Question 1

The historical record of the Fed's success in controlling inflation has been

Accepted Answer

A)  consistently strong 
B)  inconsistent 
C)  consistently disappointing 
D)  shaped primarily by supply shocks 
E)  incapable of measurement 
A)  consistently strong 
B)  inconsistent 
C)  consistently disappointing 
D)  shaped primarily by supply shocks 
E)  incapable of measurement

Question 2

The Fed's objectives have remained the same since its inception.

Accepted Answer

A) True 
 B)False

Question 3

Ongoing inflation means the Fed must respond to

Accepted Answer

A)  an upward-shifting AS curve 
B)  a downward-shifting AS curve 
C)  changing interest rate targets 
D)  a depression 
E)  a lower real interest rate 
A)  an upward-shifting AS curve 
B)  a downward-shifting AS curve 
C)  changing interest rate targets 
D)  a depression 
E)  a lower real interest rate

Question 4

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

Accepted Answer

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

Question 5

The natural rate of unemployment

Accepted Answer

A)  is a specific unemployment rate that can be a target for the Fed 
B)  changes as the inflation rate changes 
C)  is natural because it does not change from period to period 
D)  is a measure of the quality of the Fed's performance 
E)  changes as the efficiency of job searches change 
A)  is a specific unemployment rate that can be a target for the Fed 
B)  changes as the inflation rate changes 
C)  is natural because it does not change from period to period 
D)  is a measure of the quality of the Fed's performance 
E)  changes as the efficiency of job searches change

Question 6

Short-run movements along the Phillips curve

Accepted Answer

A)  remind us of the dangers of confusing various types of unemployment 
B)  may determine long-run shifts of the same curve 
C)  are usually brief and dramatic 
D)  respond to different assumptions about consumer confidence 
E)  lead to long-run movements along the same curve 
A)  remind us of the dangers of confusing various types of unemployment 
B)  may determine long-run shifts of the same curve 
C)  are usually brief and dramatic 
D)  respond to different assumptions about consumer confidence 
E)  lead to long-run movements along the same curve

Question 7

The Fed responds to money demand shocks by

Accepted Answer

A)  changing the velocity of money 
B)  changing the money supply 
C)  following the money creation rules responsible for its success in the past two decades 
D)  increasing the required reserve ratio 
E)  changing its definition of the natural rate of unemployment 
A)  changing the velocity of money 
B)  changing the money supply 
C)  following the money creation rules responsible for its success in the past two decades 
D)  increasing the required reserve ratio 
E)  changing its definition of the natural rate of unemployment

Question 8

If the economy is at potential output,the price level can continue to increase.

Accepted Answer

A) True 
 B)False

Question 9

During the first four years of the Great Depression,the price level fell an average of 10 percent per year.

Accepted Answer

A) True 
 B)False

Question 10

If the Fed wanted to prevent a change in money demand from affecting real GDP,which of the following rules would be feasible and allow the Fed to attain its goal?

Accepted Answer

A)  Keep government spending constant 
B)  Keep the money supply constant 
C)  Keep money demand constant 
D)  Keep taxes constant 
E)  Keep the interest rate constant. 
A)  Keep government spending constant 
B)  Keep the money supply constant 
C)  Keep money demand constant 
D)  Keep taxes constant 
E)  Keep the interest rate constant.

Question 11

Ongoing inflation has its own momentum because

Accepted Answer

A)  prices rise whenever firms see other prices rising 
B)  the public learns to expect inflation and adjusts its decisions in response 
C)  public officials are unwilling to stop prosperity 
D)  more and more people now have jobs 
E)  we are always playing catch up,trying to get what we lost when others raise prices 
A)  prices rise whenever firms see other prices rising 
B)  the public learns to expect inflation and adjusts its decisions in response 
C)  public officials are unwilling to stop prosperity 
D)  more and more people now have jobs 
E)  we are always playing catch up,trying to get what we lost when others raise prices

Question 12

Over the past twenty years the Fed's policy experience

Accepted Answer

A)  has been good and improving 
B)  is an indicator that economic policy is confused 
C)  shows a focus on full employment 
D)  reveals a lack of concern about unemployment 
E)  has been generally poor and deteriorating 
A)  has been good and improving 
B)  is an indicator that economic policy is confused 
C)  shows a focus on full employment 
D)  reveals a lack of concern about unemployment 
E)  has been generally poor and deteriorating

Question 13

The Fed can determine how the money demand curve has shifted by

Accepted Answer

A)  studying interest rate changes 
B)  looking at the number of new loans 
C)  studying unemployment compensation claims 
D)  experimenting with changes in credit conditions 
E)  checking the size of the federal budget deficit 
A)  studying interest rate changes 
B)  looking at the number of new loans 
C)  studying unemployment compensation claims 
D)  experimenting with changes in credit conditions 
E)  checking the size of the federal budget deficit

Question 14

If there is an increase in the price of oil and the Fed wishes to maintain price stability,what 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 the price level 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 the price level 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 15

In its day-to-day operations,the Fed focuses on

Accepted Answer

A)  an unemployment rate target 
B)  an inflation rate target 
C)  an interest rate target 
D)  a money demand curve target 
E)  several economic targets together 
A)  an unemployment rate target 
B)  an inflation rate target 
C)  an interest rate target 
D)  a money demand curve target 
E)  several economic targets together

Question 16

If money demand falls on its own (i.e. ,not in response to a spending shock),what must the Fed do to stabilize GDP?

Accepted Answer

A)  Increase the money supply 
B)  Decrease the money supply 
C)  Leave the money supply and money demand unchanged 
D)  Increase money demand 
E)  Decrease money demand. 
A)  Increase the money supply 
B)  Decrease the money supply 
C)  Leave the money supply and money demand unchanged 
D)  Increase money demand 
E)  Decrease money demand.

Question 17

What could be a reason for a falling inflation rate?

Accepted Answer

A)  Consumer optimism 
B)  A negative spending shock 
C)  Unemployment is below the natural rate 
D)  An increase in oil prices 
E)  A sudden increase in investment spending. 
A)  Consumer optimism 
B)  A negative spending shock 
C)  Unemployment is below the natural rate 
D)  An increase in oil prices 
E)  A sudden increase in investment spending.

Question 18

At present,what is the approximate natural rate of unemployment in the United States?

Accepted Answer

A)  4.5 percent 
B)  5.5 percent 
C)  7 percent 
D)  8.5 percent 
E)  2.5 percent 
A)  4.5 percent 
B)  5.5 percent 
C)  7 percent 
D)  8.5 percent 
E)  2.5 percent

Question 19

If there is a sudden increase in government spending,which of the following should the Fed do if it wants to keep output unchanged?

Accepted Answer

A)  Do nothing,since the self-correcting mechanism will adjust the economy 
B)  Sell bonds in the open market 
C)  Wait,since output usually does not change when government spending increases 
D)  Decrease the required reserve ratio 
E)  Buy bonds in the open market. 
A)  Do nothing,since the self-correcting mechanism will adjust the economy 
B)  Sell bonds in the open market 
C)  Wait,since output usually does not change when government spending increases 
D)  Decrease the required reserve ratio 
E)  Buy bonds in the open market.

Question 20

To stabilize real GDP,the Fed must increase the money supply in response to a

Accepted Answer

A)  positive demand shock 
B)  low level of unemployment 
C)  sudden upsurge in inflation 
D)  rise in the interest rate 
E)  negative demand shock 
A)  positive demand shock 
B)  low level of unemployment 
C)  sudden upsurge in inflation 
D)  rise in the interest rate 
E)  negative demand shock

The historical record of the Fed's success in controlling inflation has been

The Fed's objectives have remained the same since its inception.

Ongoing inflation means the Fed must respond to

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

The natural rate of unemployment

Short-run movements along the Phillips curve

The Fed responds to money demand shocks by

If the economy is at potential output,the price level can continue to increase.

During the first four years of the Great Depression,the price level fell an average of 10 percent per year.

If the Fed wanted to prevent a change in money demand from affecting real GDP,which of the following rules would be feasible and allow the Fed to attain its goal?

Ongoing inflation has its own momentum because

Over the past twenty years the Fed's policy experience

The Fed can determine how the money demand curve has shifted by

If there is an increase in the price of oil and the Fed wishes to maintain price stability,what should it do?

In its day-to-day operations,the Fed focuses on

If money demand falls on its own (i.e. ,not in response to a spending shock),what must the Fed do to stabilize GDP?

What could be a reason for a falling inflation rate?

At present,what is the approximate natural rate of unemployment in the United States?

If there is a sudden increase in government spending,which of the following should the Fed do if it wants to keep output unchanged?

To stabilize real GDP,the Fed must increase the money supply in response to a

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 historical record of the Fed's success in controlling inflation has been

The Fed's objectives have remained the same since its inception.

Ongoing inflation means the Fed must respond to

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

The natural rate of unemployment

Short-run movements along the Phillips curve

The Fed responds to money demand shocks by

If the economy is at potential output,the price level can continue to increase.

During the first four years of the Great Depression,the price level fell an average of 10 percent per year.

If the Fed wanted to prevent a change in money demand from affecting real GDP,which of the following rules would be feasible and allow the Fed to attain its goal?

Ongoing inflation has its own momentum because

Over the past twenty years the Fed's policy experience

The Fed can determine how the money demand curve has shifted by

If there is an increase in the price of oil and the Fed wishes to maintain price stability,what should it do?

In its day-to-day operations,the Fed focuses on

If money demand falls on its own (i.e. ,not in response to a spending shock),what must the Fed do to stabilize GDP?

What could be a reason for a falling inflation rate?

At present,what is the approximate natural rate of unemployment in the United States?

If there is a sudden increase in government spending,which of the following should the Fed do if it wants to keep output unchanged?

To stabilize real GDP,the Fed must increase the money supply in response to a

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