Question 1

Congress sets the target federal funds rate, but it is the Fed's responsibility to achieve the target rate through purchases and sales of reserves.

Accepted Answer

A) True 
 B)False

Question 2

A sale of Treasury bills by the Federal Reserve _____ interest rates and _____ the money supply.

Accepted Answer

A)  raises; increases 
B)  raises; reduces 
C)  lowers; reduces 
D)  lowers; increases 
A)  raises; increases 
B)  raises; reduces 
C)  lowers; reduces 
D)  lowers; increases

Question 3

Scenario: Money and Interest Rates Banks decide to do away with fees charged when other banks' customers use the bank's own ATM. If the money supply remains constant, interest rates will likely:

Accepted Answer

A)  decrease. 
B)  increase. 
C)  remain the same. 
D)  increase or decrease, depending upon what maximizes profits for the largest commercial banks. 
A)  decrease. 
B)  increase. 
C)  remain the same. 
D)  increase or decrease, depending upon what maximizes profits for the largest commercial banks.

Question 4

In the long run, the interest rate is determined in the _____ market.

Accepted Answer

A)  stock 
B)  money 
C)  loanable funds 
D)  commodity 
A)  stock 
B)  money 
C)  loanable funds 
D)  commodity

Question 5

If the actual interest rate is below the target rate, the Fed should decrease the money supply.

Accepted Answer

A) True 
 B)False

Question 6

Expansionary monetary policy decreases interest rates and increases aggregate demand.

Accepted Answer

A) True 
 B)False

Question 7

Expansionary monetary policy may increase consumer spending.

Accepted Answer

A) True 
 B)False

Question 8

Use the following to answer questions:
Figure: Monetary Policy and the AD-SRAS Model  
-(Figure: Monetary Policy and the AD-SRAS Model) Refer to Figure: Monetary Policy and the AD-SRAS Model. An increase in the money supply is most likely to cause a shift:

Accepted Answer

A)  from SRAS to SRAS'. 
B)  from AD to AD'. 
C)  from SRAS' to SRAS. 
D)  from AD' to AD. 
A)  from SRAS to SRAS'. 
B)  from AD to AD'. 
C)  from SRAS' to SRAS. 
D)  from AD' to AD.

Question 9

When actual output is above potential output, over time:

Accepted Answer

A)  nominal wages will increase, and the short-run supply curve will shift to the right. 
B)  nominal wages will increase, and the short-run supply curve will shift to the left. 
C)  the aggregate demand curve will shift to the right. 
D)  the short-run aggregate supply curve will shift to the right. 
A)  nominal wages will increase, and the short-run supply curve will shift to the right. 
B)  nominal wages will increase, and the short-run supply curve will shift to the left. 
C)  the aggregate demand curve will shift to the right. 
D)  the short-run aggregate supply curve will shift to the right.

Question 10

An increase in the supply of money with no change in demand will lead to a(n) _____ in the equilibrium quantity of money and a _____ in the equilibrium interest rate.

Accepted Answer

A)  increase; rise 
B)  increase; fall 
C)  decrease; rise 
D)  decrease; fall 
A)  increase; rise 
B)  increase; fall 
C)  decrease; rise 
D)  decrease; fall

Question 11

Expansionary monetary policy does NOT increase:

Accepted Answer

A)  aggregate demand. 
B)  GDP and the price level. 
C)  consumption spending. 
D)  interest rates. 
A)  aggregate demand. 
B)  GDP and the price level. 
C)  consumption spending. 
D)  interest rates.

Question 12

If the economy is at potential output and the Fed increases the money supply, in the short run real GDP will likely:

Accepted Answer

A)  fluctuate randomly. 
B)  remain the same. 
C)  decrease. 
D)  increase. 
A)  fluctuate randomly. 
B)  remain the same. 
C)  decrease. 
D)  increase.

Question 13

Changes in the money supply have no long-run effects on the interest rate because when the price level changes, the demand for money changes to offset the short-run changes in the money supply.

Accepted Answer

A) True 
 B)False

Question 14

Contractionary monetary policy causes _____ in the price level in the short run and _____ in the price level in the long run.

Accepted Answer

A)  no change; a decrease 
B)  a decrease; a decrease 
C)  a decrease; no change 
D)  no change; no change 
A)  no change; a decrease 
B)  a decrease; a decrease 
C)  a decrease; no change 
D)  no change; no change

Question 15

If the quantity of money demanded is $300 billion and the quantity of money supplied is $200 billion, then the interest rate will:

Accepted Answer

A)  fall. 
B)  rise. 
C)  remain unchanged. 
D)  be in equilibrium. 
A)  fall. 
B)  rise. 
C)  remain unchanged. 
D)  be in equilibrium.

Question 16

Suppose that the Federal Reserve sells Treasury bills. We can expect this transaction to _____ the money supply, _____ Treasury bill prices, and _____ interest rates.

Accepted Answer

A)  reduce; increase; lower 
B)  increase; lower; lower 
C)  increase; raise; lower 
D)  reduce; reduce; raise 
A)  reduce; increase; lower 
B)  increase; lower; lower 
C)  increase; raise; lower 
D)  reduce; reduce; raise

Question 17

Use the following to answer questions:
Figure: The Money Supply and Aggregate Demand  
-(Figure: The Money Supply and Aggregate Demand) Refer to Figure: The Money Supply and Aggregate Demand. If the Federal Reserve intended to encourage investment and expand the economy, it would _____ Treasury bills, _____ the money supply, and _____ interest rates. This is shown in panel _____.

Accepted Answer

A)  buy; increase; lower; (a) 
B)  sell; increase; lower; (b) 
C)  buy; decrease; lower; (a) 
D)  buy; increase; raise; (a) 
A)  buy; increase; lower; (a) 
B)  sell; increase; lower; (b) 
C)  buy; decrease; lower; (a) 
D)  buy; increase; raise; (a)

Question 18

Between 1970 and the present, research comparing similar wealthy countries found that increases in the money supply:

Accepted Answer

A)  and increases in the price level were roughly proportional. 
B)  had little effect on prices. 
C)  caused large increases in real GDP. 
D)  caused large decreases in real GDP. 
A)  and increases in the price level were roughly proportional. 
B)  had little effect on prices. 
C)  caused large increases in real GDP. 
D)  caused large decreases in real GDP.

Question 19

On average, short-term interest rates are higher than long-term rates to compensate for higher risk in the short term.

Accepted Answer

A) True 
 B)False

Question 20

The amount of money that people demand is:

Accepted Answer

A)  positively related to the interest rate. 
B)  independent the interest rate. 
C)  negatively related to the interest rate. 
D)  positively or negatively related to the interest rate depending on the state of the economy. 
A)  positively related to the interest rate. 
B)  independent the interest rate. 
C)  negatively related to the interest rate. 
D)  positively or negatively related to the interest rate depending on the state of the economy.

Congress sets the target federal funds rate, but it is the Fed's responsibility to achieve the target rate through purchases and sales of reserves.

A sale of Treasury bills by the Federal Reserve _ interest rates and _ the money supply.

Scenario: Money and Interest Rates Banks decide to do away with fees charged when other banks' customers use the bank's own ATM. If the money supply remains constant, interest rates will likely:

In the long run, the interest rate is determined in the _____ market.

If the actual interest rate is below the target rate, the Fed should decrease the money supply.

Expansionary monetary policy decreases interest rates and increases aggregate demand.

Expansionary monetary policy may increase consumer spending.

Use the following to answer questions: Figure: Monetary Policy and the AD-SRAS Model -(Figure: Monetary Policy and the AD-SRAS Model) Refer to Figure: Monetary Policy and the AD-SRAS Model. An increase in the money supply is most likely to cause a shift:

When actual output is above potential output, over time:

An increase in the supply of money with no change in demand will lead to a(n) _ in the equilibrium quantity of money and a _ in the equilibrium interest rate.

Expansionary monetary policy does NOT increase:

If the economy is at potential output and the Fed increases the money supply, in the short run real GDP will likely:

Changes in the money supply have no long-run effects on the interest rate because when the price level changes, the demand for money changes to offset the short-run changes in the money supply.

Contractionary monetary policy causes _ in the price level in the short run and _ in the price level in the long run.

If the quantity of money demanded is $300 billion and the quantity of money supplied is $200 billion, then the interest rate will:

Suppose that the Federal Reserve sells Treasury bills. We can expect this transaction to ___ the money supply, _ Treasury bill prices, and ___ interest rates.

Between 1970 and the present, research comparing similar wealthy countries found that increases in the money supply:

On average, short-term interest rates are higher than long-term rates to compensate for higher risk in the short term.

The amount of money that people demand is:

First Principles

Economic Models: Trade-Offs and Trade

Supply and Demand

Price Controls and Quotas: Meddling With Markets

International Trade

Macroeconomics: the Big Picture

GDP and the CPI: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending, and the Financial Syst

Income and Expenditure

Aggregate Demand and Aggregate Supply

Fiscal Policy

Money, Banking, and the Federal Reserve System

Inflation, Disinflation, and Deflation

Macroeconomics: Events and Ideas

International Macroeconomics

Filters

Exam 15: Monetary Policy

Congress sets the target federal funds rate, but it is the Fed's responsibility to achieve the target rate through purchases and sales of reserves.

A sale of Treasury bills by the Federal Reserve _____ interest rates and _____ the money supply.

Scenario: Money and Interest Rates Banks decide to do away with fees charged when other banks' customers use the bank's own ATM. If the money supply remains constant, interest rates will likely:

In the long run, the interest rate is determined in the _____ market.

If the actual interest rate is below the target rate, the Fed should decrease the money supply.

Expansionary monetary policy decreases interest rates and increases aggregate demand.

Expansionary monetary policy may increase consumer spending.

Use the following to answer questions: Figure: Monetary Policy and the AD-SRAS Model -(Figure: Monetary Policy and the AD-SRAS Model) Refer to Figure: Monetary Policy and the AD-SRAS Model. An increase in the money supply is most likely to cause a shift:

When actual output is above potential output, over time:

An increase in the supply of money with no change in demand will lead to a(n) _____ in the equilibrium quantity of money and a _____ in the equilibrium interest rate.

Expansionary monetary policy does NOT increase:

If the economy is at potential output and the Fed increases the money supply, in the short run real GDP will likely:

Changes in the money supply have no long-run effects on the interest rate because when the price level changes, the demand for money changes to offset the short-run changes in the money supply.

Contractionary monetary policy causes _____ in the price level in the short run and _____ in the price level in the long run.

If the quantity of money demanded is $300 billion and the quantity of money supplied is $200 billion, then the interest rate will:

Suppose that the Federal Reserve sells Treasury bills. We can expect this transaction to _____ the money supply, _____ Treasury bill prices, and _____ interest rates.

Between 1970 and the present, research comparing similar wealthy countries found that increases in the money supply:

On average, short-term interest rates are higher than long-term rates to compensate for higher risk in the short term.

The amount of money that people demand is:

First Principles

Economic Models: Trade-Offs and Trade

Supply and Demand

Price Controls and Quotas: Meddling With Markets

International Trade

Macroeconomics: the Big Picture

GDP and the CPI: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending, and the Financial Syst

Income and Expenditure

Aggregate Demand and Aggregate Supply

Fiscal Policy

Money, Banking, and the Federal Reserve System

Inflation, Disinflation, and Deflation

Macroeconomics: Events and Ideas

International Macroeconomics

Filters

A sale of Treasury bills by the Federal Reserve _ interest rates and _ the money supply.

An increase in the supply of money with no change in demand will lead to a(n) _ in the equilibrium quantity of money and a _ in the equilibrium interest rate.

Contractionary monetary policy causes _ in the price level in the short run and _ in the price level in the long run.

Suppose that the Federal Reserve sells Treasury bills. We can expect this transaction to ___ the money supply, _ Treasury bill prices, and ___ interest rates.