Question 1

In which of the following situations would the Fed conduct contractionary monetary policy?

Accepted Answer

A) The Fed believes that aggregate demand was growing too slowly to keep up with potential GDP. 
B) The Fed fears that unemployment is climbing above the natural rate. 
C) The Fed is concerned that aggregate demand would continue to exceed the growth in potential GDP. 
D) The Fed is worried that deflation will become a problem. 
A) The Fed believes that aggregate demand was growing too slowly to keep up with potential GDP. 
B) The Fed fears that unemployment is climbing above the natural rate. 
C) The Fed is concerned that aggregate demand would continue to exceed the growth in potential GDP. 
D) The Fed is worried that deflation will become a problem.

Question 2

If the Federal Reserve targets the interest rate and the money demand curve shifts to the left,then the Fed

Accepted Answer

A) cannot maintain the interest rate target. 
B) can maintain the interest rate target, but at a lower quantity of the money supply. 
C) can maintain the interest rate target, but at a higher quantity of the money supply. 
D) can maintain the interest rate target with no change in the money supply. 
A) cannot maintain the interest rate target. 
B) can maintain the interest rate target, but at a lower quantity of the money supply. 
C) can maintain the interest rate target, but at a higher quantity of the money supply. 
D) can maintain the interest rate target with no change in the money supply.

Question 3

The Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association were established by Congress in order to regulate banks that buy and sell mortgage-backed securities.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is true about the Federal Reserve and its ability to prevent recessions? The Federal Reserve

Accepted Answer

A) does not try to eliminate recessions, but instead focuses on preventing inflation. 
B) can fine tune the economy and realistically hope to keep the economy from experiencing recessions. 
C) cannot realistically fine tune the economy, but seeks to keep recessions shorter and milder than they would otherwise be. 
D) cannot realistically fine tune the economy and has little to no effect on the magnitude and length of recessions. 
A) does not try to eliminate recessions, but instead focuses on preventing inflation. 
B) can fine tune the economy and realistically hope to keep the economy from experiencing recessions. 
C) cannot realistically fine tune the economy, but seeks to keep recessions shorter and milder than they would otherwise be. 
D) cannot realistically fine tune the economy and has little to no effect on the magnitude and length of recessions.

Question 5

Changes in the federal funds rate usually result in

Accepted Answer

A) changes in both short-term and long-term interest rates with more of an effect on short-term interest rates. 
B) changes in both short-term and long-term interest rates with more of an effect on long-term interest rates. 
C) changes in both short-term and long-term interest rates with equal effect on both. 
D) no change in both short-term and long-term interest rates. 
A) changes in both short-term and long-term interest rates with more of an effect on short-term interest rates. 
B) changes in both short-term and long-term interest rates with more of an effect on long-term interest rates. 
C) changes in both short-term and long-term interest rates with equal effect on both. 
D) no change in both short-term and long-term interest rates.

Question 6

The Federal Reserve responded to the 2008 financial crisis in several ways.Which of the following is one of the ways the Fed responded?

Accepted Answer

A) The Fed banned investment banks from obtaining discount loans. 
B) The Fed lent investment banks Treasury securities in exchange for mortgage-backed securities. 
C) The Fed lowered the required reserve ratio on demand deposit accounts in order to increase the amount of bank reserves. 
D) The Fed helped Citibank to acquire General Motors and Chrysler. 
A) The Fed banned investment banks from obtaining discount loans. 
B) The Fed lent investment banks Treasury securities in exchange for mortgage-backed securities. 
C) The Fed lowered the required reserve ratio on demand deposit accounts in order to increase the amount of bank reserves. 
D) The Fed helped Citibank to acquire General Motors and Chrysler.

Question 7

Inflation targeting has been adopted by the central banks of several countries including the European Central Bank.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following would most likely induce the Federal Reserve to conduct expansionary monetary policy? A significant decrease in

Accepted Answer

A) oil prices. 
B) business taxes. 
C) income tax rates. 
D) investment spending. 
A) oil prices. 
B) business taxes. 
C) income tax rates. 
D) investment spending.

Question 9

Beginning in 2008,The Federal Reserve and the U.S.Treasury Department responded to the financial crisis by intervening in financial markets in unprecedented ways.Briefly summarize the actions of the Fed and Treasury.

Accepted Answer

Among the actions taken by the Fed and T

Question 10

The Fed can increase the federal funds rate by

Accepted Answer

A) selling Treasury bills, which increases bank reserves. 
B) buying Treasury bills, which increases bank reserves. 
C) selling Treasury bills, which decreases bank reserves. 
D) buying Treasury bills, which decreases bank reserves. 
A) selling Treasury bills, which increases bank reserves. 
B) buying Treasury bills, which increases bank reserves. 
C) selling Treasury bills, which decreases bank reserves. 
D) buying Treasury bills, which decreases bank reserves.

Question 11

When the price of a financial asset ________ its interest rate will ________.

Accepted Answer

A) rises; rise 
B) falls; fall 
C) falls; rise 
D) rises; remain the same 
A) rises; rise 
B) falls; fall 
C) falls; rise 
D) rises; remain the same

Question 12

Figure 17-7
  
-Refer to Figure 17-7.Suppose the Fed lowers its target for the federal funds rate.Using the static AD-AS model in the figure above,this situation would be depicted as a movement from

Accepted Answer

A) A to B. 
B) B to A. 
C) C to B. 
D) E to A. 
E) C to D. 
A) A to B. 
B) B to A. 
C) C to B. 
D) E to A. 
E) C to D.

Question 13

The Federal Reserve can directly affect its monetary policy ________,which then affect its monetary policy ________.

Accepted Answer

A) goals; targets 
B) goals; tools 
C) targets; goals 
D) targets; tools 
A) goals; targets 
B) goals; tools 
C) targets; goals 
D) targets; tools

Question 14

Figure 17-7
  
-Refer to Figure 17-7.Suppose the economy is in short-run equilibrium above potential GDP,the unemployment rate is very low,and wages and prices are rising.Using the static AD-AS model in the figure above,the correct Fed policy for this situation would be depicted as a movement from

Accepted Answer

A) A to B. 
B) B to C. 
C) C to B. 
D) A to E. 
E) C to D. 
A) A to B. 
B) B to C. 
C) C to B. 
D) A to E. 
E) C to D.

Question 15

The Fed can use contractionary monetary policy in an attempt to keep inflation from increasing.

Accepted Answer

A) True 
 B)False

Question 16

Expansionary monetary policy refers to the ________ to increase real GDP.

Accepted Answer

A) government's increasing spending and lowering taxes 
B) government's decreasing spending and raising taxes 
C) Federal Reserve's increasing the money supply and decreasing interest rates 
D) Federal Reserve's decreasing the money supply and increasing interest rates 
A) government's increasing spending and lowering taxes 
B) government's decreasing spending and raising taxes 
C) Federal Reserve's increasing the money supply and decreasing interest rates 
D) Federal Reserve's decreasing the money supply and increasing interest rates

Question 17

If the Fed orders a contractionary monetary policy,describe what will happen to the following variables relative to what would have happened without the policy:
a.The money supply
b.Interest rates
c.Investment
d.Consumption
e.Net Exports
f.The aggregate demand curve
g.Real GDP
h.The price level

Accepted Answer

a. The money supply decreases
b. Interes

Question 18

Figure 17-8
  
-Refer to Figure 17-8.In the figure above,if the economy is at point A,the appropriate monetary policy by the Federal Reserve would be to

Accepted Answer

A) lower interest rates. 
B) raise interest rates. 
C) lower income taxes. 
D) raise income taxes. 
A) lower interest rates. 
B) raise interest rates. 
C) lower income taxes. 
D) raise income taxes.

Question 19

Lowering the interest rate will

Accepted Answer

A) decrease spending on consumer durables. 
B) increase investment projects by firms. 
C) decrease spending on new homes. 
D) decrease the value of the dollar and lower net exports. 
A) decrease spending on consumer durables. 
B) increase investment projects by firms. 
C) decrease spending on new homes. 
D) decrease the value of the dollar and lower net exports.

Question 20

Suppose that households became mistrustful of the banking system and decide to decrease their checking accounts and increase their holdings of currency.Using the money demand and money supply model and assuming everything else is held constant,the equilibrium interest rate should

Accepted Answer

A) increase. 
B) decrease. 
C) not change. 
D) increase, then decrease. 
A) increase. 
B) decrease. 
C) not change. 
D) increase, then decrease.

In which of the following situations would the Fed conduct contractionary monetary policy?

If the Federal Reserve targets the interest rate and the money demand curve shifts to the left,then the Fed

The Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association were established by Congress in order to regulate banks that buy and sell mortgage-backed securities.

Which of the following is true about the Federal Reserve and its ability to prevent recessions? The Federal Reserve

Changes in the federal funds rate usually result in

The Federal Reserve responded to the 2008 financial crisis in several ways.Which of the following is one of the ways the Fed responded?

Inflation targeting has been adopted by the central banks of several countries including the European Central Bank.

Which of the following would most likely induce the Federal Reserve to conduct expansionary monetary policy? A significant decrease in

Beginning in 2008,The Federal Reserve and the U.S.Treasury Department responded to the financial crisis by intervening in financial markets in unprecedented ways.Briefly summarize the actions of the Fed and Treasury.

The Fed can increase the federal funds rate by

When the price of a financial asset its interest rate will .

Figure 17-7 -Refer to Figure 17-7.Suppose the Fed lowers its target for the federal funds rate.Using the static AD-AS model in the figure above,this situation would be depicted as a movement from

The Federal Reserve can directly affect its monetary policy ,which then affect its monetary policy .

Figure 17-7 -Refer to Figure 17-7.Suppose the economy is in short-run equilibrium above potential GDP,the unemployment rate is very low,and wages and prices are rising.Using the static AD-AS model in the figure above,the correct Fed policy for this situation would be depicted as a movement from

The Fed can use contractionary monetary policy in an attempt to keep inflation from increasing.

Expansionary monetary policy refers to the ________ to increase real GDP.

If the Fed orders a contractionary monetary policy,describe what will happen to the following variables relative to what would have happened without the policy: a.The money supply b.Interest rates c.Investment d.Consumption e.Net Exports f.The aggregate demand curve g.Real GDP h.The price level

Figure 17-8 -Refer to Figure 17-8.In the figure above,if the economy is at point A,the appropriate monetary policy by the Federal Reserve would be to

Lowering the interest rate will

Suppose that households became mistrustful of the banking system and decide to decrease their checking accounts and increase their holdings of currency.Using the money demand and money supply model and assuming everything else is held constant,the equilibrium interest rate should

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Consumer Choice and Elasticity

Technology, production, and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust Policy

Monopolistic Competition and Oligopoly

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Fiscal Policy

Comparative Advantage, international Trade, and Exchange Rates

Filters

Exam 17: Monetary Policy

In which of the following situations would the Fed conduct contractionary monetary policy?

If the Federal Reserve targets the interest rate and the money demand curve shifts to the left,then the Fed

The Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association were established by Congress in order to regulate banks that buy and sell mortgage-backed securities.

Which of the following is true about the Federal Reserve and its ability to prevent recessions? The Federal Reserve

Changes in the federal funds rate usually result in

The Federal Reserve responded to the 2008 financial crisis in several ways.Which of the following is one of the ways the Fed responded?

Inflation targeting has been adopted by the central banks of several countries including the European Central Bank.

Which of the following would most likely induce the Federal Reserve to conduct expansionary monetary policy? A significant decrease in

Beginning in 2008,The Federal Reserve and the U.S.Treasury Department responded to the financial crisis by intervening in financial markets in unprecedented ways.Briefly summarize the actions of the Fed and Treasury.

The Fed can increase the federal funds rate by

When the price of a financial asset ________ its interest rate will ________.

Figure 17-7 -Refer to Figure 17-7.Suppose the Fed lowers its target for the federal funds rate.Using the static AD-AS model in the figure above,this situation would be depicted as a movement from

The Federal Reserve can directly affect its monetary policy ________,which then affect its monetary policy ________.

Figure 17-7 -Refer to Figure 17-7.Suppose the economy is in short-run equilibrium above potential GDP,the unemployment rate is very low,and wages and prices are rising.Using the static AD-AS model in the figure above,the correct Fed policy for this situation would be depicted as a movement from

The Fed can use contractionary monetary policy in an attempt to keep inflation from increasing.

Expansionary monetary policy refers to the ________ to increase real GDP.

If the Fed orders a contractionary monetary policy,describe what will happen to the following variables relative to what would have happened without the policy: a.The money supply b.Interest rates c.Investment d.Consumption e.Net Exports f.The aggregate demand curve g.Real GDP h.The price level

Figure 17-8 -Refer to Figure 17-8.In the figure above,if the economy is at point A,the appropriate monetary policy by the Federal Reserve would be to

Lowering the interest rate will

Suppose that households became mistrustful of the banking system and decide to decrease their checking accounts and increase their holdings of currency.Using the money demand and money supply model and assuming everything else is held constant,the equilibrium interest rate should

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Consumer Choice and Elasticity

Technology, production, and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust Policy

Monopolistic Competition and Oligopoly

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Fiscal Policy

Comparative Advantage, international Trade, and Exchange Rates

Filters

When the price of a financial asset its interest rate will .

The Federal Reserve can directly affect its monetary policy ,which then affect its monetary policy .