Question 1

Using the money demand and money supply model,show and explain why the Federal Reserve cannot achieve a target for both the money supply and an interest rate.

Accepted Answer

The Fed does not control money demand,so

Question 2

The Fed has adopted an interest rate target for most of the time since World War II.

Accepted Answer

A) True 
 B)False

Question 3

Expansionary monetary policy enacted during a recession will cause the inflation rate to increase.

Accepted Answer

A) True 
 B)False

Question 4

Figure 17-7
  
-Refer to Figure 17-7.Suppose the economy is in a recession and the Fed pursues an expansionary monetary policy.Using the static AD-AS model in the figure above,this 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 5

The goals of monetary policy tend to be interrelated.For example,when the Fed pursues the goal of ________,it also can achieve the goal of ________ simultaneously.

Accepted Answer

A) high employment; economic growth 
B) high employment; lowering government spending 
C) economic growth; a low current account deficit 
D) stability of financial markets; a low current account deficit 
A) high employment; economic growth 
B) high employment; lowering government spending 
C) economic growth; a low current account deficit 
D) stability of financial markets; a low current account deficit

Question 6

In 2008,the Treasury and Federal Reserve took several actions in response to the deepening financial crisis.One action was the creation of the Term Securities Lending Facility,under which the Fed will loan up to $200 billion of treasury securities in exchange for

Accepted Answer

A) stock. 
B) mortgage-backed securities. 
C) corporate bonds. 
D) required bank reserves. 
A) stock. 
B) mortgage-backed securities. 
C) corporate bonds. 
D) required bank reserves.

Question 7

Contractionary monetary policy on the part of the Fed results in

Accepted Answer

A) an increase in the money supply, an increase in interest rates, and an increase in GDP. 
B) a decrease in the money supply, an increase in interest rates, and a decrease in GDP. 
C) an increase in the money supply, a decrease in interest rates, and an increase in GDP. 
D) a decrease in the money supply, a decrease in interest rates, and a decrease in GDP. 
A) an increase in the money supply, an increase in interest rates, and an increase in GDP. 
B) a decrease in the money supply, an increase in interest rates, and a decrease in GDP. 
C) an increase in the money supply, a decrease in interest rates, and an increase in GDP. 
D) a decrease in the money supply, a decrease in interest rates, and a decrease in GDP.

Question 8

Suppose the equilibrium real federal funds rate is 5 percent,the target rate of inflation is 3 percent,the current inflation rate is 5 percent,and real GDP is 4 percent above potential real GDP.If the weights for the inflation gap and the output gap are both 1/2,then according to the Taylor rule the federal funds target rate equals

Accepted Answer

A) 1 percent. 
B) 9 percent. 
C) 13 percent. 
D) 17 percent. 
A) 1 percent. 
B) 9 percent. 
C) 13 percent. 
D) 17 percent.

Question 9

In the following table,fill in the columns for your return on investment if the price of your house increased or decreased by 40 percent,based on the down payments specified in the first column.
Return on Your Investment From
 $$\begin{array} { | c | c | c | } 
\hline \text { Dawn Payment } & \begin{array} { c } 
\text { A 40 Percent Increase } \
\text { in the Price of Your } \
\text { Hause }
\end{array} & \begin{array} { c } 
\text { A 40 Percent } \
\text { Decrewe in the Price } \
\text { uf Your Hause }
\end{array} \
\hline 100 \% & & \
\hline 20 & & \
\hline 10 & & \
\hline 5 & & \
\hline
\end{array}$$

Accepted Answer

Return on Your Investment From
 \[\begin

Question 10

According to the Taylor rule,the Fed should set the target for the federal funds rate equal to the sum of the equilibrium real federal funds rate,the current inflation rate,one-half times the ________,and one-half times the ________.

Accepted Answer

A) interest rate gap; inflation gap 
B) interest rate gap; output gap 
C) inflation gap; output gap 
D) unemployment gap; government-spending gap 
A) interest rate gap; inflation gap 
B) interest rate gap; output gap 
C) inflation gap; output gap 
D) unemployment gap; government-spending gap

Question 11

Figure 17-12
  
-Refer to Figure 17-12.In the dynamic AD-AS model,the economy is at point A in year 1 and is expected to go to point B in year 2,and the Federal Reserve pursues policy.This will result in

Accepted Answer

A) unemployment rates higher than what would occur if no policy had been pursued. 
B) inflation rates higher than what would occur if no policy had been pursued. 
C) potential real GDP levels lower than what would occur if no policy had been pursued. 
D) real GDP levels higher than what would occur if no policy had been pursued. 
A) unemployment rates higher than what would occur if no policy had been pursued. 
B) inflation rates higher than what would occur if no policy had been pursued. 
C) potential real GDP levels lower than what would occur if no policy had been pursued. 
D) real GDP levels higher than what would occur if no policy had been pursued.

Question 12

What is a banking panic,and what role did banking panics play in the decision by Congress to establish the Federal Reserve?

Accepted Answer

When the Fed was founded,its primary res

Question 13

Your roommate is having trouble grasping how monetary policy works.Which of the following explanations could you use to correctly describe the mechanism by which the Fed can affect the economy through monetary policy? Increasing the money supply

Accepted Answer

A) lowers the interest rate, and firms increase investment spending. 
B) causes people to spend more because they know prices will rise in the future. 
C) raises the interest rate and consumers decrease spending on durable goods. 
D) lowers the interest rate, raises the value of the dollar, lowers the prices of exports, and raises net exports. 
A) lowers the interest rate, and firms increase investment spending. 
B) causes people to spend more because they know prices will rise in the future. 
C) raises the interest rate and consumers decrease spending on durable goods. 
D) lowers the interest rate, raises the value of the dollar, lowers the prices of exports, and raises net exports.

Question 14

The money demand curve,against possible levels of interest rates,has a

Accepted Answer

A) positive slope. 
B) negative slope. 
C) zero slope. 
D) positive slope for low levels of money demand, a negative slope for high levels of money demand. 
A) positive slope. 
B) negative slope. 
C) zero slope. 
D) positive slope for low levels of money demand, a negative slope for high levels of money demand.

Question 15

Since 2000,the Fed uses ________ to measure inflation.

Accepted Answer

A) the index of leading economic indicators 
B) the personal consumption expenditures index 
C) the consumer price index 
D) the GDP deflator 
E) the producer price index 
A) the index of leading economic indicators 
B) the personal consumption expenditures index 
C) the consumer price index 
D) the GDP deflator 
E) the producer price index

Question 16

A decrease in interest rates can ________ the demand for stocks as stocks become relatively ________ attractive investments as compared to bonds.

Accepted Answer

A) increase; more 
B) decrease; less 
C) decrease; more 
D) increase; less 
E) increase; similar 
A) increase; more 
B) decrease; less 
C) decrease; more 
D) increase; less 
E) increase; similar

Question 17

Figure 17-13
  
-Refer to Figure 17-13.In the figure above,if the economy in Year 1 is at point A and expected in Year 2 to be at point B,then 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 18

If the Fed lowers its target for the federal funds rate,this indicates that

Accepted Answer

A) the Fed is pursuing an expansionary monetary policy. 
B) the Fed is pursuing a contractionary monetary policy. 
C) the Fed is attempting to combat inflation. 
D) the Fed is concerned that the growth in aggregate demand will exceed potential GDP. 
A) the Fed is pursuing an expansionary monetary policy. 
B) the Fed is pursuing a contractionary monetary policy. 
C) the Fed is attempting to combat inflation. 
D) the Fed is concerned that the growth in aggregate demand will exceed potential GDP.

Question 19

When the Federal Reserve increases the money supply,at the previous equilibrium interest rate households and firms will now have

Accepted Answer

A) more money than they want to hold. 
B) less money than they want to hold. 
C) the amount of money that they want to hold. 
D) to sell Treasury bills. 
A) more money than they want to hold. 
B) less money than they want to hold. 
C) the amount of money that they want to hold. 
D) to sell Treasury bills.

Question 20

Using the money demand and money supply model,an open market sale of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to

Accepted Answer

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

Using the money demand and money supply model,show and explain why the Federal Reserve cannot achieve a target for both the money supply and an interest rate.

The Fed has adopted an interest rate target for most of the time since World War II.

Expansionary monetary policy enacted during a recession will cause the inflation rate to increase.

Figure 17-7 -Refer to Figure 17-7.Suppose the economy is in a recession and the Fed pursues an expansionary monetary policy.Using the static AD-AS model in the figure above,this would be depicted as a movement from

The goals of monetary policy tend to be interrelated.For example,when the Fed pursues the goal of ,it also can achieve the goal of simultaneously.

In 2008,the Treasury and Federal Reserve took several actions in response to the deepening financial crisis.One action was the creation of the Term Securities Lending Facility,under which the Fed will loan up to $200 billion of treasury securities in exchange for

Contractionary monetary policy on the part of the Fed results in

According to the Taylor rule,the Fed should set the target for the federal funds rate equal to the sum of the equilibrium real federal funds rate,the current inflation rate,one-half times the ,and one-half times the .

Figure 17-12 -Refer to Figure 17-12.In the dynamic AD-AS model,the economy is at point A in year 1 and is expected to go to point B in year 2,and the Federal Reserve pursues policy.This will result in

What is a banking panic,and what role did banking panics play in the decision by Congress to establish the Federal Reserve?

Your roommate is having trouble grasping how monetary policy works.Which of the following explanations could you use to correctly describe the mechanism by which the Fed can affect the economy through monetary policy? Increasing the money supply

The money demand curve,against possible levels of interest rates,has a

Since 2000,the Fed uses ________ to measure inflation.

A decrease in interest rates can the demand for stocks as stocks become relatively attractive investments as compared to bonds.

Figure 17-13 -Refer to Figure 17-13.In the figure above,if the economy in Year 1 is at point A and expected in Year 2 to be at point B,then the appropriate monetary policy by the Federal Reserve would be to

If the Fed lowers its target for the federal funds rate,this indicates that

When the Federal Reserve increases the money supply,at the previous equilibrium interest rate households and firms will now have

Using the money demand and money supply model,an open market sale of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to

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

Using the money demand and money supply model,show and explain why the Federal Reserve cannot achieve a target for both the money supply and an interest rate.

The Fed has adopted an interest rate target for most of the time since World War II.

Expansionary monetary policy enacted during a recession will cause the inflation rate to increase.

Figure 17-7 -Refer to Figure 17-7.Suppose the economy is in a recession and the Fed pursues an expansionary monetary policy.Using the static AD-AS model in the figure above,this would be depicted as a movement from

The goals of monetary policy tend to be interrelated.For example,when the Fed pursues the goal of ________,it also can achieve the goal of ________ simultaneously.

In 2008,the Treasury and Federal Reserve took several actions in response to the deepening financial crisis.One action was the creation of the Term Securities Lending Facility,under which the Fed will loan up to $200 billion of treasury securities in exchange for

Contractionary monetary policy on the part of the Fed results in

According to the Taylor rule,the Fed should set the target for the federal funds rate equal to the sum of the equilibrium real federal funds rate,the current inflation rate,one-half times the ________,and one-half times the ________.

Figure 17-12 -Refer to Figure 17-12.In the dynamic AD-AS model,the economy is at point A in year 1 and is expected to go to point B in year 2,and the Federal Reserve pursues policy.This will result in

What is a banking panic,and what role did banking panics play in the decision by Congress to establish the Federal Reserve?

Your roommate is having trouble grasping how monetary policy works.Which of the following explanations could you use to correctly describe the mechanism by which the Fed can affect the economy through monetary policy? Increasing the money supply

The money demand curve,against possible levels of interest rates,has a

Since 2000,the Fed uses ________ to measure inflation.

A decrease in interest rates can ________ the demand for stocks as stocks become relatively ________ attractive investments as compared to bonds.

Figure 17-13 -Refer to Figure 17-13.In the figure above,if the economy in Year 1 is at point A and expected in Year 2 to be at point B,then the appropriate monetary policy by the Federal Reserve would be to

If the Fed lowers its target for the federal funds rate,this indicates that

When the Federal Reserve increases the money supply,at the previous equilibrium interest rate households and firms will now have

Using the money demand and money supply model,an open market sale of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to

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

The goals of monetary policy tend to be interrelated.For example,when the Fed pursues the goal of ,it also can achieve the goal of simultaneously.

According to the Taylor rule,the Fed should set the target for the federal funds rate equal to the sum of the equilibrium real federal funds rate,the current inflation rate,one-half times the ,and one-half times the .

A decrease in interest rates can the demand for stocks as stocks become relatively attractive investments as compared to bonds.