Question 1

The Federal Reserve responded to the 2008 financial crisis in several ways. Which of the following is one of the ways the Fed responded?

Accepted Answer

A)  The Fed banned investment banks from obtaining discount loans. 
B)  The Fed lent investment banks Treasury securities in exchange for mortgage-backed securities. 
C)  The Fed lowered the required reserve ratio on demand deposit accounts in order to increase the amount of bank reserves. 
D)  The Fed helped Citibank to acquire General Motors and Chrysler. 
A)  The Fed banned investment banks from obtaining discount loans. 
B)  The Fed lent investment banks Treasury securities in exchange for mortgage-backed securities. 
C)  The Fed lowered the required reserve ratio on demand deposit accounts in order to increase the amount of bank reserves. 
D)  The Fed helped Citibank to acquire General Motors and Chrysler. B

Question 2

The monetary policy target the Federal Reserve focuses primarily on today is

Accepted Answer

A)  the unemployment rate. 
B)  M1. 
C)  the inflation rate. 
D)  the interest rate. 
E)  M2. 
A)  the unemployment rate. 
B)  M1. 
C)  the inflation rate. 
D)  the interest rate. 
E)  M2. D

Question 3

What problems can high inflation rates cause for the economy?

Accepted Answer

The problems that inflation causes for the economy include the loss of purchasing power of money, menu costs, and an unintended redistribution of income.

Question 4

Using the Taylor rule, if the current inflation rate equals the target inflation rate and real GDP is greater than potential GDP, then the federal funds target rate ________ the sum of the current inflation rate plus the real equilibrium federal funds rate.

Accepted Answer

A)  will be greater than 
B)  will be less than 
C)  will be the same as 
D)  may be greater than or less than 
A)  will be greater than 
B)  will be less than 
C)  will be the same as 
D)  may be greater than or less than

Question 5

When housing prices ________, as they did beginning in 2006 following the housing market bubble, consumption spending on furniture, appliances, and home improvements decline as many households find it ________ to borrow against the value of their homes.

Accepted Answer

A)  rise; easier 
B)  rise; harder 
C)  fall; easier 
D)  fall; harder 
A)  rise; easier 
B)  rise; harder 
C)  fall; easier 
D)  fall; harder

Question 6

A monetary growth rule means that

Accepted Answer

A)  the Fed will lower interest rates if it thinks a recession is on the horizon. 
B)  the Fed will raise interest rates if it thinks the economy is growing faster than potential. 
C)  the money supply should grow at a constant rate. 
D)  the money supply should grow in response to economic conditions. 
A)  the Fed will lower interest rates if it thinks a recession is on the horizon. 
B)  the Fed will raise interest rates if it thinks the economy is growing faster than potential. 
C)  the money supply should grow at a constant rate. 
D)  the money supply should grow in response to economic conditions.

Question 7

Suppose that the economy is producing below potential GDP and the Fed implements the correct change in monetary policy, but not until after the economy has passed the trough of the recession. Then

Accepted Answer

A)  the Fed's contractionary policy may result in too large of a decrease in GDP. 
B)  the Fed's contractionary policy may result in too small of a decrease in GDP. 
C)  the Fed's expansionary policy may result in too small of a decrease in GDP. 
D)  the Fed's expansionary policy may result in too large of an increase in GDP. 
A)  the Fed's contractionary policy may result in too large of a decrease in GDP. 
B)  the Fed's contractionary policy may result in too small of a decrease in GDP. 
C)  the Fed's expansionary policy may result in too small of a decrease in GDP. 
D)  the Fed's expansionary policy may result in too large of an increase in GDP.

Question 8

In reality, the Fed is unable to use monetary policy to keep real GDP exactly at its potential level.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following are goals of monetary policy?

Accepted Answer

A)  maximizing the value of the dollar relative to other currencies, economic growth, and high employment 
B)  price stability, maximizing the value of the dollar relative to other currencies, and high employment 
C)  price stability, economic growth, and high employment 
D)  price stability, economic growth, and maximizing the value of the dollar relative to other currencies 
A)  maximizing the value of the dollar relative to other currencies, economic growth, and high employment 
B)  price stability, maximizing the value of the dollar relative to other currencies, and high employment 
C)  price stability, economic growth, and high employment 
D)  price stability, economic growth, and maximizing the value of the dollar relative to other currencies

Question 10

The interest rate that banks charge other banks for overnight loans is the

Accepted Answer

A)  prime rate. 
B)  discount rate. 
C)  federal funds rate. 
D)  Treasury bill rate. 
A)  prime rate. 
B)  discount rate. 
C)  federal funds rate. 
D)  Treasury bill rate.

Question 11

An increase in interest rates

Accepted Answer

A)  decreases investment spending on machinery, equipment, and factories, but increases consumption spending on durable goods and net exports. 
B)  decreases investment spending on machinery, equipment, and factories, and consumption spending on durable goods, but increases net exports. 
C)  decreases investment spending on machinery, equipment, and factories, consumption spending on durable goods, and net exports. 
D)  increases investment spending on machinery, equipment, and factories, consumption spending on durable goods, and net exports. 
A)  decreases investment spending on machinery, equipment, and factories, but increases consumption spending on durable goods and net exports. 
B)  decreases investment spending on machinery, equipment, and factories, and consumption spending on durable goods, but increases net exports. 
C)  decreases investment spending on machinery, equipment, and factories, consumption spending on durable goods, and net exports. 
D)  increases investment spending on machinery, equipment, and factories, consumption spending on durable goods, and net exports.

Question 12

Figure 26-15  
-Refer to Figure 26-15. In the figure above, suppose the economy in Year 1 is at point A and is expected in Year 2 to be at point B. Which of the following policies could the Federal Reserve use to move the economy to point C?

Accepted Answer

A)  decrease income taxes 
B)  decrease the required-reserve ratio 
C)  buy Treasury bills 
D)  sell Treasury bills 
A)  decrease income taxes 
B)  decrease the required-reserve ratio 
C)  buy Treasury bills 
D)  sell Treasury bills

Question 13

The Federal Reserve cannot target both the money supply and the interest rate because it does not control

Accepted Answer

A)  bank reserves. 
B)  money demand. 
C)  the discount rate. 
D)  open market operations. 
A)  bank reserves. 
B)  money demand. 
C)  the discount rate. 
D)  open market operations.

Question 14

When calculating GDP, the Bureau of Economic Analysis revises its quarterly data

Accepted Answer

A)  a total of one time. 
B)  a total of two times. 
C)  a total of three times. 
D)  many times over the next several years. 
A)  a total of one time. 
B)  a total of two times. 
C)  a total of three times. 
D)  many times over the next several years.

Question 15

Since World War II, the Federal Reserve has not been involved in carrying out monetary policy.

Accepted Answer

A) True 
 B)False

Question 16

The Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association were established by Congress in order to regulate banks that buy and sell mortgage-backed securities.

Accepted Answer

A) True 
 B)False

Question 17

Inflation targeting has typically been accompanied by lower inflation.

Accepted Answer

A) True 
 B)False

Question 18

In the countries that have adopted inflation targeting, the inflation rate has typically

Accepted Answer

A)  increased. 
B)  decreased. 
C)  decreased to zero. 
D)  not changed. 
A)  increased. 
B)  decreased. 
C)  decreased to zero. 
D)  not changed.

Question 19

The Fed can directly lower the inflation rate.

Accepted Answer

A) True 
 B)False

Question 20

An increase in the interest rate

Accepted Answer

A)  decreases the opportunity cost of holding money. 
B)  increases the opportunity cost of holding money. 
C)  decreases the percentage yield of holding money. 
D)  increases the percentage yield of holding money. 
A)  decreases the opportunity cost of holding money. 
B)  increases the opportunity cost of holding money. 
C)  decreases the percentage yield of holding money. 
D)  increases the percentage yield of holding money.

Exam 26: Monetary Policy

The Federal Reserve responded to the 2008 financial crisis in several ways. Which of the following is one of the ways the Fed responded?

The monetary policy target the Federal Reserve focuses primarily on today is

What problems can high inflation rates cause for the economy?

Using the Taylor rule, if the current inflation rate equals the target inflation rate and real GDP is greater than potential GDP, then the federal funds target rate ________ the sum of the current inflation rate plus the real equilibrium federal funds rate.

When housing prices ________, as they did beginning in 2006 following the housing market bubble, consumption spending on furniture, appliances, and home improvements decline as many households find it ________ to borrow against the value of their homes.

A monetary growth rule means that

Suppose that the economy is producing below potential GDP and the Fed implements the correct change in monetary policy, but not until after the economy has passed the trough of the recession. Then

In reality, the Fed is unable to use monetary policy to keep real GDP exactly at its potential level.

Which of the following are goals of monetary policy?

The interest rate that banks charge other banks for overnight loans is the

An increase in interest rates

Figure 26-15 -Refer to Figure 26-15. In the figure above, suppose the economy in Year 1 is at point A and is expected in Year 2 to be at point B. Which of the following policies could the Federal Reserve use to move the economy to point C?

The Federal Reserve cannot target both the money supply and the interest rate because it does not control

When calculating GDP, the Bureau of Economic Analysis revises its quarterly data

Since World War II, the Federal Reserve has not been involved in carrying out monetary policy.

The Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association were established by Congress in order to regulate banks that buy and sell mortgage-backed securities.

Inflation targeting has typically been accompanied by lower inflation.

In the countries that have adopted inflation targeting, the inflation rate has typically

The Fed can directly lower the inflation rate.

An increase in the interest rate

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Federal Reserve System

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

When housing prices , as they did beginning in 2006 following the housing market bubble, consumption spending on furniture, appliances, and home improvements decline as many households find it to borrow against the value of their homes.