Question 1

Based on the model of the money market, when real income decreases, the equilibrium interest rate should

Accepted Answer

A)  stay the same. 
B)  increase. 
C)  decrease. 
D)  increase to the same extent that the supply of money increases. 
A)  stay the same. 
B)  increase. 
C)  decrease. 
D)  increase to the same extent that the supply of money increases.

Question 2

Why might economic policies aimed at stabilization actually increase the magnitudes of economic fluctuations?

Accepted Answer

Well-timed economic policies can reduce

Question 3

The demand for money that arises because holding money over short periods is less risky than holding stocks or bonds is called the

Accepted Answer

A)  transactions demand for money. 
B)  liquidity demand for money. 
C)  opportunity cost demand for money. 
D)  speculative demand for money. 
A)  transactions demand for money. 
B)  liquidity demand for money. 
C)  opportunity cost demand for money. 
D)  speculative demand for money.

Question 4

An open market purchase by the Fed

Accepted Answer

A)  increases investment and increases output. 
B)  increases investment and decreases output. 
C)  decreases investment and increases output. 
D)  decreases investment and decreases output. 
A)  increases investment and increases output. 
B)  increases investment and decreases output. 
C)  decreases investment and increases output. 
D)  decreases investment and decreases output.

Question 5

Recall the Application about the Fed's expanded involvement in the economy following the financial crisis in 2008 to answer the following question(s).
-Recall the Application. During 2008, the value of the Fed's total assets

Accepted Answer

A)  fell by over $2 trillion. 
B)  remained virtually unchanged. 
C)  became negative. 
D)  more than doubled. 
A)  fell by over $2 trillion. 
B)  remained virtually unchanged. 
C)  became negative. 
D)  more than doubled.

Question 6

If the Fed wished to decrease GDP, it could

Accepted Answer

A)  increase the reserve requirement or conduct an open market sale. 
B)  increase the reserve requirement or conduct an open market purchase. 
C)  decrease the reserve requirement or conduct an open market sale. 
D)  decrease the reserve requirement or conduct an open market purchase. 
A)  increase the reserve requirement or conduct an open market sale. 
B)  increase the reserve requirement or conduct an open market purchase. 
C)  decrease the reserve requirement or conduct an open market sale. 
D)  decrease the reserve requirement or conduct an open market purchase.

Question 7

How would the Fed's sale of government bonds on the open market affect the money supply?

Accepted Answer

The Fed, by selling bonds, is

Question 8

If the current level of GDP exceeds full employment, the level of GDP can be reduced by

Accepted Answer

A)  reducing taxes. 
B)  increasing spending. 
C)  reducing the money supply. 
D)  lowering interest rates. 
A)  reducing taxes. 
B)  increasing spending. 
C)  reducing the money supply. 
D)  lowering interest rates.

Question 9

If a one-year bond is purchased for $400 and the interest rate is 8 percent, what will it pay in one year?

Accepted Answer

A)  $48 
B)  $368 
C)  $400 
D)  $432 
A)  $48 
B)  $368 
C)  $400 
D)  $432

Question 10

An open market ________ by the Fed increases the money supply, which leads to ________ interest rates and increased GDP.

Accepted Answer

A)  purchase; increased 
B)  purchase; decreased 
C)  sale; increased 
D)  sale; decreased 
A)  purchase; increased 
B)  purchase; decreased 
C)  sale; increased 
D)  sale; decreased

Question 11

The appreciation of the dollar will make U.S. goods ________ to foreigners and make imports ________ for U.S. residents.

Accepted Answer

A)  more expensive; more expensive 
B)  cheaper; cheaper 
C)  more expensive; cheaper 
D)  cheaper; more expensive 
A)  more expensive; more expensive 
B)  cheaper; cheaper 
C)  more expensive; cheaper 
D)  cheaper; more expensive

Question 12

If the Federal Reserve is interested in conducting contractionary policy, what types of policies should it consider?

Accepted Answer

Examples of contractionary monetary poli

Question 13

In addition to lowering the discount rate to increase the money supply, the Fed could also

Accepted Answer

A)  purchase bonds on the open market and raise reserve requirements. 
B)  sell bonds on the open market and raise reserve requirements. 
C)  purchase bonds on the open market and lower reserve requirements. 
D)  sell bonds on the open market and lower reserve requirements. 
A)  purchase bonds on the open market and raise reserve requirements. 
B)  sell bonds on the open market and raise reserve requirements. 
C)  purchase bonds on the open market and lower reserve requirements. 
D)  sell bonds on the open market and lower reserve requirements.

Question 14

Suppose that a bond promises to pay $107 next year but the interest rate falls from 7 percent to 3 percent per year. How much will the price of the bond be and why?

Accepted Answer

At 7% interest the price of the bond wou

Question 15

Outside lags occur because

Accepted Answer

A)  firms must change investment plans before monetary policy can be effective. 
B)  it takes time to identify a problem. 
C)  once a problem is diagnosed, it still takes time to implement policy changes. 
D)  once changes are finally diagnosed and implemented, policies are immediately effective. 
A)  firms must change investment plans before monetary policy can be effective. 
B)  it takes time to identify a problem. 
C)  once a problem is diagnosed, it still takes time to implement policy changes. 
D)  once changes are finally diagnosed and implemented, policies are immediately effective.

Question 16

As interest rates fall, the

Accepted Answer

A)  price of bonds rises. 
B)  price of bonds falls. 
C)  face values of bonds fall. 
D)  promised payments of bonds fall. 
A)  price of bonds rises. 
B)  price of bonds falls. 
C)  face values of bonds fall. 
D)  promised payments of bonds fall.

Question 17

If the Federal Reserve raises the discount rate, banks will be inclined to borrow additional reserves and the money supply will increase.

Accepted Answer

A) True 
 B)False

Question 18

If the Federal Reserve wanted to change the money supply in the economy, it would be least likely to

Accepted Answer

A)  buy bonds on the open market. 
B)  sell bonds on the open market. 
C)  change the level of reserves required to be held by banks. 
D)  change the federal funds rate. 
A)  buy bonds on the open market. 
B)  sell bonds on the open market. 
C)  change the level of reserves required to be held by banks. 
D)  change the federal funds rate.

Question 19

A decrease in the money supply will tend to reduce investment.

Accepted Answer

A) True 
 B)False

Question 20

How would the Fed's changing the discount rate affect the money supply?

Accepted Answer

When the Fed changes the discount rate,

Based on the model of the money market, when real income decreases, the equilibrium interest rate should

Why might economic policies aimed at stabilization actually increase the magnitudes of economic fluctuations?

The demand for money that arises because holding money over short periods is less risky than holding stocks or bonds is called the

An open market purchase by the Fed

Recall the Application about the Fed's expanded involvement in the economy following the financial crisis in 2008 to answer the following question(s). -Recall the Application. During 2008, the value of the Fed's total assets

If the Fed wished to decrease GDP, it could

How would the Fed's sale of government bonds on the open market affect the money supply?

If the current level of GDP exceeds full employment, the level of GDP can be reduced by

If a one-year bond is purchased for $400 and the interest rate is 8 percent, what will it pay in one year?

An open market by the Fed increases the money supply, which leads to interest rates and increased GDP.

The appreciation of the dollar will make U.S. goods to foreigners and make imports for U.S. residents.

If the Federal Reserve is interested in conducting contractionary policy, what types of policies should it consider?

In addition to lowering the discount rate to increase the money supply, the Fed could also

Suppose that a bond promises to pay $107 next year but the interest rate falls from 7 percent to 3 percent per year. How much will the price of the bond be and why?

Outside lags occur because

As interest rates fall, the

If the Federal Reserve raises the discount rate, banks will be inclined to borrow additional reserves and the money supply will increase.

If the Federal Reserve wanted to change the money supply in the economy, it would be least likely to

A decrease in the money supply will tend to reduce investment.

How would the Fed's changing the discount rate affect the money supply?

Introduction: What Is Economics?

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nation's Production and Income

Unemployment and Inflation

The Economy at Full Employment

Why Do Economies Grow?

Aggregate Demand and Aggregate Supply

Fiscal Policy

The Income-Expenditure Model

Investment and Financial Markets

Money and the Banking System

Modern Macroeconomics: From the Short Run to the Long Run

The Dynamics of Inflation and Unemployment

Macroeconomic Policy Debates

International Trade and Public Policy

The World of International Finance

Filters

Exam 14: The Federal Reserve and Monetary Policy

Based on the model of the money market, when real income decreases, the equilibrium interest rate should

Why might economic policies aimed at stabilization actually increase the magnitudes of economic fluctuations?

The demand for money that arises because holding money over short periods is less risky than holding stocks or bonds is called the

An open market purchase by the Fed

Recall the Application about the Fed's expanded involvement in the economy following the financial crisis in 2008 to answer the following question(s). -Recall the Application. During 2008, the value of the Fed's total assets

If the Fed wished to decrease GDP, it could

How would the Fed's sale of government bonds on the open market affect the money supply?

If the current level of GDP exceeds full employment, the level of GDP can be reduced by

If a one-year bond is purchased for $400 and the interest rate is 8 percent, what will it pay in one year?

An open market ________ by the Fed increases the money supply, which leads to ________ interest rates and increased GDP.

The appreciation of the dollar will make U.S. goods ________ to foreigners and make imports ________ for U.S. residents.

If the Federal Reserve is interested in conducting contractionary policy, what types of policies should it consider?

In addition to lowering the discount rate to increase the money supply, the Fed could also

Suppose that a bond promises to pay $107 next year but the interest rate falls from 7 percent to 3 percent per year. How much will the price of the bond be and why?

Outside lags occur because

As interest rates fall, the

If the Federal Reserve raises the discount rate, banks will be inclined to borrow additional reserves and the money supply will increase.

If the Federal Reserve wanted to change the money supply in the economy, it would be least likely to

A decrease in the money supply will tend to reduce investment.

How would the Fed's changing the discount rate affect the money supply?

Introduction: What Is Economics?

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nation's Production and Income

Unemployment and Inflation

The Economy at Full Employment

Why Do Economies Grow?

Aggregate Demand and Aggregate Supply

Fiscal Policy

The Income-Expenditure Model

Investment and Financial Markets

Money and the Banking System

Modern Macroeconomics: From the Short Run to the Long Run

The Dynamics of Inflation and Unemployment

Macroeconomic Policy Debates

International Trade and Public Policy

The World of International Finance

Filters

An open market by the Fed increases the money supply, which leads to interest rates and increased GDP.

The appreciation of the dollar will make U.S. goods to foreigners and make imports for U.S. residents.