Question 1

The prices of stocks and bonds move

Accepted Answer

A)  in opposite directions to the Fed's interest rate target 
B)  in opposite directions to the spending patterns of Congress 
C)  in similar directions to the Fed's interest rate targets 
D)  in similar directions to the spending patterns of Congress 
E)  whenever the Open Market Committee threatens a change in the money supply 
A)  in opposite directions to the Fed's interest rate target 
B)  in opposite directions to the spending patterns of Congress 
C)  in similar directions to the Fed's interest rate targets 
D)  in similar directions to the spending patterns of Congress 
E)  whenever the Open Market Committee threatens a change in the money supply

Question 2

If the inflation rate is lower than expected,real income is redistributed from borrowers to lenders.

Accepted Answer

A) True 
 B)False

Question 3

When the economy reaches its potential output,the price level cannot rise any further.

Accepted Answer

A) True 
 B)False

Question 4

The natural rate of unemployment in the United States

Accepted Answer

A)  has consistently equaled 6 percent 
B)  has increased as the federal budget deficit has fallen 
C)  is similar to the natural rate in European countries 
D)  has increased in recent years 
E)  is now unusually high because so many women have entered the labor force 
A)  has consistently equaled 6 percent 
B)  has increased as the federal budget deficit has fallen 
C)  is similar to the natural rate in European countries 
D)  has increased in recent years 
E)  is now unusually high because so many women have entered the labor force

Question 5

If there is a leftward shift of the money demand curve,which of the following should the Fed do if it wants to keep output stable?

Accepted Answer

A)  Lower its interest rate target 
B)  Sell bonds in the open market 
C)  Wait,since output usually does not change when the money demand curve shifts 
D)  Raise its interest rate target 
E)  Buy bonds in the open market. 
A)  Lower its interest rate target 
B)  Sell bonds in the open market 
C)  Wait,since output usually does not change when the money demand curve shifts 
D)  Raise its interest rate target 
E)  Buy bonds in the open market.

Question 6

The Phillips curve

Accepted Answer

A)  illustrates the economy's production possibilities 
B)  measures the Fed's willingness to stick with a particular interest rate target 
C)  represents the Fed's choices between inflation and unemployment 
D)  demonstrates the need for a zero inflation rate 
E)  explains the natural rate of unemployment 
A)  illustrates the economy's production possibilities 
B)  measures the Fed's willingness to stick with a particular interest rate target 
C)  represents the Fed's choices between inflation and unemployment 
D)  demonstrates the need for a zero inflation rate 
E)  explains the natural rate of unemployment

Question 7

Dove policies advocate

Accepted Answer

A)  less stability in output if greater price stability can be achieved. 
B)  more stability in output if greater price stability can be achieved. 
C)  more stability in output even at the cost of more price instability. 
D)  stable prices at any cost. 
E)  more stability in tax revenues even at the cost of more unemployment. 
A)  less stability in output if greater price stability can be achieved. 
B)  more stability in output if greater price stability can be achieved. 
C)  more stability in output even at the cost of more price instability. 
D)  stable prices at any cost. 
E)  more stability in tax revenues even at the cost of more unemployment.

Question 8

Opponents of the Taylor rule argue that it implies more advanced knowledge about the economy than is potentially feasible.

Accepted Answer

A) True 
 B)False

Question 9

If people come to expect ongoing inflation,what will happen over time independent of the Fed's response?

Accepted Answer

A)  The long-run aggregate supply curve will shift to the right. 
B)  The aggregate supply curve will continue to shift upward. 
C)  The aggregate demand curve will continue to shift to the right. 
D)  The aggregate supply curve will continue to shift downward. 
E)  The aggregate demand curve will continue to shift to the left. 
A)  The long-run aggregate supply curve will shift to the right. 
B)  The aggregate supply curve will continue to shift upward. 
C)  The aggregate demand curve will continue to shift to the right. 
D)  The aggregate supply curve will continue to shift downward. 
E)  The aggregate demand curve will continue to shift to the left.

Question 10

An unstable inflation rate

Accepted Answer

A)  always redistributes real income from lenders to borrowers. 
B)  always redistributes real income from borrowers to lenders. 
C)  adds to the risk of borrowing and lending and interferes with long-run financial planning. 
D)  makes goods and services too expensive. 
E)  always redistributes real income from taxpayers to the government. 
A)  always redistributes real income from lenders to borrowers. 
B)  always redistributes real income from borrowers to lenders. 
C)  adds to the risk of borrowing and lending and interferes with long-run financial planning. 
D)  makes goods and services too expensive. 
E)  always redistributes real income from taxpayers to the government.

Question 11

If the Fed has a goal of stable real GDP and government spending increased,which of the following would occur?

Accepted Answer

A)  The money demand would not change,real GDP would not change,the interest rate would decrease,and there would be partial crowding out. 
B)  Money demand would not change,real GDP would not change,the interest rate would increase,and there would be complete crowding out. 
C)  Money demand would increase,real GDP would not change,the interest rate would increase,and there would be partial crowding out. 
D)  Money demand would not change,real GDP would increase,the interest rate would decrease,and there would be complete crowding out. 
E)  Money demand would increase,real GDP would not change,the interest rate would decrease,and there would be complete crowding out. 
A)  The money demand would not change,real GDP would not change,the interest rate would decrease,and there would be partial crowding out. 
B)  Money demand would not change,real GDP would not change,the interest rate would increase,and there would be complete crowding out. 
C)  Money demand would increase,real GDP would not change,the interest rate would increase,and there would be partial crowding out. 
D)  Money demand would not change,real GDP would increase,the interest rate would decrease,and there would be complete crowding out. 
E)  Money demand would increase,real GDP would not change,the interest rate would decrease,and there would be complete crowding out.

Question 12

What is the major cost associated with fighting ongoing inflation?

Accepted Answer

A)  Higher interest rates. 
B)  Lost potential output. 
C)  Lower price level. 
D)  Higher price level. 
E)  None of the above. 
A)  Higher interest rates. 
B)  Lost potential output. 
C)  Lower price level. 
D)  Higher price level. 
E)  None of the above.

Question 13

Which of the following is the Fed's best strategy for dealing with shifts of the money demand curve?

Accepted Answer

A)  A neutralization response 
B)  Decrease the money supply 
C)  Maintain a constant money value target 
D)  Maintain a money supply target 
E)  Increase the interest rate. 
A)  A neutralization response 
B)  Decrease the money supply 
C)  Maintain a constant money value target 
D)  Maintain a money supply target 
E)  Increase the interest rate.

Question 14

The Fed prefers to change its interest rate target only rarely because

Accepted Answer

A)  those targets affect productivity in the labor force 
B)  a fluctuating stock and bond market signals a recession 
C)  interest rates are greatly overrated as a measure of economic performance 
D)  it is so difficult to do so 
E)  the changes destabilize the financial markets 
A)  those targets affect productivity in the labor force 
B)  a fluctuating stock and bond market signals a recession 
C)  interest rates are greatly overrated as a measure of economic performance 
D)  it is so difficult to do so 
E)  the changes destabilize the financial markets

Question 15

The cost of cyclical unemployment is

Accepted Answer

A)  spread broadly among the U.S.population 
B)  the inflationary impact of increased federal expenditures on the unemployed 
C)  growing as the U.S.population ages 
D)  especially felt by recent college graduates 
E)  the lost output that results 
A)  spread broadly among the U.S.population 
B)  the inflationary impact of increased federal expenditures on the unemployed 
C)  growing as the U.S.population ages 
D)  especially felt by recent college graduates 
E)  the lost output that results

Question 16

If the Fed responds to an increase in government spending with the goal of stable prices and output,which of the following would be the result?

Accepted Answer

A)  A larger multiplier effect than normal 
B)  Partial crowding out 
C)  An increase in consumption and investment spending 
D)  No crowding out 
E)  Complete crowding out. 
A)  A larger multiplier effect than normal 
B)  Partial crowding out 
C)  An increase in consumption and investment spending 
D)  No crowding out 
E)  Complete crowding out.

Question 17

Which of the following would lead the Fed to increase the money supply under an interest rate rule?

Accepted Answer

A)  an unexplained decrease of money demand 
B)  an increase in taxes 
C)  a decrease in spending that caused the money demand curve to decrease 
D)  an increase in spending that caused the money demand curve to increase 
E)  a decrease in government spending. 
A)  an unexplained decrease of money demand 
B)  an increase in taxes 
C)  a decrease in spending that caused the money demand curve to decrease 
D)  an increase in spending that caused the money demand curve to increase 
E)  a decrease in government spending.

Question 18

The Phillips curve represents the Fed's short-run choices between inflation and unemployment.

Accepted Answer

A) True 
 B)False

Question 19

If people start to use cash because of an increase in credit card fraud,which of the following would we expect to happen under a neutralization policy?

Accepted Answer

A)  The money supply would decrease,real GDP would not change,and the interest rate would not change. 
B)  The money supply would increase,real GDP would not change,and the interest rate would not change. 
C)  The money supply would decrease,real GDP would increase,and the interest rate would decrease. 
D)  The money supply would increase,real GDP would not change,and the interest rate would decrease. 
E)  The money supply would decrease,real GDP would decrease,and the interest rate would not change. 
A)  The money supply would decrease,real GDP would not change,and the interest rate would not change. 
B)  The money supply would increase,real GDP would not change,and the interest rate would not change. 
C)  The money supply would decrease,real GDP would increase,and the interest rate would decrease. 
D)  The money supply would increase,real GDP would not change,and the interest rate would decrease. 
E)  The money supply would decrease,real GDP would decrease,and the interest rate would not change.

Question 20

The Fed's objectives present it with a true dilemma when

Accepted Answer

A)  there are demand shocks caused by shifts in money demand 
B)  there are demand shocks caused by changes in spending 
C)  there are negative supply shocks 
D)  cyclical unemployment exists 
E)  there is member bank opposition 
A)  there are demand shocks caused by shifts in money demand 
B)  there are demand shocks caused by changes in spending 
C)  there are negative supply shocks 
D)  cyclical unemployment exists 
E)  there is member bank opposition

The prices of stocks and bonds move

If the inflation rate is lower than expected,real income is redistributed from borrowers to lenders.

When the economy reaches its potential output,the price level cannot rise any further.

The natural rate of unemployment in the United States

If there is a leftward shift of the money demand curve,which of the following should the Fed do if it wants to keep output stable?

The Phillips curve

Dove policies advocate

Opponents of the Taylor rule argue that it implies more advanced knowledge about the economy than is potentially feasible.

If people come to expect ongoing inflation,what will happen over time independent of the Fed's response?

An unstable inflation rate

If the Fed has a goal of stable real GDP and government spending increased,which of the following would occur?

What is the major cost associated with fighting ongoing inflation?

Which of the following is the Fed's best strategy for dealing with shifts of the money demand curve?

The Fed prefers to change its interest rate target only rarely because

The cost of cyclical unemployment is

If the Fed responds to an increase in government spending with the goal of stable prices and output,which of the following would be the result?

Which of the following would lead the Fed to increase the money supply under an interest rate rule?

The Phillips curve represents the Fed's short-run choices between inflation and unemployment.

If people start to use cash because of an increase in credit card fraud,which of the following would we expect to happen under a neutralization policy?

The Fed's objectives present it with a true dilemma when

What is Economics?

Scarcity, Choice, and Economic Systems

Supply and Demand

Working With Supply and Demand

What Macroeconomics Tries to Explain

Production, Income, and Employment

The Price Level and Inflation

The Classical Long run Model

Economic Growth and Rising Living Standards

Economic Fluctuations

The Short-run Macro Model

Fiscal Policy

Money, Banks, and the Federal Reserve

The Money Market and Monetary Policy

Aggregate Demand and Aggregate Supply

Exchange Rates and Macroeconomic Policy

Filters

Exam 16: Inflation and Monetary Policy

The prices of stocks and bonds move

If the inflation rate is lower than expected,real income is redistributed from borrowers to lenders.

When the economy reaches its potential output,the price level cannot rise any further.

The natural rate of unemployment in the United States

If there is a leftward shift of the money demand curve,which of the following should the Fed do if it wants to keep output stable?

The Phillips curve

Dove policies advocate

Opponents of the Taylor rule argue that it implies more advanced knowledge about the economy than is potentially feasible.

If people come to expect ongoing inflation,what will happen over time independent of the Fed's response?

An unstable inflation rate

If the Fed has a goal of stable real GDP and government spending increased,which of the following would occur?

What is the major cost associated with fighting ongoing inflation?

Which of the following is the Fed's best strategy for dealing with shifts of the money demand curve?

The Fed prefers to change its interest rate target only rarely because

The cost of cyclical unemployment is

If the Fed responds to an increase in government spending with the goal of stable prices and output,which of the following would be the result?

Which of the following would lead the Fed to increase the money supply under an interest rate rule?

The Phillips curve represents the Fed's short-run choices between inflation and unemployment.

If people start to use cash because of an increase in credit card fraud,which of the following would we expect to happen under a neutralization policy?

The Fed's objectives present it with a true dilemma when

What is Economics?

Scarcity, Choice, and Economic Systems

Supply and Demand

Working With Supply and Demand

What Macroeconomics Tries to Explain

Production, Income, and Employment

The Price Level and Inflation

The Classical Long run Model

Economic Growth and Rising Living Standards

Economic Fluctuations

The Short-run Macro Model

Fiscal Policy

Money, Banks, and the Federal Reserve

The Money Market and Monetary Policy

Aggregate Demand and Aggregate Supply

Exchange Rates and Macroeconomic Policy

Filters