Question 1

One of the monetary policy goals of the Federal Reserve is price stability.

Accepted Answer

A) True 
 B)False

Question 2

The core personal consumption expenditures price index excludes

Accepted Answer

A)  food and energy prices. 
B)  food and housing prices. 
C)  energy and housing prices. 
D)  housing and health care prices. 
A)  food and energy prices. 
B)  food and housing prices. 
C)  energy and housing prices. 
D)  housing and health care prices.

Question 3

Expansionary monetary policy refers to the Fed's increasing the money supply and increasing interest rates to increase real GDP.

Accepted Answer

A) True 
 B)False

Question 4

An increase in the interest rate should ________ the demand for dollars and the value of the dollar, and net exports should ________.

Accepted Answer

A)  decrease; decrease 
B)  decrease; increase 
C)  increase; decrease 
D)  increase; increase 
E)  increase; not change 
A)  decrease; decrease 
B)  decrease; increase 
C)  increase; decrease 
D)  increase; increase 
E)  increase; not change

Question 5

The Fed can use contractionary monetary policy in an attempt to keep inflation from increasing.

Accepted Answer

A) True 
 B)False

Question 6

The smaller the fraction of an investment financed by borrowing

Accepted Answer

A)  the greater the potential return and potential loss on that investment. 
B)  the smaller the potential return and potential loss on that investment. 
C)  the greater the potential return and the smaller the potential loss on that investment. 
D)  the smaller the potential return and the greater the potential loss on that investment. 
A)  the greater the potential return and potential loss on that investment. 
B)  the smaller the potential return and potential loss on that investment. 
C)  the greater the potential return and the smaller the potential loss on that investment. 
D)  the smaller the potential return and the greater the potential loss on that investment.

Question 7

Use a graph to show the effects of an expansionary monetary policy moving an economy out of recession and to potential real GDP. Explain what happens to aggregate demand, real GDP, and the price level.

Accepted Answer

If the economy is in recession, it is cu

Question 8

If money demand is extremely sensitive to changes in the interest rate, the money demand curve becomes almost horizontal. If the Fed expands the money supply under these circumstances, then the interest rate will

Accepted Answer

A)  fall substantially and investment and consumer spending will fall substantially. 
B)  rise substantially and investment and consumer spending will rise substantially. 
C)  fall substantially and investment and consumer spending will change very little. 
D)  change very little and investment and consumer spending will change very little. 
A)  fall substantially and investment and consumer spending will fall substantially. 
B)  rise substantially and investment and consumer spending will rise substantially. 
C)  fall substantially and investment and consumer spending will change very little. 
D)  change very little and investment and consumer spending will change very little.

Question 9

When the Federal Reserve increases the money supply, people spend more because interest rates fall.

Accepted Answer

A) True 
 B)False

Question 10

The Federal Reserve could target both the money supply and the interest rate at the same time if it controlled money demand along with money supply.

Accepted Answer

A) True 
 B)False

Question 11

If the Fed orders a contractionary monetary policy, describe what will happen to the following variables relative to what would have happened without the policy:
a. The money supply
b. Interest rates
c. Investment
d. Consumption
e. Net Exports
f. The aggregate demand curve
g. Real GDP
h. The price level

Accepted Answer

a. The money supply decreases
b. Interes

Question 12

When the Federal Reserve increases the money supply, at the previous equilibrium interest rate households and firms will now have

Accepted Answer

A)  more money than they want to hold. 
B)  less money than they want to hold. 
C)  the amount of money that they want to hold. 
D)  to sell Treasury bills. 
A)  more money than they want to hold. 
B)  less money than they want to hold. 
C)  the amount of money that they want to hold. 
D)  to sell Treasury bills.

Question 13

The interest rate the Fed pays banks on their reserve holdings

Accepted Answer

A)  guarantees a specific federal funds rate. 
B)  sets a ceiling for the federal funds rate. 
C)  sets a floor for the federal funds rate. 
D)  has no impact on the federal funds rate. 
A)  guarantees a specific federal funds rate. 
B)  sets a ceiling for the federal funds rate. 
C)  sets a floor for the federal funds rate. 
D)  has no impact on the federal funds rate.

Question 14

Table 26-7
  
-Refer to Table 26-7. Suppose the table above illustrates the values of real and potential GDP and the price level if the Fed did not vote to change their current policy to be more contractionary or expansionary. Suppose that the Fed used an appropriate policy and was successful in keeping real GDP at potential in 2019. Draw an aggregate demand and supply curve to illustrate your answer.

Accepted Answer

@#IMG-DLM& The economy starts in equilibrium in 20

Question 15

Using the money demand and money supply model, an open market sale of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to

Accepted Answer

A)  increase. 
B)  decrease. 
C)  not change. 
D)  increase, then decrease. 
A)  increase. 
B)  decrease. 
C)  not change. 
D)  increase, then decrease.

Question 16

An advantage of the personal consumption expenditures price index (PCE) over the Consumer Price Index (CPI) as a measure of inflation is that the PCE

Accepted Answer

A)  includes the prices of more consumer goods and services. 
B)  includes the prices of consumer goods, but not consumer services. 
C)  includes the prices of consumer services, but not consumer goods. 
D)  is a fixed market-basket price index that does not allow the mix of products to change each year. 
A)  includes the prices of more consumer goods and services. 
B)  includes the prices of consumer goods, but not consumer services. 
C)  includes the prices of consumer services, but not consumer goods. 
D)  is a fixed market-basket price index that does not allow the mix of products to change each year.

Question 17

Inflation targeting refers to conducting ________ policy so as to commit the central bank to achieving a ________.

Accepted Answer

A)  fiscal; publicly announced level of inflation 
B)  fiscal; zero inflation rate 
C)  monetary; publicly announced level of inflation 
D)  monetary; zero inflation rate 
A)  fiscal; publicly announced level of inflation 
B)  fiscal; zero inflation rate 
C)  monetary; publicly announced level of inflation 
D)  monetary; zero inflation rate

Question 18

Using the money demand and money supply model, show and explain why the Federal Reserve cannot achieve a target for both the money supply and an interest rate.

Accepted Answer

The Fed does not control money demand, s

Question 19

If the amount you owe on your house is less than the price of the house, you have

Accepted Answer

A)  positive equity in your house. 
B)  an adjustable-rate mortgage on your house. 
C)  negative equity in your house. 
D)  a reverse mortgage on your house. 
A)  positive equity in your house. 
B)  an adjustable-rate mortgage on your house. 
C)  negative equity in your house. 
D)  a reverse mortgage on your house.

Question 20

The Federal Reserve's two main ________ are the money supply and the interest rate.

Accepted Answer

A)  monetary policy targets 
B)  policy tools 
C)  fiscal policy targets 
D)  fiscal tools 
A)  monetary policy targets 
B)  policy tools 
C)  fiscal policy targets 
D)  fiscal tools

Exam 26: Monetary Policy

One of the monetary policy goals of the Federal Reserve is price stability.

The core personal consumption expenditures price index excludes

Expansionary monetary policy refers to the Fed's increasing the money supply and increasing interest rates to increase real GDP.

An increase in the interest rate should ________ the demand for dollars and the value of the dollar, and net exports should ________.

The Fed can use contractionary monetary policy in an attempt to keep inflation from increasing.

The smaller the fraction of an investment financed by borrowing

Use a graph to show the effects of an expansionary monetary policy moving an economy out of recession and to potential real GDP. Explain what happens to aggregate demand, real GDP, and the price level.

If money demand is extremely sensitive to changes in the interest rate, the money demand curve becomes almost horizontal. If the Fed expands the money supply under these circumstances, then the interest rate will

When the Federal Reserve increases the money supply, people spend more because interest rates fall.

The Federal Reserve could target both the money supply and the interest rate at the same time if it controlled money demand along with money supply.

When the Federal Reserve increases the money supply, at the previous equilibrium interest rate households and firms will now have

The interest rate the Fed pays banks on their reserve holdings

Using the money demand and money supply model, an open market sale of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to

An advantage of the personal consumption expenditures price index (PCE) over the Consumer Price Index (CPI) as a measure of inflation is that the PCE

Inflation targeting refers to conducting ________ policy so as to commit the central bank to achieving a ________.

Using the money demand and money supply model, show and explain why the Federal Reserve cannot achieve a target for both the money supply and an interest rate.

If the amount you owe on your house is less than the price of the house, you have

The Federal Reserve's two main ________ are the money supply and 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

An increase in the interest rate should the demand for dollars and the value of the dollar, and net exports should .

Inflation targeting refers to conducting policy so as to commit the central bank to achieving a .