Question 1

Monetary policy is controlled by

Accepted Answer

A)  Congress. 
B)  the president. 
C)  the Federal Reserve. 
D)  the Treasury Department. 
A)  Congress. 
B)  the president. 
C)  the Federal Reserve. 
D)  the Treasury Department. C

Question 2

Monetary policy produces ripple effects, some of which happen quickly and some that can take years to produce change. Which of the following takes the longest to change? The

Accepted Answer

A)  inflation rate. 
B)  federal funds rate. 
C)  exchange rate. 
D)  monetary base. 
A)  inflation rate. 
B)  federal funds rate. 
C)  exchange rate. 
D)  monetary base. A

Question 3

Businesses become convinced that future profits from investment will be less than initially believed. This conviction leads to a change in aggregate ________ and so the Fed should ________ the federal funds rate if it wants to try to offset this change.

Accepted Answer

A)  demand; raise 
B)  demand; lower 
C)  supply; raise 
D)  supply; lower 
A)  demand; raise 
B)  demand; lower 
C)  supply; raise 
D)  supply; lower B

Question 4

The main macroprudential regulation tools are

Accepted Answer

A)  rules about the balance sheets of banks. 
B)  rules determining how the Federal Reserve should conduct its monetary policy. 
C)  regulations that require banks may not make loans during recessions. 
D)  None of the above answers are true. 
A)  rules about the balance sheets of banks. 
B)  rules determining how the Federal Reserve should conduct its monetary policy. 
C)  regulations that require banks may not make loans during recessions. 
D)  None of the above answers are true.

Question 5

Which of the following are policy instruments available to the Fed as it tries to achieve its macroeconomic goals?
I. government expenditures on goods and services and taxes
II. the government budget deficit or surplus
III. changes in the federal funds rate

Accepted Answer

A)  I and II 
B)  III only 
C)  II and III 
D)  II only 
A)  I and II 
B)  III only 
C)  II and III 
D)  II only

Question 6

If the Fed sells bonds in the open market, net exports will increase.

Accepted Answer

A) True 
 B)False

Question 7

When the Fed raises the federal funds rate

Accepted Answer

A)  net exports increase. 
B)  the value of the dollar falls on the foreign exchange market. 
C)  the value of the dollar rises on the foreign exchange market. 
D)  consumption increases. 
A)  net exports increase. 
B)  the value of the dollar falls on the foreign exchange market. 
C)  the value of the dollar rises on the foreign exchange market. 
D)  consumption increases.

Question 8

If the Fed increases the quantity of reserves, the federal funds rate ________ and the quantity of money ________.

Accepted Answer

A)  rises; increases 
B)  rises; decreases 
C)  falls; increases 
D)  falls; decreases 
A)  rises; increases 
B)  rises; decreases 
C)  falls; increases 
D)  falls; decreases

Question 9

The key aim of monetary policy is to

Accepted Answer

A)  change government spending to spur innovation. 
B)  maintain price stability. 
C)  change tax rates to boost investment. 
D)  change tax rates to boost saving. 
A)  change government spending to spur innovation. 
B)  maintain price stability. 
C)  change tax rates to boost investment. 
D)  change tax rates to boost saving.

Question 10

If the Federal Reserve decreases the Federal funds rate, other short-term interest rates ________ and the exchange rate ________.

Accepted Answer

A)  fall; falls 
B)  fall; does not change 
C)  fall; rises 
D)  do not change; falls 
A)  fall; falls 
B)  fall; does not change 
C)  fall; rises 
D)  do not change; falls

Question 11

Suppose the economy is in a recession and the Fed lowers the federal funds rate. Then

Accepted Answer

A)  real GDP and the price level will both decrease. 
B)  real GDP will increase and the price level will decrease. 
C)  real GDP will decrease and the price level will increase. 
D)  real GDP and the price level will both increase. 
A)  real GDP and the price level will both decrease. 
B)  real GDP will increase and the price level will decrease. 
C)  real GDP will decrease and the price level will increase. 
D)  real GDP and the price level will both increase.

Question 12

In 2012 the Fed announced that it would purchase $40 billion of mortgage securities per month. These purchases shifted the ________ reserves curve ________.

Accepted Answer

A)  supply of; leftward 
B)  supply of; rightward 
C)  demand for; rightward 
D)  demand for; leftward 
A)  supply of; leftward 
B)  supply of; rightward 
C)  demand for; rightward 
D)  demand for; leftward

Question 13

If the Fed is concerned about inflation, in the short run what is the proper monetary policy to restore price stability? What actions can the Fed undertake to restore price stability?

Accepted Answer

In order to avoid the inflation, the Fed

Question 14

-Which aggregate supply-aggregate demand diagram above shows the effect on real GDP and the price level of monetary policy when it is used to fight a recession?

Accepted Answer

A)  only Figure A 
B)  only Figure B 
C)  both Figure A and Figure B 
D)  neither Figure A nor Figure B 
A)  only Figure A 
B)  only Figure B 
C)  both Figure A and Figure B 
D)  neither Figure A nor Figure B

Question 15

If the Fed follows the Taylor rule and the economy goes into a recession, the Fed would

Accepted Answer

A)  lower the federal funds rate. 
B)  reduce tax rates. 
C)  increase government expenditures. 
D)  None of the above answers are correct. 
A)  lower the federal funds rate. 
B)  reduce tax rates. 
C)  increase government expenditures. 
D)  None of the above answers are correct.

Question 16

Which of the following is NOT a short-run effect of a decrease in the federal funds rate?

Accepted Answer

A)  Aggregate demand increases. 
B)  Net exports increase. 
C)  Aggregate supply increases. 
D)  Inflation rate increases. 
A)  Aggregate demand increases. 
B)  Net exports increase. 
C)  Aggregate supply increases. 
D)  Inflation rate increases.

Question 17

To decrease inflation, the Federal Reserve would adjust its target for the federal funds rate upward.

Accepted Answer

A) True 
 B)False

Question 18

The output gap is the

Accepted Answer

A)  percentage deviation of real GDP from potential GDP. 
B)  difference between actual inflation and core inflation. 
C)  difference in graduation levels between high school and college. 
D)  percentage increase in the economic growth rate of real GDP. 
A)  percentage deviation of real GDP from potential GDP. 
B)  difference between actual inflation and core inflation. 
C)  difference in graduation levels between high school and college. 
D)  percentage increase in the economic growth rate of real GDP.

Question 19

In the short run, a cut in the federal funds rate

Accepted Answer

A)  raises other interest rates as people increase their saving. 
B)  increases potential GDP. 
C)  increases aggregate demand. 
D)  decreases aggregate demand. 
A)  raises other interest rates as people increase their saving. 
B)  increases potential GDP. 
C)  increases aggregate demand. 
D)  decreases aggregate demand.

Question 20

Suppose that several European countries enter a recession, thereby decreasing U.S. exports. To move U.S. GDP back to potential GDP, the Fed should

Accepted Answer

A)  lower the federal funds rate. 
B)  raise the federal funds rate. 
C)  increase the government's budget deficit. 
D)  decrease the government's budget deficit. 
A)  lower the federal funds rate. 
B)  raise the federal funds rate. 
C)  increase the government's budget deficit. 
D)  decrease the government's budget deficit.

Monetary policy is controlled by

Monetary policy produces ripple effects, some of which happen quickly and some that can take years to produce change. Which of the following takes the longest to change? The

Businesses become convinced that future profits from investment will be less than initially believed. This conviction leads to a change in aggregate and so the Fed should the federal funds rate if it wants to try to offset this change.

The main macroprudential regulation tools are

Which of the following are policy instruments available to the Fed as it tries to achieve its macroeconomic goals? I. government expenditures on goods and services and taxes II. the government budget deficit or surplus III. changes in the federal funds rate

If the Fed sells bonds in the open market, net exports will increase.

When the Fed raises the federal funds rate

If the Fed increases the quantity of reserves, the federal funds rate and the quantity of money .

The key aim of monetary policy is to

If the Federal Reserve decreases the Federal funds rate, other short-term interest rates and the exchange rate .

Suppose the economy is in a recession and the Fed lowers the federal funds rate. Then

In 2012 the Fed announced that it would purchase $40 billion of mortgage securities per month. These purchases shifted the reserves curve .

If the Fed is concerned about inflation, in the short run what is the proper monetary policy to restore price stability? What actions can the Fed undertake to restore price stability?

-Which aggregate supply-aggregate demand diagram above shows the effect on real GDP and the price level of monetary policy when it is used to fight a recession?

If the Fed follows the Taylor rule and the economy goes into a recession, the Fed would

Which of the following is NOT a short-run effect of a decrease in the federal funds rate?

To decrease inflation, the Federal Reserve would adjust its target for the federal funds rate upward.

The output gap is the

In the short run, a cut in the federal funds rate

Suppose that several European countries enter a recession, thereby decreasing U.S. exports. To move U.S. GDP back to potential GDP, the Fed should

What Is Economics

The Economic Problem

Demand and Supply

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, the Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers

The Business Cycle, Inflation, and Deflation

Fiscal Policy

International Trade Policy

Filters

Exam 14: Monetary Policy

Monetary policy is controlled by

Monetary policy produces ripple effects, some of which happen quickly and some that can take years to produce change. Which of the following takes the longest to change? The

Businesses become convinced that future profits from investment will be less than initially believed. This conviction leads to a change in aggregate ________ and so the Fed should ________ the federal funds rate if it wants to try to offset this change.

The main macroprudential regulation tools are

Which of the following are policy instruments available to the Fed as it tries to achieve its macroeconomic goals? I. government expenditures on goods and services and taxes II. the government budget deficit or surplus III. changes in the federal funds rate

If the Fed sells bonds in the open market, net exports will increase.

When the Fed raises the federal funds rate

If the Fed increases the quantity of reserves, the federal funds rate ________ and the quantity of money ________.

The key aim of monetary policy is to

If the Federal Reserve decreases the Federal funds rate, other short-term interest rates ________ and the exchange rate ________.

Suppose the economy is in a recession and the Fed lowers the federal funds rate. Then

In 2012 the Fed announced that it would purchase $40 billion of mortgage securities per month. These purchases shifted the ________ reserves curve ________.

If the Fed is concerned about inflation, in the short run what is the proper monetary policy to restore price stability? What actions can the Fed undertake to restore price stability?

-Which aggregate supply-aggregate demand diagram above shows the effect on real GDP and the price level of monetary policy when it is used to fight a recession?

If the Fed follows the Taylor rule and the economy goes into a recession, the Fed would

Which of the following is NOT a short-run effect of a decrease in the federal funds rate?

To decrease inflation, the Federal Reserve would adjust its target for the federal funds rate upward.

The output gap is the

In the short run, a cut in the federal funds rate

Suppose that several European countries enter a recession, thereby decreasing U.S. exports. To move U.S. GDP back to potential GDP, the Fed should

What Is Economics

The Economic Problem

Demand and Supply

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, the Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers

The Business Cycle, Inflation, and Deflation

Fiscal Policy

International Trade Policy

Filters

Businesses become convinced that future profits from investment will be less than initially believed. This conviction leads to a change in aggregate and so the Fed should the federal funds rate if it wants to try to offset this change.

If the Fed increases the quantity of reserves, the federal funds rate and the quantity of money .

If the Federal Reserve decreases the Federal funds rate, other short-term interest rates and the exchange rate .

In 2012 the Fed announced that it would purchase $40 billion of mortgage securities per month. These purchases shifted the reserves curve .