Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Which of the following would lead to a rightward shift of the money demand curve?

Accepted Answer

A)  Expectations that the interest rate will fall 
B)  New substitutes for money become popular 
C)  The use of electronic money increases 
D)  Substitutes for money become less popular 
E)  The use of credit cards increases. 
A)  Expectations that the interest rate will fall 
B)  New substitutes for money become popular 
C)  The use of electronic money increases 
D)  Substitutes for money become less popular 
E)  The use of credit cards increases.

Question 3

If the Federal Reserve unexpectedly raised its interest rate target,which of the following would most likely occur?

Accepted Answer

A)  The interest rate would increase and bond prices would rise. 
B)  The interest rate would decrease and bond prices would rise. 
C)  The interest rate would increase and bond prices would fall. 
D)  The interest rate would decrease and bond prices would fall. 
E)  The interest rate would increase but bond prices would not change. 
A)  The interest rate would increase and bond prices would rise. 
B)  The interest rate would decrease and bond prices would rise. 
C)  The interest rate would increase and bond prices would fall. 
D)  The interest rate would decrease and bond prices would fall. 
E)  The interest rate would increase but bond prices would not change.

Question 4

To stabilize real GDP when the money demand curve shifts up on its own,the Fed must increase the money supply.

Accepted Answer

A) True 
 B)False

Question 5

To stabilize real GDP when the money demand curve shifts on its own,the Fed must change the money supply.

Accepted Answer

A) True 
 B)False

Question 6

If there is a large increase in the price of oil and the Fed wishes to maintain stable output,which of the following should it do?

Accepted Answer

A)  Do nothing,because the self-correcting mechanism will adjust the economy 
B)  Sell bonds in the open market 
C)  Wait,because output seldom changes when there is an increase in the price of oil 
D)  Encourage firms to not adjust the wages they pay 
E)  Buy bonds in the open market. 
A)  Do nothing,because the self-correcting mechanism will adjust the economy 
B)  Sell bonds in the open market 
C)  Wait,because output seldom changes when there is an increase in the price of oil 
D)  Encourage firms to not adjust the wages they pay 
E)  Buy bonds in the open market.

Question 7

What is the major cost of slowing down an ongoing inflation?

Accepted Answer

A)  Output must rise above potential. 
B)  The Fed must sell bonds at lower prices than those at which the bonds were purchased. 
C)  Output must fall below potential. 
D)  The Fed must purchase bonds from the public. 
E)  The Fed must lend additional money to member banks at below-market interest rates. 
A)  Output must rise above potential. 
B)  The Fed must sell bonds at lower prices than those at which the bonds were purchased. 
C)  Output must fall below potential. 
D)  The Fed must purchase bonds from the public. 
E)  The Fed must lend additional money to member banks at below-market interest rates.

Question 8

Which of the following is a microeconomic problem?

Accepted Answer

A)  frictional unemployment. 
B)  structural unemployment. 
C)  cyclical unemployment. 
D)  natural unemployment. 
E)  inflation. 
A)  frictional unemployment. 
B)  structural unemployment. 
C)  cyclical unemployment. 
D)  natural unemployment. 
E)  inflation.

Question 9

Why doesn't the Fed eliminate inflation from the economy entirely?

Accepted Answer

A)  It is incapable of doing so. 
B)  It believes that inflation is bad for the economy. 
C)  It believes that the measured inflation rate understates the true rate of inflation. 
D)  It recognizes that continuing inflation helps labor markets adjust more easily. 
E)  If it did so,no one would get a raise in salary. 
A)  It is incapable of doing so. 
B)  It believes that inflation is bad for the economy. 
C)  It believes that the measured inflation rate understates the true rate of inflation. 
D)  It recognizes that continuing inflation helps labor markets adjust more easily. 
E)  If it did so,no one would get a raise in salary.

Question 10

If money demand decreases due to greater use of credit cards,which of the following would most likely happen under a neutralization policy?

Accepted Answer

A)  The money supply would decrease,real GDP would not change,and neither would the interest rate. 
B)  The money supply would increase,real GDP would not change,and neither would the interest rate. 
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,but the interest rate would not change. 
A)  The money supply would decrease,real GDP would not change,and neither would the interest rate. 
B)  The money supply would increase,real GDP would not change,and neither would the interest rate. 
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,but the interest rate would not change.

Question 11

The Fed has been able to achieve a zero rate of inflation throughout most of the 1990s.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following are equivalent terms?

Accepted Answer

A)  The absence of structural unemployment and the absence of cyclical unemployment 
B)  Normal employment and the absence of structural unemployment 
C)  Full employment and the absence of cyclical unemployment 
D)  Normal employment and the absence of frictional unemployment 
E)  Null employment and the absence of frictional unemployment. 
A)  The absence of structural unemployment and the absence of cyclical unemployment 
B)  Normal employment and the absence of structural unemployment 
C)  Full employment and the absence of cyclical unemployment 
D)  Normal employment and the absence of frictional unemployment 
E)  Null employment and the absence of frictional unemployment.

Question 13

Why do negative supply shocks present such a difficulty for the Federal Reserve?

Accepted Answer

A)  the Fed can choose to fight the rising price level,but this will result in lower unemployment. 
B)  the Fed can choose to fight the rising unemployment,but this will result in an even lower price level. 
C)  the Fed can choose to fight the falling unemployment,but this will result in an even higher price level. 
D)  the Fed can choose to fight the rising unemployment,but this will result in an even higher price level. 
E)  the Fed can choose to fight the rising unemployment,but this will result in higher taxes. 
A)  the Fed can choose to fight the rising price level,but this will result in lower unemployment. 
B)  the Fed can choose to fight the rising unemployment,but this will result in an even lower price level. 
C)  the Fed can choose to fight the falling unemployment,but this will result in an even higher price level. 
D)  the Fed can choose to fight the rising unemployment,but this will result in an even higher price level. 
E)  the Fed can choose to fight the rising unemployment,but this will result in higher taxes.

Question 14

-Refer to Figure 16-2.Suppose a supply shock shifts the aggregate supply curve from AS₁ to AS₂,and decreases output below full employment.If the Fed then decreases the money supply,it will

Accepted Answer

A)  stabilize the price level,but cause a further decline in output 
B)  return output to its full-employment level,but at the expense of an increase in the price level 
C)  increase both output and the price level 
D)  stabilize the price level and return output to its full-employment level 
E)  decrease the price level and shift the aggregate demand curve to the right until output returns to its full-employment level 
A)  stabilize the price level,but cause a further decline in output 
B)  return output to its full-employment level,but at the expense of an increase in the price level 
C)  increase both output and the price level 
D)  stabilize the price level and return output to its full-employment level 
E)  decrease the price level and shift the aggregate demand curve to the right until output returns to its full-employment level

Question 15

If unemployment is above the natural rate,GDP is below potential output.

Accepted Answer

A) True 
 B)False

Question 16

One problem with assets bubbles is that while it is easy to identify them as such in retrospect,it is not easy to do so in advance.

Accepted Answer

A) True 
 B)False

Question 17

Revisions in the interest rate target

Accepted Answer

A)  occur on a daily basis 
B)  have widespread impacts on the financial markets 
C)  require Congressional approval 
D)  are based solely on data gathered in previous quarters 
E)  are a no-lose opportunity for the Fed 
A)  occur on a daily basis 
B)  have widespread impacts on the financial markets 
C)  require Congressional approval 
D)  are based solely on data gathered in previous quarters 
E)  are a no-lose opportunity for the Fed

Question 18

If cyclical unemployment is eliminated

Accepted Answer

A)  GDP is at its full-employment level 
B)  GDP is at its equilibrium level 
C)  the loanable funds market is in equilibrium 
D)  the aggregate supply curve shifts upward 
E)  potential output has increased 
A)  GDP is at its full-employment level 
B)  GDP is at its equilibrium level 
C)  the loanable funds market is in equilibrium 
D)  the aggregate supply curve shifts upward 
E)  potential output has increased

Question 19

The Federal Reserve has been quite consistently successful in keeping the inflation rate low over its entire history.

Accepted Answer

A) True 
 B)False

Question 20

In the long run,

Accepted Answer

A)  the Phillips curve is upward sloping. 
B)  the Phillips curve is downward sloping. 
C)  monetary policy can influence the unemployment rate. 
D)  monetary policy cannot influence the unemployment rate. 
E)  the Phillips curve is horizontal. 
A)  the Phillips curve is upward sloping. 
B)  the Phillips curve is downward sloping. 
C)  monetary policy can influence the unemployment rate. 
D)  monetary policy cannot influence the unemployment rate. 
E)  the Phillips curve is horizontal.

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

Which of the following would lead to a rightward shift of the money demand curve?

If the Federal Reserve unexpectedly raised its interest rate target,which of the following would most likely occur?

To stabilize real GDP when the money demand curve shifts up on its own,the Fed must increase the money supply.

To stabilize real GDP when the money demand curve shifts on its own,the Fed must change the money supply.

If there is a large increase in the price of oil and the Fed wishes to maintain stable output,which of the following should it do?

What is the major cost of slowing down an ongoing inflation?

Which of the following is a microeconomic problem?

Why doesn't the Fed eliminate inflation from the economy entirely?

If money demand decreases due to greater use of credit cards,which of the following would most likely happen under a neutralization policy?

The Fed has been able to achieve a zero rate of inflation throughout most of the 1990s.

Which of the following are equivalent terms?

Why do negative supply shocks present such a difficulty for the Federal Reserve?

-Refer to Figure 16-2.Suppose a supply shock shifts the aggregate supply curve from AS₁ to AS₂,and decreases output below full employment.If the Fed then decreases the money supply,it will

If unemployment is above the natural rate,GDP is below potential output.

One problem with assets bubbles is that while it is easy to identify them as such in retrospect,it is not easy to do so in advance.

Revisions in the interest rate target

If cyclical unemployment is eliminated

The Federal Reserve has been quite consistently successful in keeping the inflation rate low over its entire history.

In the long run,

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

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

Which of the following would lead to a rightward shift of the money demand curve?

If the Federal Reserve unexpectedly raised its interest rate target,which of the following would most likely occur?

To stabilize real GDP when the money demand curve shifts up on its own,the Fed must increase the money supply.

To stabilize real GDP when the money demand curve shifts on its own,the Fed must change the money supply.

If there is a large increase in the price of oil and the Fed wishes to maintain stable output,which of the following should it do?

What is the major cost of slowing down an ongoing inflation?

Which of the following is a microeconomic problem?

Why doesn't the Fed eliminate inflation from the economy entirely?

If money demand decreases due to greater use of credit cards,which of the following would most likely happen under a neutralization policy?

The Fed has been able to achieve a zero rate of inflation throughout most of the 1990s.

Which of the following are equivalent terms?

Why do negative supply shocks present such a difficulty for the Federal Reserve?

-Refer to Figure 16-2.Suppose a supply shock shifts the aggregate supply curve from AS₁ to AS₂,and decreases output below full employment.If the Fed then decreases the money supply,it will

If unemployment is above the natural rate,GDP is below potential output.

One problem with assets bubbles is that while it is easy to identify them as such in retrospect,it is not easy to do so in advance.

Revisions in the interest rate target

If cyclical unemployment is eliminated

The Federal Reserve has been quite consistently successful in keeping the inflation rate low over its entire history.

In the long run,

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