Question 1

Contractionary monetary policy causes

Accepted Answer

A)  aggregate demand to rise and the price level to rise. 
B)  aggregate demand to fall and the price level to fall. 
C)  aggregate demand to rise and the price level to fall. 
D)  aggregate demand to fall and the price level to rise. 
A)  aggregate demand to rise and the price level to rise. 
B)  aggregate demand to fall and the price level to fall. 
C)  aggregate demand to rise and the price level to fall. 
D)  aggregate demand to fall and the price level to rise.

Question 2

Figure 26-8  
-Refer to Figure 26-8. In the figure above, if the economy is at point A, the appropriate monetary policy by the Federal Reserve would be to

Accepted Answer

A)  lower interest rates. 
B)  raise interest rates. 
C)  lower income taxes. 
D)  raise income taxes. 
A)  lower interest rates. 
B)  raise interest rates. 
C)  lower income taxes. 
D)  raise income taxes.

Question 3

Which of the following explains why mortgages weren't considered securities prior to 1970?

Accepted Answer

A)  The Federal Reserve Act of 1913 prohibited mortgages from being considered securities. An amendment to the Act was approved in 1970 that allowed mortgages to be considered securities. 
B)  Until 1970, the average annual increase in housing prices did not allow the buying and selling of mortgages to be profitable. There has been a significant annual increase in housing prices and mortgage values since 1970. 
C)  Congress passed a law in 1970 stipulating that mortgages could be classified as securities. 
D)  Prior to 1970, mortgages were rarely resold in the secondary market. 
A)  The Federal Reserve Act of 1913 prohibited mortgages from being considered securities. An amendment to the Act was approved in 1970 that allowed mortgages to be considered securities. 
B)  Until 1970, the average annual increase in housing prices did not allow the buying and selling of mortgages to be profitable. There has been a significant annual increase in housing prices and mortgage values since 1970. 
C)  Congress passed a law in 1970 stipulating that mortgages could be classified as securities. 
D)  Prior to 1970, mortgages were rarely resold in the secondary market.

Question 4

Contractionary monetary policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.

Accepted Answer

A)  higher; higher 
B)  higher; lower 
C)  lower; higher 
D)  lower; lower 
A)  higher; higher 
B)  higher; lower 
C)  lower; higher 
D)  lower; lower

Question 5

Inflation rates during the years 1979-1981 were the highest the United States has ever experienced during peacetime.

Accepted Answer

A) True 
 B)False

Question 6

Figure 26-6  
-Refer to Figure 26-6. In the figure above, if the economy is at point A, the appropriate monetary policy by the Federal Reserve would be to

Accepted Answer

A)  lower interest rates. 
B)  raise interest rates. 
C)  lower income taxes. 
D)  raise income taxes. 
A)  lower interest rates. 
B)  raise interest rates. 
C)  lower income taxes. 
D)  raise income taxes.

Question 7

Table 26-8
  
-Refer to Table 26-8. The hypothetical information in the table shows what the values for real GDP and the price level would have been in 2019 if the Federal Reserve did not use monetary policy:
a. If the Fed wanted to keep real GDP at its potential level in 2019, should it have used an expansionary policy or a contractionary policy? Should the trading desk have bought T-bills or sold them?
b. Suppose the Fed's policy was successful in keeping real GDP at its potential level in 2019. State whether each of the following would be higher or lower than if the Fed had taken no action:
(i) Real GDP
(ii) Full-employment real GDP
(iii) The inflation rate
(iv) The unemployment rate
c. Draw an aggregate demand and aggregate supply graph to illustrate your answer. Be sure that your graph contains LRAS curves for 2018 and 2019; SRAS curves 2018 and 2019; AD curve for 2018 and 2019, with and without monetary policy actions; and equilibrium real GDP and the price level in 2019 with and without policy.

Accepted Answer

a. The Fed should have used contractiona

Question 8

Firms that participate in regular open market transactions with ________ are called primary dealers.

Accepted Answer

A)  commercial banks 
B)  Treasury banks 
C)  the Federal Reserve 
D)  mortgage lenders 
A)  commercial banks 
B)  Treasury banks 
C)  the Federal Reserve 
D)  mortgage lenders

Question 9

The ability of the Federal Reserve to use monetary policy to affect economic variables such as real GDP ultimately depends upon its ability to affect

Accepted Answer

A)  tax rates. 
B)  real interest rates. 
C)  nominal interest rates. 
D)  foreign exchange rates. 
A)  tax rates. 
B)  real interest rates. 
C)  nominal interest rates. 
D)  foreign exchange rates.

Question 10

In March 2008, the Fed announced that primary dealers would be eligible to receive discount loans.

Accepted Answer

A) True 
 B)False

Question 11

Expansionary monetary policy enacted during a recession will cause the inflation rate to increase.

Accepted Answer

A) True 
 B)False

Question 12

With the Troubled Asset Relief Program (TARP), the Treasury provided funds to banks in exchange for stock.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A)  declined; easier 
B)  declined; harder 
C)  increased; easier 
D)  increased; harder 
A)  declined; easier 
B)  declined; harder 
C)  increased; easier 
D)  increased; harder

Question 14

Figure 26-11  
-Refer to Figure 26-11. In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, the Federal Reserve would most likely

Accepted Answer

A)  increase interest rates. 
B)  decrease interest rates. 
C)  not change interest rates. 
D)  decrease the inflation rate. 
A)  increase interest rates. 
B)  decrease interest rates. 
C)  not change interest rates. 
D)  decrease the inflation rate.

Question 15

In October 2008, Congress passed the ________, under which the Treasury provided funds to banks in exchange for stock.

Accepted Answer

A)  Bank Rescue Alliance Treaty (BRAT) 
B)  Mortgage Transfer Agency (MT
A)  
C)  Troubled Asset Relief Program (TARP) 
D)  Financial Assurance Association (FA
A)  
A)  Bank Rescue Alliance Treaty (BRAT) 
B)  Mortgage Transfer Agency (MT
A)  
C)  Troubled Asset Relief Program (TARP) 
D)  Financial Assurance Association (FA
A)

Question 16

In the Taylor rule, does the target for the federal funds rate respond differently for a recession caused by a decrease in aggregate demand and for a recession caused by a decrease in short-run aggregate supply? Explain whether there is or is not a difference in how the target for the federal funds rate changes.

Accepted Answer

The target for the federal funds rate re

Question 17

An increase in the price level causes

Accepted Answer

A)  the money demand curve to shift to the left. 
B)  the money demand curve to shift to the right. 
C)  a movement up along the money demand curve. 
D)  a movement down along the money demand curve. 
A)  the money demand curve to shift to the left. 
B)  the money demand curve to shift to the right. 
C)  a movement up along the money demand curve. 
D)  a movement down along the money demand curve.

Question 18

If the Federal Reserve targets the interest rate and the money demand curve shifts to the left, then the Fed

Accepted Answer

A)  cannot maintain the interest rate target. 
B)  can maintain the interest rate target, but at a lower quantity of the money supply. 
C)  can maintain the interest rate target, but at a higher quantity of the money supply. 
D)  can maintain the interest rate target with no change in the money supply. 
A)  cannot maintain the interest rate target. 
B)  can maintain the interest rate target, but at a lower quantity of the money supply. 
C)  can maintain the interest rate target, but at a higher quantity of the money supply. 
D)  can maintain the interest rate target with no change in the money supply.

Question 19

Expansionary monetary policy refers to the ________ to increase real GDP.

Accepted Answer

A)  government's increasing spending and lowering taxes 
B)  government's decreasing spending and raising taxes 
C)  Federal Reserve's increasing the money supply and decreasing interest rates 
D)  Federal Reserve's decreasing the money supply and increasing interest rates 
A)  government's increasing spending and lowering taxes 
B)  government's decreasing spending and raising taxes 
C)  Federal Reserve's increasing the money supply and decreasing interest rates 
D)  Federal Reserve's decreasing the money supply and increasing interest rates

Question 20

The money market model is concerned with ________ and the loanable funds market model is concerned with ________.

Accepted Answer

A)  short-term real interest rates; long-term nominal interest rates 
B)  short-term nominal interest rates; long-term nominal interest rates 
C)  short-term real interest rates; long-term real interest rates 
D)  short-term nominal interest rates; long-term real interest rates 
A)  short-term real interest rates; long-term nominal interest rates 
B)  short-term nominal interest rates; long-term nominal interest rates 
C)  short-term real interest rates; long-term real interest rates 
D)  short-term nominal interest rates; long-term real interest rates

Exam 26: Monetary Policy

Contractionary monetary policy causes

Figure 26-8 -Refer to Figure 26-8. In the figure above, if the economy is at point A, the appropriate monetary policy by the Federal Reserve would be to

Which of the following explains why mortgages weren't considered securities prior to 1970?

Contractionary monetary policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.

Inflation rates during the years 1979-1981 were the highest the United States has ever experienced during peacetime.

Figure 26-6 -Refer to Figure 26-6. In the figure above, if the economy is at point A, the appropriate monetary policy by the Federal Reserve would be to

Firms that participate in regular open market transactions with ________ are called primary dealers.

The ability of the Federal Reserve to use monetary policy to affect economic variables such as real GDP ultimately depends upon its ability to affect

In March 2008, the Fed announced that primary dealers would be eligible to receive discount loans.

Expansionary monetary policy enacted during a recession will cause the inflation rate to increase.

With the Troubled Asset Relief Program (TARP), the Treasury provided funds to banks in exchange for stock.

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

Figure 26-11 -Refer to Figure 26-11. In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, the Federal Reserve would most likely

In October 2008, Congress passed the ________, under which the Treasury provided funds to banks in exchange for stock.

An increase in the price level causes

If the Federal Reserve targets the interest rate and the money demand curve shifts to the left, then the Fed

Expansionary monetary policy refers to the ________ to increase real GDP.

The money market model is concerned with ________ and the loanable funds market model is concerned with ________.

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

Contractionary monetary policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be and real GDP to be .

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

The money market model is concerned with and the loanable funds market model is concerned with .