Question 1

In the short run, the Federal Reserve faces a tradeoff between

Accepted Answer

A)  economic growth and employment. 
B)  inflation and price stability. 
C)  inflation and real GDP. 
D)  interest rates and unemployment. 
A)  economic growth and employment. 
B)  inflation and price stability. 
C)  inflation and real GDP. 
D)  interest rates and unemployment.

Question 2

In September 2012 unemployment was high and the Fed was concerned that the economy would re-enter a recession. Therefore the Fed announced that it would ________ its purchases of securities in an effort to ________.

Accepted Answer

A)  decrease; keep the federal funds rate low 
B)  increase; keep the federal funds rate low 
C)  decrease; raise the federal funds rate 
D)  increase; raise the federal funds rate 
A)  decrease; keep the federal funds rate low 
B)  increase; keep the federal funds rate low 
C)  decrease; raise the federal funds rate 
D)  increase; raise the federal funds rate

Question 3

A decrease in the supply of loanable funds decreases the real interest rate.

Accepted Answer

A) True 
 B)False

Question 4

Explain the ripple effects of a sale of securities in an open market operation.

Accepted Answer

The Fed's actions ripple through the eco

Question 5

Long-term interest rates fluctuate ________ short-term interest rates.

Accepted Answer

A)  less than 
B)  more than 
C)  the same as 
D)  depending on their level sometimes less than, sometimes more than 
A)  less than 
B)  more than 
C)  the same as 
D)  depending on their level sometimes less than, sometimes more than

Question 6

If the Fed wants to lower the federal funds rate, it can

Accepted Answer

A)  decrease the budget deficit. 
B)  sell government securities in the open market. 
C)  instruct banks to print more money. 
D)  buy government securities on the open market. 
A)  decrease the budget deficit. 
B)  sell government securities in the open market. 
C)  instruct banks to print more money. 
D)  buy government securities on the open market.

Question 7

When the federal funds interest rate is 6 percent, the quantity of reserves demanded is $100 billion. If the quantity of reserves is actually $110 billion, then the

Accepted Answer

A)  demand for reserves increases and the demand for reserves curve shifts rightward. 
B)  demand for reserves decreases and the demand for reserves curve shifts leftward. 
C)  federal funds rate rises. 
D)  federal funds rate falls. 
A)  demand for reserves increases and the demand for reserves curve shifts rightward. 
B)  demand for reserves decreases and the demand for reserves curve shifts leftward. 
C)  federal funds rate rises. 
D)  federal funds rate falls.

Question 8

Open market purchases by the Fed

Accepted Answer

A)  raise the federal funds rate. 
B)  increase bank reserves. 
C)  occur when the Fed wants to decrease the quantity of money. 
D)  All of the above answers are correct. 
A)  raise the federal funds rate. 
B)  increase bank reserves. 
C)  occur when the Fed wants to decrease the quantity of money. 
D)  All of the above answers are correct.

Question 9

Discuss how the Fed raising the federal funds rate ripples through the different sectors of the economy.

Accepted Answer

To raise the federal funds rate, the Fed

Question 10

A worldwide recession reduces the amount of U.S. exports, and as a result, aggregate demand decreases. 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)  decreasing the quantity of money of money. 
A)  lower the federal funds rate. 
B)  raise the federal funds rate. 
C)  increase the government's budget deficit. 
D)  decreasing the quantity of money of money.

Question 11

-In the above figure, suppose that the economy is at point B. Which of the following policy options for the Fed will move the economy toward its LAS?

Accepted Answer

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

Question 12

Equilibrium in the market for bank reserves determines the

Accepted Answer

A)  federal funds rate. 
B)  inflation rate. 
C)  30-year Treasury bond rate. 
D)  exchange rate. 
A)  federal funds rate. 
B)  inflation rate. 
C)  30-year Treasury bond rate. 
D)  exchange rate.

Question 13

Suppose that initially real GDP equals potential GDP. Then a decrease in aggregate demand occurs. According to the Taylor rule, the Fed should ________ the federal funds rate by ________ government securities in the open market.

Accepted Answer

A)  raise; selling 
B)  lower; selling 
C)  raise; buying 
D)  lower; buying 
A)  raise; selling 
B)  lower; selling 
C)  raise; buying 
D)  lower; buying

Question 14

When the Fed raises the federal funds rate, in the foreign exchange market people ________ dollars and the price of the dollar ________ on the foreign exchange market.

Accepted Answer

A)  sell; rises 
B)  sell; falls 
C)  buy; rises 
D)  buy; falls 
A)  sell; rises 
B)  sell; falls 
C)  buy; rises 
D)  buy; falls

Question 15

The Fed's actions to fight an inflation shift the

Accepted Answer

A)  aggregate demand curve rightward. 
B)  aggregate demand curve leftward. 
C)  long-run aggregate supply curve rightward. 
D)  long-run aggregate supply curve leftward. 
A)  aggregate demand curve rightward. 
B)  aggregate demand curve leftward. 
C)  long-run aggregate supply curve rightward. 
D)  long-run aggregate supply curve leftward.

Question 16

When the Fed cuts the Federal funds rate, real GDP growth ________ and the inflation rate ________.

Accepted Answer

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

Question 17

The short-run effect of lowering the federal funds rate

Accepted Answer

A)  raises the price level and increases real GDP. 
B)  raises the price level and decreases real GDP. 
C)  lowers the price level and increases real GDP. 
D)  lowers the price level and decreases real GDP. 
A)  raises the price level and increases real GDP. 
B)  raises the price level and decreases real GDP. 
C)  lowers the price level and increases real GDP. 
D)  lowers the price level and decreases real GDP.

Question 18

The Taylor rule

Accepted Answer

A)  focuses on only fluctuations in real GDP. 
B)  ignores price level stability to focus on responding to fluctuations in real GDP. 
C)  is the rule actually followed by the Fed. 
D)  shows how the Fed could set the federal funds rate. 
A)  focuses on only fluctuations in real GDP. 
B)  ignores price level stability to focus on responding to fluctuations in real GDP. 
C)  is the rule actually followed by the Fed. 
D)  shows how the Fed could set the federal funds rate.

Question 19

Explain how the Fed's response to inflation works its way through the economy to ultimately affecting real GDP and the price level.

Accepted Answer

When the Fed is concerned with inflation

Question 20

If the Fed wants to fight inflation, it will ________ the federal funds rate, which in the short run shifts the ________.

Accepted Answer

A)  lower; AD curve rightward 
B)  lower; AD curve leftward 
C)  raise; AD curve rightward 
D)  raise; AD curve leftward 
A)  lower; AD curve rightward 
B)  lower; AD curve leftward 
C)  raise; AD curve rightward 
D)  raise; AD curve leftward

In the short run, the Federal Reserve faces a tradeoff between

In September 2012 unemployment was high and the Fed was concerned that the economy would re-enter a recession. Therefore the Fed announced that it would its purchases of securities in an effort to .

A decrease in the supply of loanable funds decreases the real interest rate.

Explain the ripple effects of a sale of securities in an open market operation.

Long-term interest rates fluctuate ________ short-term interest rates.

If the Fed wants to lower the federal funds rate, it can

When the federal funds interest rate is 6 percent, the quantity of reserves demanded is $100 billion. If the quantity of reserves is actually $110 billion, then the

Open market purchases by the Fed

Discuss how the Fed raising the federal funds rate ripples through the different sectors of the economy.

A worldwide recession reduces the amount of U.S. exports, and as a result, aggregate demand decreases. To move U.S. GDP back to potential GDP, the Fed should

-In the above figure, suppose that the economy is at point B. Which of the following policy options for the Fed will move the economy toward its LAS?

Equilibrium in the market for bank reserves determines the

Suppose that initially real GDP equals potential GDP. Then a decrease in aggregate demand occurs. According to the Taylor rule, the Fed should the federal funds rate by government securities in the open market.

When the Fed raises the federal funds rate, in the foreign exchange market people dollars and the price of the dollar on the foreign exchange market.

The Fed's actions to fight an inflation shift the

When the Fed cuts the Federal funds rate, real GDP growth and the inflation rate .

The short-run effect of lowering the federal funds rate

The Taylor rule

Explain how the Fed's response to inflation works its way through the economy to ultimately affecting real GDP and the price level.

If the Fed wants to fight inflation, it will the federal funds rate, which in the short run shifts the .

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

In the short run, the Federal Reserve faces a tradeoff between

In September 2012 unemployment was high and the Fed was concerned that the economy would re-enter a recession. Therefore the Fed announced that it would ________ its purchases of securities in an effort to ________.

A decrease in the supply of loanable funds decreases the real interest rate.

Explain the ripple effects of a sale of securities in an open market operation.

Long-term interest rates fluctuate ________ short-term interest rates.

If the Fed wants to lower the federal funds rate, it can

When the federal funds interest rate is 6 percent, the quantity of reserves demanded is $100 billion. If the quantity of reserves is actually $110 billion, then the

Open market purchases by the Fed

Discuss how the Fed raising the federal funds rate ripples through the different sectors of the economy.

A worldwide recession reduces the amount of U.S. exports, and as a result, aggregate demand decreases. To move U.S. GDP back to potential GDP, the Fed should

-In the above figure, suppose that the economy is at point B. Which of the following policy options for the Fed will move the economy toward its LAS?

Equilibrium in the market for bank reserves determines the

Suppose that initially real GDP equals potential GDP. Then a decrease in aggregate demand occurs. According to the Taylor rule, the Fed should ________ the federal funds rate by ________ government securities in the open market.

When the Fed raises the federal funds rate, in the foreign exchange market people ________ dollars and the price of the dollar ________ on the foreign exchange market.

The Fed's actions to fight an inflation shift the

When the Fed cuts the Federal funds rate, real GDP growth ________ and the inflation rate ________.

The short-run effect of lowering the federal funds rate

The Taylor rule

Explain how the Fed's response to inflation works its way through the economy to ultimately affecting real GDP and the price level.

If the Fed wants to fight inflation, it will ________ the federal funds rate, which in the short run shifts the ________.

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

In September 2012 unemployment was high and the Fed was concerned that the economy would re-enter a recession. Therefore the Fed announced that it would its purchases of securities in an effort to .

Suppose that initially real GDP equals potential GDP. Then a decrease in aggregate demand occurs. According to the Taylor rule, the Fed should the federal funds rate by government securities in the open market.

When the Fed raises the federal funds rate, in the foreign exchange market people dollars and the price of the dollar on the foreign exchange market.

When the Fed cuts the Federal funds rate, real GDP growth and the inflation rate .

If the Fed wants to fight inflation, it will the federal funds rate, which in the short run shifts the .