Question 1

If the Fed wanted to shift to a more restrictive monetary policy,it would

Accepted Answer

A) expand the reserves available to the banking system,which would drive down short term interest rates. 
B) reduce the reserves available to the banking system,which would drive down short term interest rates. 
C) expand the reserves available to the banking system,which would drive up short term interest rates. 
D) reduce the reserves available to the banking system,which would drive up short term interest rates. 
A) expand the reserves available to the banking system,which would drive down short term interest rates. 
B) reduce the reserves available to the banking system,which would drive down short term interest rates. 
C) expand the reserves available to the banking system,which would drive up short term interest rates. 
D) reduce the reserves available to the banking system,which would drive up short term interest rates.

Question 2

During 2001-2004,the Fed injected additional reserves into the banking system,which reduced the federal funds rate and other short-term interest rates.Other things constant,what is the most likely short-run impact of this policy?

Accepted Answer

A) an increase in the rate of unemployment 
B) a reduction in the growth of employment 
C) an increase in aggregate demand and real GDP 
D) a reduction in the long-run rate of inflation 
A) an increase in the rate of unemployment 
B) a reduction in the growth of employment 
C) an increase in aggregate demand and real GDP 
D) a reduction in the long-run rate of inflation

Question 3

If the economy is in an inflationary boom,the Fed would most likely

Accepted Answer

A) increase bank reserves by raising the discount rate. 
B) increase bank reserves by buying government securities 
C) decrease bank reserves by lowering the discount rate. 
D) decrease bank reserves by selling government securities. 
E) decrease bank reserves by lowering the legal reserve requirement. 
A) increase bank reserves by raising the discount rate. 
B) increase bank reserves by buying government securities 
C) decrease bank reserves by lowering the discount rate. 
D) decrease bank reserves by selling government securities. 
E) decrease bank reserves by lowering the legal reserve requirement.

Question 4

Which of the following options would be most likely to cause an increase in short-term real interest rates?

Accepted Answer

A) The Federal Reserve cuts the discount rate. 
B) The Federal Reserve lowers the reserve requirement. 
C) The Federal Reserve sells bonds in the open market. 
D) The federal budget is shifted toward a surplus. 
A) The Federal Reserve cuts the discount rate. 
B) The Federal Reserve lowers the reserve requirement. 
C) The Federal Reserve sells bonds in the open market. 
D) The federal budget is shifted toward a surplus.

Question 5

When the Fed buys bonds and injects additional reserves into the banking system,this action will

Accepted Answer

A) place downward pressure on short-term interest rates. 
B) cause many decision makers to expect that the future rate of inflation will fall. 
C) place upward pressure on both short-term and long-term interest rates. 
D) place upward pressure on short-term interest rates and downward pressure on long-term interest rates. 
A) place downward pressure on short-term interest rates. 
B) cause many decision makers to expect that the future rate of inflation will fall. 
C) place upward pressure on both short-term and long-term interest rates. 
D) place upward pressure on short-term interest rates and downward pressure on long-term interest rates.

Question 6

The primary cause of inflation is

Accepted Answer

A) large budget deficits. 
B) high taxes. 
C) rapid expansion of the money supply. 
D) government expenditures that are large relative to the size of the economy. 
A) large budget deficits. 
B) high taxes. 
C) rapid expansion of the money supply. 
D) government expenditures that are large relative to the size of the economy.

Question 7

Use the figure below to answer the following question(s).
Figure 14-1
  
-In Figure 14-1,an unanticipated shift to a more expansionary monetary policy will shift

Accepted Answer

A) AD to the right and temporarily increase real GDP. 
B) AD to the left and temporarily reduce real GDP. 
C) AD to the right and SRAS to the left and lead to higher prices (inflation). 
D) both AD and SRAS to the right and lead to an increase in real GDP. 
A) AD to the right and temporarily increase real GDP. 
B) AD to the left and temporarily reduce real GDP. 
C) AD to the right and SRAS to the left and lead to higher prices (inflation). 
D) both AD and SRAS to the right and lead to an increase in real GDP.

Question 8

A decrease in the nominal interest rate would

Accepted Answer

A) encourage people to hold larger money balances. 
B) encourage people to hold smaller money balances. 
C) force the Fed to increase the money supply. 
D) cause households to decrease consumption. 
A) encourage people to hold larger money balances. 
B) encourage people to hold smaller money balances. 
C) force the Fed to increase the money supply. 
D) cause households to decrease consumption.

Question 9

The most likely short-run impact of an unanticipated decrease in the money supply is a(n)

Accepted Answer

A) decrease in the real interest rate,which in turn reduces investment and real GDP. 
B) increase in the real interest rate,which in turn reduces investment and real GDP. 
C) increase in real output,which causes the interest rate to rise and in turn reduces investment and real GDP. 
D) decrease in real output,which causes the real interest rate to rise. 
A) decrease in the real interest rate,which in turn reduces investment and real GDP. 
B) increase in the real interest rate,which in turn reduces investment and real GDP. 
C) increase in real output,which causes the interest rate to rise and in turn reduces investment and real GDP. 
D) decrease in real output,which causes the real interest rate to rise.

Question 10

Which of the following developments will most likely lead to an increase in the velocity of money?

Accepted Answer

A) a decrease in the expected inflation rate 
B) an increase in money interest rates 
C) a sharp decline in using credit cards 
D) a decrease in real income 
A) a decrease in the expected inflation rate 
B) an increase in money interest rates 
C) a sharp decline in using credit cards 
D) a decrease in real income

Question 11

Given the strict quantity theory of money,if the quantity of money were decreased by 50 percent,prices would

Accepted Answer

A) fall by 50 percent. 
B) rise by 50 percent. 
C) increase by 100 percent. 
D) decrease by 100 percent. 
A) fall by 50 percent. 
B) rise by 50 percent. 
C) increase by 100 percent. 
D) decrease by 100 percent.

Question 12

If the actual federal funds rate is substantially above the appropriate rate implied by the Taylor rule,this indicates that

Accepted Answer

A) monetary policy is overly expansionary and a shift toward a more restrictive policy would be appropriate. 
B) monetary policy is too restrictive and a shift to a more expansionary policy would be appropriate. 
C) monetary policy is unable to influence interest rates,and therefore it is unable to influence either output or prices. 
D) current monetary policy is on target and no policy shifts should be made. 
A) monetary policy is overly expansionary and a shift toward a more restrictive policy would be appropriate. 
B) monetary policy is too restrictive and a shift to a more expansionary policy would be appropriate. 
C) monetary policy is unable to influence interest rates,and therefore it is unable to influence either output or prices. 
D) current monetary policy is on target and no policy shifts should be made.

Question 13

In response to the severe recession of 2008-2009,the Fed

Accepted Answer

A) expanded the monetary base and pushed short-term interest rates sharply higher. 
B) reduced the size of the monetary base and pushed short-term interest rates sharply higher. 
C) more than doubled the size of the monetary base and pushed short-term interest rates to near zero. 
D) more than doubled the size of the monetary base and pushed short-term interest rates to a historic high. 
A) expanded the monetary base and pushed short-term interest rates sharply higher. 
B) reduced the size of the monetary base and pushed short-term interest rates sharply higher. 
C) more than doubled the size of the monetary base and pushed short-term interest rates to near zero. 
D) more than doubled the size of the monetary base and pushed short-term interest rates to a historic high.

Question 14

According to monetarists,which of the following would be most important for the control of inflation?

Accepted Answer

A) a steady increase in federal expenditures 
B) the imposition of price controls 
C) keeping the growth rate of the money supply low and steady 
D) a steady increase in the size of the budget deficit 
A) a steady increase in federal expenditures 
B) the imposition of price controls 
C) keeping the growth rate of the money supply low and steady 
D) a steady increase in the size of the budget deficit

Question 15

The cost of holding money balances increases when

Accepted Answer

A) the purchasing power of money rises. 
B) the money interest rate increases. 
C) the price of goods and services falls. 
D) consumer income expands. 
A) the purchasing power of money rises. 
B) the money interest rate increases. 
C) the price of goods and services falls. 
D) consumer income expands.

Question 16

Figure 14-6
  
-In Figure 14-7,short-run equilibrium occurs

Accepted Answer

A) at point a. 
B) at point b. 
C) at point c,where the actual price level exceeds the expected price level. 
D) at point c,where the actual price level is less than the expected price level. 
A) at point a. 
B) at point b. 
C) at point c,where the actual price level exceeds the expected price level. 
D) at point c,where the actual price level is less than the expected price level.

Question 17

Indicate how changes in monetary policy are transmitted to the goods and services market? Discuss for the case of an expansion in the money supply.

Accepted Answer

When the money supply is expanded,aggreg

Question 18

Classical economists believed that

Accepted Answer

A) the velocity of money was constant in the short run. 
B) the velocity of money was unaffected by the frequency of income payments. 
C) factors that change the velocity of money usually change rapidly. 
D) there was no link between the money supply and prices. 
A) the velocity of money was constant in the short run. 
B) the velocity of money was unaffected by the frequency of income payments. 
C) factors that change the velocity of money usually change rapidly. 
D) there was no link between the money supply and prices.

Question 19

During the nine months following July 2008,the Fed doubled the monetary base and generated huge excess reserves within the commercial banking system.This policy increases the danger of

Accepted Answer

A) a contraction in the money supply that will increase the length and severity of the recession. 
B) rapid future growth of the money supply and inflation. 
C) higher future interest rates,which will increase the length and severity of the recession. 
D) a credit contraction because banks are unable to extend future loans. 
A) a contraction in the money supply that will increase the length and severity of the recession. 
B) rapid future growth of the money supply and inflation. 
C) higher future interest rates,which will increase the length and severity of the recession. 
D) a credit contraction because banks are unable to extend future loans.

Question 20

Use the figure below to answer the following question(s).
Figure 14-9
   
AD₁ and SRAS₁ indicate the initial conditions in an economy,with the current level of output,Y₂,being the full employment level,and the current price level being P₁.
-Refer to Figure 14-9.If the Fed unexpectedly increases the money supply,the short-run impact of this policy will be a movement to

Accepted Answer

A) P₁ and Y₂. 
B) P₂ and Y₁. 
C) P₂ and Y3. 
D) P₃ and Y₂. 
A) P₁ and Y₂. 
B) P₂ and Y₁. 
C) P₂ and Y3. 
D) P₃ and Y₂.

Exam 14: Modern Macroeconomics and Monetary Policy

If the Fed wanted to shift to a more restrictive monetary policy,it would

During 2001-2004,the Fed injected additional reserves into the banking system,which reduced the federal funds rate and other short-term interest rates.Other things constant,what is the most likely short-run impact of this policy?

If the economy is in an inflationary boom,the Fed would most likely

Which of the following options would be most likely to cause an increase in short-term real interest rates?

When the Fed buys bonds and injects additional reserves into the banking system,this action will

The primary cause of inflation is

Use the figure below to answer the following question(s). Figure 14-1 -In Figure 14-1,an unanticipated shift to a more expansionary monetary policy will shift

A decrease in the nominal interest rate would

The most likely short-run impact of an unanticipated decrease in the money supply is a(n)

Which of the following developments will most likely lead to an increase in the velocity of money?

Given the strict quantity theory of money,if the quantity of money were decreased by 50 percent,prices would

If the actual federal funds rate is substantially above the appropriate rate implied by the Taylor rule,this indicates that

In response to the severe recession of 2008-2009,the Fed

According to monetarists,which of the following would be most important for the control of inflation?

The cost of holding money balances increases when

Figure 14-6 -In Figure 14-7,short-run equilibrium occurs

Indicate how changes in monetary policy are transmitted to the goods and services market? Discuss for the case of an expansion in the money supply.

Classical economists believed that

During the nine months following July 2008,the Fed doubled the monetary base and generated huge excess reserves within the commercial banking system.This policy increases the danger of

The Economic Approach

Asome Tools of the Economist

Asupply,demand,and the Market Process

Asupply and Demand: Applications and Extensions

Difficult Cases for the Market and the Role of Government

The Economics of Collective Decision-Making

Ataking the Nations Economic Pulse

Economic Fluctuations, unemployment, and Inflation

Aan Introduction to Basic Macroeconomic Markets

Dynamic Change, economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and Historical Perspective

Fiscal Policy, incentives, and Secondary Effects

Amoney and the Banking System

Stabilization Policy, output, and Employment

Creating an Environment for Growth and Prosperity

Institutions,policies,and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Consumer Choice and Elasticity

Acosts and the Supply of Goods

Aprice Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Aprice-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Government Spending and Taxation

The Economics of Social Security

The Stock Market: Its Function, Performance, and Potential As an Investment Opportunity

Great Debates in Economics: Keynes Versus Hayek

The Crisis of 2008: Causes and Lessons for the Future

Lessons From the Great Depression

Lessons From Japan and Canada

The Federal Budget and the National Debt

The Economics of Healthcare

Education: Problems and Performance

Earnings Differences Between Men and Women

Do Labor Unions Increase the Wages of Workers

The Question of Resource Exhaustion

Difficult Environmental Cases and the Role of Government

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