Question 1

Which of the following is true?

Accepted Answer

A) If the Fed wants to increase the money supply, it should increase the interest rate it pays banks on their excess reserves. 
B) When the Fed reduces the interest rate paid on excess reserves, it increases the incentive of commercial banks to hold excess reserves. 
C) If the Fed wants to reduce the future growth rate of the money supply, it could do so by increasing the interest rate it pays banks on excess reserves. 
D) When the Fed increases the interest rate it pays on excess reserves, this encourages banks to extend more loans and thereby increase the money supply. 
A) If the Fed wants to increase the money supply, it should increase the interest rate it pays banks on their excess reserves. 
B) When the Fed reduces the interest rate paid on excess reserves, it increases the incentive of commercial banks to hold excess reserves. 
C) If the Fed wants to reduce the future growth rate of the money supply, it could do so by increasing the interest rate it pays banks on excess reserves. 
D) When the Fed increases the interest rate it pays on excess reserves, this encourages banks to extend more loans and thereby increase the money supply.

Question 2

In response to a severe recession, the Fed more than doubled the monetary base and pushed short-term interest rates to near zero during 2009-2010. What happened in 2011?

Accepted Answer

A) The inflation rate soared to double-digit levels. 
B) Aggregate demand increased and the economy recovered rapidly. 
C) The large budget deficit of the earlier years was transformed into a budget surplus. 
D) The high rate of unemployment continued. 
A) The inflation rate soared to double-digit levels. 
B) Aggregate demand increased and the economy recovered rapidly. 
C) The large budget deficit of the earlier years was transformed into a budget surplus. 
D) The high rate of unemployment continued.

Question 3

If the long-run equilibrium of an economy is disrupted by an unexpected shift to a more expansionary monetary policy, the policy shift will

Accepted Answer

A) reduce aggregate demand and real output in the short run. 
B) lead to a higher rate of unemployment in the short run. 
C) stimulate real output in the short run, but in the long run, its primary impact will be on the general level of prices. 
D) lead to an increase in the general level of prices in the short run, but in the long run, its primary impact will be an expansion in real output. 
A) reduce aggregate demand and real output in the short run. 
B) lead to a higher rate of unemployment in the short run. 
C) stimulate real output in the short run, but in the long run, its primary impact will be on the general level of prices. 
D) lead to an increase in the general level of prices in the short run, but in the long run, its primary impact will be an expansion in real output.

Question 4

In the short run, an unanticipated increase in the money supply will exert its primary impact on

Accepted Answer

A) output and employment rather than on prices. 
B) prices; output and employment will be largely unaffected. 
C) interest rates; rising interest rates will stimulate additional saving. 
D) prices, if the economy operates at an output level below its long-run supply constraint. 
A) output and employment rather than on prices. 
B) prices; output and employment will be largely unaffected. 
C) interest rates; rising interest rates will stimulate additional saving. 
D) prices, if the economy operates at an output level below its long-run supply constraint.

Question 5

Other things constant, a decrease in nominal GDP will generally

Accepted Answer

A) increase the demand for money. 
B) decrease the demand for money. 
C) increase the nominal interest rate. 
D) decrease the money supply. 
A) increase the demand for money. 
B) decrease the demand for money. 
C) increase the nominal interest rate. 
D) decrease the money supply.

Question 6

Use the figure below to answer the following question(s).
Figure 14-2  
-If the Fed anticipates that the conditions illustrated by AD1 and SRAS in Figure 14-2 will be present in the near future, it should

Accepted Answer

A) shift to a more restrictive policy. 
B) shift to a more expansionary policy. 
C) request that Congress raise tax rates. 
D) refuse to buy any more U.S.securities. 
A) shift to a more restrictive policy. 
B) shift to a more expansionary policy. 
C) request that Congress raise tax rates. 
D) refuse to buy any more U.S.securities.

Question 7

As the Fed shifted to a highly expansionary monetary policy during the second half of 2008, why were banks reluctant to extend loans and make investments?

Accepted Answer

A) Banks did not have enough excess reserves to extend loans and make investments. 
B) The demand for loans was weak and the business climate was uncertain. 
C) The rate of return on short-term investments was high, so banks were reluctant to make long-term investments. 
D) The interest rate that the Fed pays on excess reserves was maintained at a high rate. 
A) Banks did not have enough excess reserves to extend loans and make investments. 
B) The demand for loans was weak and the business climate was uncertain. 
C) The rate of return on short-term investments was high, so banks were reluctant to make long-term investments. 
D) The interest rate that the Fed pays on excess reserves was maintained at a high rate.

Question 8

If the Fed wanted to institute a more expansionary monetary policy, which of the following would it be most likely to do?

Accepted Answer

A) reduce taxes 
B) increase government expenditures 
C) buy government bonds from the public 
D) raise the discount rate 
A) reduce taxes 
B) increase government expenditures 
C) buy government bonds from the public 
D) raise the discount rate

Question 9

Since the mid-1980s, the primary indicator of monetary policy has been

Accepted Answer

A) movement of short-term interest rates. 
B) the growth rate of real government expenditures. 
C) the growth of the M1 money supply. 
D) changes in the nominal (dollar) size of budget deficits or surpluses. 
A) movement of short-term interest rates. 
B) the growth rate of real government expenditures. 
C) the growth of the M1 money supply. 
D) changes in the nominal (dollar) size of budget deficits or surpluses.

Question 10

Continuous rapid growth of the money supply relative to the growth of real output will most likely lead to

Accepted Answer

A) persistent inflation. 
B) low nominal interest rates. 
C) high rates of real economic growth. 
D) low unemployment. 
A) persistent inflation. 
B) low nominal interest rates. 
C) high rates of real economic growth. 
D) low unemployment.

Question 11

When expansionary monetary policy pushes interest rates downward to a low level,

Accepted Answer

A) the velocity of money will decline, which will weaken the expansionary impact on demand and nominal GDP. 
B) the velocity of money will increase, which will strengthen the expansionary impact on demand and nominal GDP. 
C) the prices of stocks and other real assets can be expected to fall, which will weaken the impact of the expansionary policy on demand and nominal GDP. 
D) the earnings derived from savings accounts will increase, which will stimulate demand and nominal GDP. 
A) the velocity of money will decline, which will weaken the expansionary impact on demand and nominal GDP. 
B) the velocity of money will increase, which will strengthen the expansionary impact on demand and nominal GDP. 
C) the prices of stocks and other real assets can be expected to fall, which will weaken the impact of the expansionary policy on demand and nominal GDP. 
D) the earnings derived from savings accounts will increase, which will stimulate demand and nominal GDP.

Question 12

Which of the following was true of the actions of the Federal Reserve in response to the recession of 2008?

Accepted Answer

A) The Fed shifted toward a highly restrictive monetary policy in 2008, which was a major cause of the recession. 
B) The Fed continued to focus only on price stability and therefore it expanded the money supply at a slow and steady rate throughout the recession. 
C) The Fed introduced several new procedures for the conduct of monetary policy and substantially increased bank reserves as the recession worsened. 
D) The Fed continued to purchase and sell only U.S.Treasury bonds when conducting open market operations to control the money supply. 
A) The Fed shifted toward a highly restrictive monetary policy in 2008, which was a major cause of the recession. 
B) The Fed continued to focus only on price stability and therefore it expanded the money supply at a slow and steady rate throughout the recession. 
C) The Fed introduced several new procedures for the conduct of monetary policy and substantially increased bank reserves as the recession worsened. 
D) The Fed continued to purchase and sell only U.S.Treasury bonds when conducting open market operations to control the money supply.

Question 13

During the second half of 2008 the monetary base was growing far more rapidly than the money supply because

Accepted Answer

A) banks were using most of their excess reserves to extend loans and make investments. 
B) the Fed quickly shifted from expansionary monetary policy to restrictive monetary policy. 
C) banks were using their excess reserves to make foreign investments. 
D) banks were maintaining huge excess reserves. 
A) banks were using most of their excess reserves to extend loans and make investments. 
B) the Fed quickly shifted from expansionary monetary policy to restrictive monetary policy. 
C) banks were using their excess reserves to make foreign investments. 
D) banks were maintaining huge excess reserves.

Question 14

If a country was operating well below its long-run capacity (potential GDP), the initial impact of an unanticipated increase in the money supply would most likely result in an increase in

Accepted Answer

A) prices with little change in output. 
B) output with little change in prices. 
C) output and a decline in prices. 
D) prices and a decline in output. 
A) prices with little change in output. 
B) output with little change in prices. 
C) output and a decline in prices. 
D) prices and a decline in output.

Question 15

Since the mid-1980s, if the Fed wanted to shift to a more expansionary monetary policy, it would

Accepted Answer

A) expand the reserves available to the banking system, which would drive down short-term interest rates. 
B) reduce the reserves available to the banking system, which would drive down short-term interest rates. 
C) expand the reserves available to the banking system, which would drive up short-term interest rates. 
D) reduce the reserves available to the banking system, which would drive up short-term interest rates. 
A) expand the reserves available to the banking system, which would drive down short-term interest rates. 
B) reduce the reserves available to the banking system, which would drive down short-term interest rates. 
C) expand the reserves available to the banking system, which would drive up short-term interest rates. 
D) reduce the reserves available to the banking system, which would drive up short-term interest rates.

Question 16

If the Fed sells bonds and, thereby, unexpectedly shifts to a more restrictive monetary policy, in the short run, the primary impact of this policy will tend to

Accepted Answer

A) increase inflation. 
B) reduce unemployment. 
C) increase real output. 
D) increase real interest rates. 
A) increase inflation. 
B) reduce unemployment. 
C) increase real output. 
D) increase real interest rates.

Question 17

An unexpected shift to a more expansionary monetary policy will generally

Accepted Answer

A) stimulate aggregate demand and real output as soon as the policy is instituted. 
B) exert its primary impact on aggregate demand and real output 6 to 15 months in the future. 
C) cause inflation in the short run, but expand real output in the long run. 
D) increase real interest rates in the short run. 
A) stimulate aggregate demand and real output as soon as the policy is instituted. 
B) exert its primary impact on aggregate demand and real output 6 to 15 months in the future. 
C) cause inflation in the short run, but expand real output in the long run. 
D) increase real interest rates in the short run.

Question 18

The demand curve for money

Accepted Answer

A) shows the amount of money balances that individuals and businesses wish to hold at various levels of private investment. 
B) reflects the open market operations policy of the Federal Reserve. 
C) shows the amount of money that households and businesses wish to hold at various rates of interest. 
D) indicates the amount that consumers wish to borrow at a given interest rate. 
A) shows the amount of money balances that individuals and businesses wish to hold at various levels of private investment. 
B) reflects the open market operations policy of the Federal Reserve. 
C) shows the amount of money that households and businesses wish to hold at various rates of interest. 
D) indicates the amount that consumers wish to borrow at a given interest rate.

Question 19

Which of the following makes it more difficult for monetary policy makers to time policy changes correctly?

Accepted Answer

A) Monetary policy makers cannot act without congressional approval. 
B) The primary effects of the policy change will not be felt for 6 to 15 months into the future. 
C) The Board of Governors of the Federal Reserve System does not meet very often. 
D) Monetary policy affects only the general level of prices; it exerts no impact on real variables such as output and employment. 
A) Monetary policy makers cannot act without congressional approval. 
B) The primary effects of the policy change will not be felt for 6 to 15 months into the future. 
C) The Board of Governors of the Federal Reserve System does not meet very often. 
D) Monetary policy affects only the general level of prices; it exerts no impact on real variables such as output and employment.

Question 20

In the long run, changes in the money supply affect only the price level because

Accepted Answer

A) the aggregate demand curve is vertical. 
B) the aggregate demand curve is downward sloping. 
C) the long-run aggregate supply curve is vertical. 
D) the long-run aggregate supply curve is upward sloping. 
E) current real GDP is less than the economy's potential GDP. 
A) the aggregate demand curve is vertical. 
B) the aggregate demand curve is downward sloping. 
C) the long-run aggregate supply curve is vertical. 
D) the long-run aggregate supply curve is upward sloping. 
E) current real GDP is less than the economy's potential GDP.

Which of the following is true?

In response to a severe recession, the Fed more than doubled the monetary base and pushed short-term interest rates to near zero during 2009-2010. What happened in 2011?

If the long-run equilibrium of an economy is disrupted by an unexpected shift to a more expansionary monetary policy, the policy shift will

In the short run, an unanticipated increase in the money supply will exert its primary impact on

Other things constant, a decrease in nominal GDP will generally

Use the figure below to answer the following question(s). Figure 14-2 -If the Fed anticipates that the conditions illustrated by AD₁ and SRAS in Figure 14-2 will be present in the near future, it should

As the Fed shifted to a highly expansionary monetary policy during the second half of 2008, why were banks reluctant to extend loans and make investments?

If the Fed wanted to institute a more expansionary monetary policy, which of the following would it be most likely to do?

Since the mid-1980s, the primary indicator of monetary policy has been

Continuous rapid growth of the money supply relative to the growth of real output will most likely lead to

When expansionary monetary policy pushes interest rates downward to a low level,

Which of the following was true of the actions of the Federal Reserve in response to the recession of 2008?

During the second half of 2008 the monetary base was growing far more rapidly than the money supply because

If a country was operating well below its long-run capacity (potential GDP), the initial impact of an unanticipated increase in the money supply would most likely result in an increase in

Since the mid-1980s, if the Fed wanted to shift to a more expansionary monetary policy, it would

If the Fed sells bonds and, thereby, unexpectedly shifts to a more restrictive monetary policy, in the short run, the primary impact of this policy will tend to

An unexpected shift to a more expansionary monetary policy will generally

The demand curve for money

Which of the following makes it more difficult for monetary policy makers to time policy changes correctly?

In the long run, changes in the money supply affect only the price level because

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy, Incentives, and Secondary Effects

Money and the Banking System

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Filters

Exam 14: Modern Macroeconomics and Monetary Policy

Which of the following is true?

In response to a severe recession, the Fed more than doubled the monetary base and pushed short-term interest rates to near zero during 2009-2010. What happened in 2011?

If the long-run equilibrium of an economy is disrupted by an unexpected shift to a more expansionary monetary policy, the policy shift will

In the short run, an unanticipated increase in the money supply will exert its primary impact on

Other things constant, a decrease in nominal GDP will generally

Use the figure below to answer the following question(s). Figure 14-2 -If the Fed anticipates that the conditions illustrated by AD1 and SRAS in Figure 14-2 will be present in the near future, it should

As the Fed shifted to a highly expansionary monetary policy during the second half of 2008, why were banks reluctant to extend loans and make investments?

If the Fed wanted to institute a more expansionary monetary policy, which of the following would it be most likely to do?

Since the mid-1980s, the primary indicator of monetary policy has been

Continuous rapid growth of the money supply relative to the growth of real output will most likely lead to

When expansionary monetary policy pushes interest rates downward to a low level,

Which of the following was true of the actions of the Federal Reserve in response to the recession of 2008?

During the second half of 2008 the monetary base was growing far more rapidly than the money supply because

If a country was operating well below its long-run capacity (potential GDP), the initial impact of an unanticipated increase in the money supply would most likely result in an increase in

Since the mid-1980s, if the Fed wanted to shift to a more expansionary monetary policy, it would

If the Fed sells bonds and, thereby, unexpectedly shifts to a more restrictive monetary policy, in the short run, the primary impact of this policy will tend to

An unexpected shift to a more expansionary monetary policy will generally

The demand curve for money

Which of the following makes it more difficult for monetary policy makers to time policy changes correctly?

In the long run, changes in the money supply affect only the price level because

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy, Incentives, and Secondary Effects

Money and the Banking System

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Filters

Use the figure below to answer the following question(s). Figure 14-2 -If the Fed anticipates that the conditions illustrated by AD₁ and SRAS in Figure 14-2 will be present in the near future, it should