Question 1

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 2

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 3

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 4

Inflation rates during the years 1979-1981 were the highest the United States has ever experienced during peacetime.

Accepted Answer

A) True 
 B)False

Question 5

When housing prices fall,as they did beginning in 2006 following the housing market bubble,consumption spending on furniture,appliances,and home improvements ________ as many households found it ________ to borrow against the value of their homes.

Accepted Answer

A)  declined; easier 
B)  declined; harder 
C)  increased; easier 
D)  increased; harder 
A)  declined; easier 
B)  declined; harder 
C)  increased; easier 
D)  increased; harder

Question 6

Mortgage lenders often resell mortgages in secondary markets.How might this make lenders act differently than if they intended to hold the mortgages themselves?

Accepted Answer

Lenders would be more likely to grant mo

Question 7

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 8

Most economists believe that the best monetary policy target is

Accepted Answer

A)  an interest rate. 
B)  the money supply. 
C)  total bank reserves. 
D)  the discount rate. 
A)  an interest rate. 
B)  the money supply. 
C)  total bank reserves. 
D)  the discount rate.

Question 9

Figure 26-7
  
-Refer to Figure 26-7.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 10

An increase in the price level causes

Accepted Answer

A)  the money demand curve to shift to the left. 
B)  the money demand curve to shift to the right. 
C)  a movement up along the money demand curve. 
D)  a movement down along the money demand curve. 
A)  the money demand curve to shift to the left. 
B)  the money demand curve to shift to the right. 
C)  a movement up along the money demand curve. 
D)  a movement down along the money demand curve.

Question 11

By the height of the housing bubble in 2005 and early 2006,lenders had greatly loosened the standards for obtaining a mortgage loan,with many mortgages being granted to ________ borrowers with flawed credit histories and ________ borrowers who did not document their incomes.

Accepted Answer

A)  sub-prime; "Alt-A" 
B)  adjustable rate; shadow-banking 
C)  "credit crunch"; black market 
D)  "fresh-start"; prime rate 
A)  sub-prime; "Alt-A" 
B)  adjustable rate; shadow-banking 
C)  "credit crunch"; black market 
D)  "fresh-start"; prime rate

Question 12

When calculating GDP,the Bureau of Economic Analysis revises its quarterly data

Accepted Answer

A)  a total of one time. 
B)  a total of two times. 
C)  a total of three times. 
D)  many times over the next several years. 
A)  a total of one time. 
B)  a total of two times. 
C)  a total of three times. 
D)  many times over the next several years.

Question 13

Firms that participate in regular open market transactions with the Federal Reserve are called

Accepted Answer

A)  secondary market banks. 
B)  Treasury banks. 
C)  primary dealers. 
D)  Federal Reserve partners. 
A)  secondary market banks. 
B)  Treasury banks. 
C)  primary dealers. 
D)  Federal Reserve partners.

Question 14

Contractionary monetary policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.

Accepted Answer

A)  higher; higher 
B)  higher; lower 
C)  lower; higher 
D)  lower; lower 
A)  higher; higher 
B)  higher; lower 
C)  lower; higher 
D)  lower; lower

Question 15

In the Taylor rule,does the target for the federal funds rate respond differently for a recession caused by a decrease in aggregate demand and for a recession caused by a decrease in short-run aggregate supply? Explain whether there is or is not a difference in how the target for the federal funds rate changes.

Accepted Answer

The target for the federal funds rate re

Question 16

Table 26-2
  
-Refer to Table 26-2.The hypothetical information in the table shows what the values for real GDP and the price level will be in 2011 if the Federal Reserve does not use monetary policy:
a.If the Fed wants to keep real GDP at its potential level in 2011,should it use an expansionary policy or a contractionary policy? Should the trading desk buy T-bills or sell them?
b.Suppose the Fed's policy is successful in keeping real GDP at its potential level in 2011.State whether each of the following will be higher or lower than if the Fed had taken no action:
(i) Real GDP
(ii) Full-employment real GDP
(iii) The inflation rate
(iv) The unemployment rate
c.Draw an aggregate demand and aggregate supply graph to illustrate your answer.Be sure that your graph contains LRAS curves for 2010 and 2011; SRAS curves 2010 and 2011; AD curve for 2010 and 2011,with and without monetary policy actions; and equilibrium real GDP and the price level in 2011 with and without policy.

Accepted Answer

a.The Fed should use contractionary mone

Question 17

Monetarists think that the Fed should use ________ as a target when conducting monetary policy.

Accepted Answer

A)  the money supply 
B)  the federal funds rate 
C)  the Treasury bill rate 
D)  the inflation rate 
E)  the unemployment rate 
A)  the money supply 
B)  the federal funds rate 
C)  the Treasury bill rate 
D)  the inflation rate 
E)  the unemployment rate

Question 18

A monetary policy target is a variable that the Fed can affect directly,which then affects one or more of the Fed's policy goals.

Accepted Answer

A) True 
 B)False

Question 19

Does the money demand curve have a positive slope or a negative slope? Why does it have this slope? Explain why an increase in the variable on the vertical axis of the money demand curve causes either an increase or a decrease in the variable on the horizontal axis of the money demand curve.

Accepted Answer

The money demand curve has a negative sl

Question 20

Which of the following statements about inflation targeting is true?

Accepted Answer

A)  Inflation targeting by the central banks in other countries has not typically lowered inflation. 
B)  Inflation targeting would not reduce the flexibility of monetary policy to address other policy goals. 
C)  Inflation targeting would not allow the central bank the flexibility to take action against a severe recession. 
D)  Inflation targeting would make it easier for households and firms to form accurate expectations of future inflation, improving their planning and the efficiency of the economy. 
A)  Inflation targeting by the central banks in other countries has not typically lowered inflation. 
B)  Inflation targeting would not reduce the flexibility of monetary policy to address other policy goals. 
C)  Inflation targeting would not allow the central bank the flexibility to take action against a severe recession. 
D)  Inflation targeting would make it easier for households and firms to form accurate expectations of future inflation, improving their planning and the efficiency of the economy.

The Fed can increase the federal funds rate by

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

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

Inflation rates during the years 1979-1981 were the highest the United States has ever experienced during peacetime.

When housing prices fall,as they did beginning in 2006 following the housing market bubble,consumption spending on furniture,appliances,and home improvements as many households found it to borrow against the value of their homes.

Mortgage lenders often resell mortgages in secondary markets.How might this make lenders act differently than if they intended to hold the mortgages themselves?

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

Most economists believe that the best monetary policy target is

Figure 26-7 -Refer to Figure 26-7.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

An increase in the price level causes

By the height of the housing bubble in 2005 and early 2006,lenders had greatly loosened the standards for obtaining a mortgage loan,with many mortgages being granted to borrowers with flawed credit histories and borrowers who did not document their incomes.

When calculating GDP,the Bureau of Economic Analysis revises its quarterly data

Firms that participate in regular open market transactions with the Federal Reserve are called

Contractionary monetary policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be and real GDP to be .

Monetarists think that the Fed should use ________ as a target when conducting monetary policy.

A monetary policy target is a variable that the Fed can affect directly,which then affects one or more of the Fed's policy goals.

Does the money demand curve have a positive slope or a negative slope? Why does it have this slope? Explain why an increase in the variable on the vertical axis of the money demand curve causes either an increase or a decrease in the variable on the horizontal axis of the money demand curve.

Which of the following statements about inflation targeting is true?

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency,government Price Setting,and Taxes

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money,banks,and the Federal Reserve System

Fiscal Policy

Inflation, unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

Exam 15: Monetary Policy

The Fed can increase the federal funds rate by

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

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

Inflation rates during the years 1979-1981 were the highest the United States has ever experienced during peacetime.

When housing prices fall,as they did beginning in 2006 following the housing market bubble,consumption spending on furniture,appliances,and home improvements ________ as many households found it ________ to borrow against the value of their homes.

Mortgage lenders often resell mortgages in secondary markets.How might this make lenders act differently than if they intended to hold the mortgages themselves?

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

Most economists believe that the best monetary policy target is

Figure 26-7 -Refer to Figure 26-7.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

An increase in the price level causes

By the height of the housing bubble in 2005 and early 2006,lenders had greatly loosened the standards for obtaining a mortgage loan,with many mortgages being granted to ________ borrowers with flawed credit histories and ________ borrowers who did not document their incomes.

When calculating GDP,the Bureau of Economic Analysis revises its quarterly data

Firms that participate in regular open market transactions with the Federal Reserve are called

Contractionary monetary policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.

Monetarists think that the Fed should use ________ as a target when conducting monetary policy.

A monetary policy target is a variable that the Fed can affect directly,which then affects one or more of the Fed's policy goals.

Does the money demand curve have a positive slope or a negative slope? Why does it have this slope? Explain why an increase in the variable on the vertical axis of the money demand curve causes either an increase or a decrease in the variable on the horizontal axis of the money demand curve.

Which of the following statements about inflation targeting is true?

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency,government Price Setting,and Taxes

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money,banks,and the Federal Reserve System

Fiscal Policy

Inflation, unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

When housing prices fall,as they did beginning in 2006 following the housing market bubble,consumption spending on furniture,appliances,and home improvements as many households found it to borrow against the value of their homes.

By the height of the housing bubble in 2005 and early 2006,lenders had greatly loosened the standards for obtaining a mortgage loan,with many mortgages being granted to borrowers with flawed credit histories and borrowers who did not document their incomes.

Contractionary monetary policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be and real GDP to be .