultaneously reduces the discount rate and the required reserve ratio, the money supply will:

During an inflationary period, policy makers who use the AS/AD model would probably recommend an open market:

Which of the following is a Fed tool?

The Federal Open Market Committee:

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

Demonstrate graphically and explain verbally that the impact of expansionary monetary policy on the economy depends upon the position of equilibrium output in relation to potential output.

What is the yield curve? What happens when one moves out along the yield curve? How does its shape reflect the fact that the Federal Reserve's ability to control the economy through controlling short-term interest rates is limited?

One of the Fed's ultimate targets is:

Expansionary monetary policy results in a shift of the aggregate demand curve to the right. The effect of the monetary policy on the aggregate demand is:

All of the following are components of the Federal Reserve system except the:

Federal Reserve sales of government securities:

In the fall of 2008, the Federal Reserve lowered its target for the federal funds rate to nearly 0 percent. What is the name of the group within the Federal Reserve that made this decision?

Economics and Economic Reasoning

The Production Possibility Model, Trade, and Globalization

Economic Institutions

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Using Supply and Demand

Describing Supply and Demand: Elasticities

Taxation and Government Intervention

Market Failure Versus Government Failure

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Who Gets What the Distribution of Income

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