Question 1

An increase in the money supply is likely to reduce

Accepted Answer

A) the general price level. 
B) nominal income. 
C) money demand. 
D) interest rates. 
A) the general price level. 
B) nominal income. 
C) money demand. 
D) interest rates.

Question 2

If real GDP is 2 percent below potential GDP and the inflation rate is 1 percent, then according to the Taylor rule, the Fed should make the real federal funds rate

Accepted Answer

A) decrease by 1.5 percent. 
B) decrease by 3 percent. 
C) increase by 3 percent. 
D) decrease by 1 percent. 
A) decrease by 1.5 percent. 
B) decrease by 3 percent. 
C) increase by 3 percent. 
D) decrease by 1 percent.

Question 3

In recent years, the Federal Reserve has

Accepted Answer

A) paid closer attention to M1 than M2 in setting monetary targets. 
B) relied more on changes in the discount rate than open-market operations in establishing monetary policy. 
C) increased M2 at a fixed annual rate, regardless of the health of the economy. 
D) taken an activist, pragmatic approach to monetary policy, paying close attention to interest rates. 
A) paid closer attention to M1 than M2 in setting monetary targets. 
B) relied more on changes in the discount rate than open-market operations in establishing monetary policy. 
C) increased M2 at a fixed annual rate, regardless of the health of the economy. 
D) taken an activist, pragmatic approach to monetary policy, paying close attention to interest rates.

Question 4

Other things equal, an improvement in the expected rate of net profit would

Accepted Answer

A) reduce the price level and unemployment. 
B) decrease the interest rate and cause aggregate demand to increase. 
C) increase consumption and net exports, causing aggregate demand to shift rightward. 
D) increase investment spending, real GDP, and the price level. 
A) reduce the price level and unemployment. 
B) decrease the interest rate and cause aggregate demand to increase. 
C) increase consumption and net exports, causing aggregate demand to shift rightward. 
D) increase investment spending, real GDP, and the price level.

Question 5

Lowering the reserve ratio

Accepted Answer

A) increases the total reserves in the banking system. 
B) also reduces the discount rate. 
C) turns required reserves into excess reserves. 
D) reduces the amount of excess reserves the banks keep. 
A) increases the total reserves in the banking system. 
B) also reduces the discount rate. 
C) turns required reserves into excess reserves. 
D) reduces the amount of excess reserves the banks keep.

Question 6

The fundamental objective of monetary policy is to assist the economy in achieving

Accepted Answer

A) a rapid pace of economic growth. 
B) a money supply that is based on the gold standard. 
C) a full-employment, noninflationary level of total output. 
D) a balanced-budget consistent with full employment. 
A) a rapid pace of economic growth. 
B) a money supply that is based on the gold standard. 
C) a full-employment, noninflationary level of total output. 
D) a balanced-budget consistent with full employment.

Question 7

Projecting that it might temporarily fall short of legally required reserves in the coming days, the Bank of Beano decides to borrow money from its regional Federal Reserve Bank.The interest rate on the loan is called the

Accepted Answer

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

Question 8

If the Fed reduces the interest paid on banks' reserves, it is trying to make banks hold

Accepted Answer

A) more excess reserves. 
B) less excess reserves. 
C) more required reserves. 
D) less required reserves. 
A) more excess reserves. 
B) less excess reserves. 
C) more required reserves. 
D) less required reserves.

Question 9

Monetary policy, unlike fiscal policy, does not have any time lags.

Accepted Answer

A) True 
 B)False

Question 10

One reason why Europeans continued to leave money in their bank deposits, despite negative interest rates was

Accepted Answer

A) to support the survival of their banks. 
B) because it was required by law. 
C) to continue using electronic payments. 
D) the huge withdrawal fees that they had to pay. 
A) to support the survival of their banks. 
B) because it was required by law. 
C) to continue using electronic payments. 
D) the huge withdrawal fees that they had to pay.

Question 11

The possible asymmetry of monetary policy is the central idea of the

Accepted Answer

A) invisible hand concept. 
B) ratchet analogy. 
C) pushing-on-a-string analogy. 
D) bandwagon effect. 
A) invisible hand concept. 
B) ratchet analogy. 
C) pushing-on-a-string analogy. 
D) bandwagon effect.

Question 12

The pushing-on-a-string analogy makes the point that monetary policy may be better at

Accepted Answer

A) controlling demand-pull inflation than cost-push inflation. 
B) pulling the aggregate demand curve leftward than pushing it rightward. 
C) pulling the unemployment rate downward than pushing the economic growth rate upward. 
D) keeping rapid inflation from occurring than reducing it once it has begun. 
A) controlling demand-pull inflation than cost-push inflation. 
B) pulling the aggregate demand curve leftward than pushing it rightward. 
C) pulling the unemployment rate downward than pushing the economic growth rate upward. 
D) keeping rapid inflation from occurring than reducing it once it has begun.

Question 13

Since the financial crisis that began in 2007, the Federal Reserve has added a significant amount of which of the following securities?

Accepted Answer

A) corporate bonds 
B) mortgage-backed securities 
C) common stock of financial institutions 
D) certificates of deposit 
A) corporate bonds 
B) mortgage-backed securities 
C) common stock of financial institutions 
D) certificates of deposit

Question 14

Which of the following is a tool of monetary policy?

Accepted Answer

A) open-market operations 
B) changes in banking laws 
C) changes in tax rates 
D) changes in government spending 
A) open-market operations 
B) changes in banking laws 
C) changes in tax rates 
D) changes in government spending

Question 15

The Fed's attempt to normalize monetary policy by increasing the interest on excess reserves rate

Accepted Answer

A) has been frustrated by nonbank financial firms lending to banks. 
B) has been hindered by the zero lower bound problem. 
C) has succeeded in raising the federal funds rate to historically normal levels. 
D) has been slowed by offsetting reverse repo transactions. 
A) has been frustrated by nonbank financial firms lending to banks. 
B) has been hindered by the zero lower bound problem. 
C) has succeeded in raising the federal funds rate to historically normal levels. 
D) has been slowed by offsetting reverse repo transactions.

Question 16

Assume that the MPC is 0.75 and that the price level is "sticky." If the Federal Reserve increases the money supply and investment spending increases by $8 billion, then aggregate demand is likely to

Accepted Answer

A) increase by $6 billion. 
B) increase by $8 billion. 
C) increase by $32 billion. 
D) decrease by $8 billion. 
A) increase by $6 billion. 
B) increase by $8 billion. 
C) increase by $32 billion. 
D) decrease by $8 billion.

Question 17

The Federal Reserve could reduce the money supply by

Accepted Answer

A) lowering the required reserve ratio. 
B) buying government bonds in the open market. 
C) increasing the interest on reserves. 
D) reducing the discount rate. 
A) lowering the required reserve ratio. 
B) buying government bonds in the open market. 
C) increasing the interest on reserves. 
D) reducing the discount rate.

Question 18

If nominal GDP is $4,000 billion and the amount of money demanded for transactions purposes is $800 billion, it can generally be concluded that

Accepted Answer

A) the asset demand for money is $3,200 billion. 
B) the total demand for money is $4,800 billion. 
C) on average, each dollar will be spent five times a year. 
D) the supply of money needs to be increased to meet the demand. 
A) the asset demand for money is $3,200 billion. 
B) the total demand for money is $4,800 billion. 
C) on average, each dollar will be spent five times a year. 
D) the supply of money needs to be increased to meet the demand.

Question 19

Suppose the economy is at full employment with a high inflation rate.Which combination of government policies is most likely to reduce the inflation rate?

Accepted Answer

A) buy government securities in the open market, do bond reverse-repos, and increase taxes 
B) buy government securities in the open market, do bond repos, and decrease taxes 
C) sell government securities in the open market, do bond repos, and increase government spending 
D) sell government securities in the open market, do bond reverse-repos, and cut government spending 
A) buy government securities in the open market, do bond reverse-repos, and increase taxes 
B) buy government securities in the open market, do bond repos, and decrease taxes 
C) sell government securities in the open market, do bond repos, and increase government spending 
D) sell government securities in the open market, do bond reverse-repos, and cut government spending

Question 20

Quantitative easing (QE) differs from open-market purchases in that QE shrinks the assets of the Fed, whereas open market purchases expand the
Fed's assets.

Accepted Answer

A) True 
 B)False

Exam 36: Interest Rates and Monetary Policy

An increase in the money supply is likely to reduce

If real GDP is 2 percent below potential GDP and the inflation rate is 1 percent, then according to the Taylor rule, the Fed should make the real federal funds rate

In recent years, the Federal Reserve has

Other things equal, an improvement in the expected rate of net profit would

Lowering the reserve ratio

The fundamental objective of monetary policy is to assist the economy in achieving

Projecting that it might temporarily fall short of legally required reserves in the coming days, the Bank of Beano decides to borrow money from its regional Federal Reserve Bank.The interest rate on the loan is called the

If the Fed reduces the interest paid on banks' reserves, it is trying to make banks hold

Monetary policy, unlike fiscal policy, does not have any time lags.

One reason why Europeans continued to leave money in their bank deposits, despite negative interest rates was

The possible asymmetry of monetary policy is the central idea of the

The pushing-on-a-string analogy makes the point that monetary policy may be better at

Since the financial crisis that began in 2007, the Federal Reserve has added a significant amount of which of the following securities?

Which of the following is a tool of monetary policy?

The Fed's attempt to normalize monetary policy by increasing the interest on excess reserves rate

Assume that the MPC is 0.75 and that the price level is "sticky." If the Federal Reserve increases the money supply and investment spending increases by $8 billion, then aggregate demand is likely to

The Federal Reserve could reduce the money supply by

If nominal GDP is $4,000 billion and the amount of money demanded for transactions purposes is $800 billion, it can generally be concluded that

Suppose the economy is at full employment with a high inflation rate.Which combination of government policies is most likely to reduce the inflation rate?

Quantitative easing (QE) differs from open-market purchases in that QE shrinks the assets of the Fed, whereas open market purchases expand the Fed's assets.

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role and Government Failure

Elasticity

Utility Maximization

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Technology, Rd, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, and Debt

Money, Banking, and Financial Institutions

Money Creation

Financial Economics

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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