Question 1

Describe how the Fed uses open market operations to change short-term and long-term interest rates.

Accepted Answer

The Fed tries to achieve a target level

Question 2

A decrease in real GDP can

Accepted Answer

A)  shift money demand to the right and decrease the interest rate. 
B)  shift money demand to the right and increase the interest rate. 
C)  shift money demand to the left and decrease the interest rate. 
D)  shift money demand to the left and increase the interest rate. 
A)  shift money demand to the right and decrease the interest rate. 
B)  shift money demand to the right and increase the interest rate. 
C)  shift money demand to the left and decrease the interest rate. 
D)  shift money demand to the left and increase the interest rate.

Question 3

Prior to 1970,mortgages were ________ resold in the secondary market.

Accepted Answer

A)  never 
B)  rarely 
C)  often 
D)  always 
A)  never 
B)  rarely 
C)  often 
D)  always

Question 4

Write out the expression for the Taylor rule.Use the Taylor rule to explain how a decline in real GDP below potential GDP will affect the Federal Reserve's target for the federal funds rate.

Accepted Answer

The Taylor rule states that the Fed shou

Question 5

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 6

Which of the following situations is one in which the Fed will potentially pursue expansionary monetary policy?

Accepted Answer

A)  Potential GDP is forecasted to be higher than equilibrium GDP. 
B)  Potential GDP is forecasted to be lower than equilibrium GDP. 
C)  Aggregate demand is growing too fast to keep the economy at full employment. 
D)  Aggregate demand is growing too slowly and the economy is in danger of producing GDP above full employment. 
A)  Potential GDP is forecasted to be higher than equilibrium GDP. 
B)  Potential GDP is forecasted to be lower than equilibrium GDP. 
C)  Aggregate demand is growing too fast to keep the economy at full employment. 
D)  Aggregate demand is growing too slowly and the economy is in danger of producing GDP above full employment.

Question 7

Table 26-7
  
-Refer to Table 26-7.Suppose the table above illustrates the values of real and potential GDP and the price level,if the Fed does not vote to change their current policy to be more contractionary or expansionary.Suppose that the Fed uses an appropriate policy and is successful in keeping real GDP at potential in 2013.Draw an aggregate demand and supply curve to illustrate your answer.

Accepted Answer

@#IMG-DLM& The economy starts in equilibrium in 20

Question 8

Between September 2007 and March 2008 there was a substantial reduction in the demand for housing.What action did the Fed take in response to the reduction in the demand for housing?

Accepted Answer

A)  The Federal Reserve decreased the required reserve rate. 
B)  The Fed conducted open market sales of Treasury securities. 
C)  The Federal Reserve cut the federal funds rate seven times. 
D)  The Federal Reserve raised the discount rate by 3 percentage points. 
A)  The Federal Reserve decreased the required reserve rate. 
B)  The Fed conducted open market sales of Treasury securities. 
C)  The Federal Reserve cut the federal funds rate seven times. 
D)  The Federal Reserve raised the discount rate by 3 percentage points.

Question 9

Figure 26-4
  
-Refer to Figure 26-4.In the figure above,the movement from point A to point B in the money market would be caused by

Accepted Answer

A)  an increase in the price level. 
B)  a decrease in real GDP. 
C)  an open market sale of Treasury securities by the Federal Reserve. 
D)  an increase in the required reserve ratio by the Federal Reserve. 
A)  an increase in the price level. 
B)  a decrease in real GDP. 
C)  an open market sale of Treasury securities by the Federal Reserve. 
D)  an increase in the required reserve ratio by the Federal Reserve.

Question 10

Rising nominal GDP will increase the demand for money and short-term interest rates.

Accepted Answer

A) True 
 B)False

Question 11

Suppose the Fed decreases the money supply.In response households and firms will ________ short term assets and this will drive ________ interest rates.

Accepted Answer

A)  buy; up 
B)  buy; down 
C)  sell; up 
D)  sell; down 
A)  buy; up 
B)  buy; down 
C)  sell; up 
D)  sell; down

Question 12

Give an example of a monetary policy target.Explain why the Fed uses policy targets.

Accepted Answer

One possible monetary target is the mone

Question 13

Figure 26-9
  
-Refer to Figure 26-9.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 14

Maintaining a strong dollar in international currency markets is not one of the four monetary policy goals of the Fed listed in the textbook.

Accepted Answer

A) True 
 B)False

Question 15

An increase in the money supply will

Accepted Answer

A)  increase the interest rate. 
B)  decrease the interest rate. 
C)  have no affect on the interest rate. 
D)  decrease the equilibrium quantity of money in the economy. 
A)  increase the interest rate. 
B)  decrease the interest rate. 
C)  have no affect on the interest rate. 
D)  decrease the equilibrium quantity of money in the economy.

Question 16

When the Fed increases the money supply,

Accepted Answer

A)  the interest rate rises and this stimulates consumption spending. 
B)  people spend less because they have more money. 
C)  the interest rate falls and this stimulates investment spending. 
D)  the interest rate rises and this stimulates investment spending. 
A)  the interest rate rises and this stimulates consumption spending. 
B)  people spend less because they have more money. 
C)  the interest rate falls and this stimulates investment spending. 
D)  the interest rate rises and this stimulates investment spending.

Question 17

Which of the following characterizes the Fed's ability to prevent recessions?

Accepted Answer

A)  The Fed is able to "fine tune" the economy and entirely eliminate recessions. 
B)  The Fed is incapable of changing aggregate demand through its monetary policy tools. 
C)  The Fed is able to keep a recession shorter and milder than it would otherwise be. 
D)  The Fed is able to eliminate the business cycle and achieve absolute price stability. 
A)  The Fed is able to "fine tune" the economy and entirely eliminate recessions. 
B)  The Fed is incapable of changing aggregate demand through its monetary policy tools. 
C)  The Fed is able to keep a recession shorter and milder than it would otherwise be. 
D)  The Fed is able to eliminate the business cycle and achieve absolute price stability.

Question 18

An increase in the domestic interest rate relative to other interest rates should

Accepted Answer

A)  increase investment spending. 
B)  decrease consumption spending. 
C)  increase government spending. 
D)  increase net exports. 
A)  increase investment spending. 
B)  decrease consumption spending. 
C)  increase government spending. 
D)  increase net exports.

Question 19

The Taylor rule accurately predicted the changes in the federal funds target during the period

Accepted Answer

A)  when Alan Greenspan was the chairman of the Federal Reserve Board. 
B)  when Paul Volcker was the chairman of the Federal Reserve Board. 
C)  when Arthur Burns was the chairman of the Federal Reserve Board. 
D)  when William McChesney Martin was the chairman of the Federal Reserve Board. 
A)  when Alan Greenspan was the chairman of the Federal Reserve Board. 
B)  when Paul Volcker was the chairman of the Federal Reserve Board. 
C)  when Arthur Burns was the chairman of the Federal Reserve Board. 
D)  when William McChesney Martin was the chairman of the Federal Reserve Board.

Question 20

Table 26-4
  
-Refer to Table 26-4.Suppose the following table illustrates the values of real and potential GDP and the price level,if the Fed does not vote to change their current policy to be more contractionary or expansionary.If the Fed wants to keep real GDP at its potential level in 2015,should the Fed use a contractionary or expansionary policy? How should it conduct open market operations to achieve its goal?

Accepted Answer

The information in the table indicates t

Describe how the Fed uses open market operations to change short-term and long-term interest rates.

A decrease in real GDP can

Prior to 1970,mortgages were ________ resold in the secondary market.

Write out the expression for the Taylor rule.Use the Taylor rule to explain how a decline in real GDP below potential GDP will affect the Federal Reserve's target for the federal funds rate.

Which of the following situations is one in which the Fed will potentially pursue expansionary monetary policy?

Between September 2007 and March 2008 there was a substantial reduction in the demand for housing.What action did the Fed take in response to the reduction in the demand for housing?

Figure 26-4 -Refer to Figure 26-4.In the figure above,the movement from point A to point B in the money market would be caused by

Rising nominal GDP will increase the demand for money and short-term interest rates.

Suppose the Fed decreases the money supply.In response households and firms will short term assets and this will drive interest rates.

Give an example of a monetary policy target.Explain why the Fed uses policy targets.

Figure 26-9 -Refer to Figure 26-9.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

Maintaining a strong dollar in international currency markets is not one of the four monetary policy goals of the Fed listed in the textbook.

An increase in the money supply will

When the Fed increases the money supply,

Which of the following characterizes the Fed's ability to prevent recessions?

An increase in the domestic interest rate relative to other interest rates should

The Taylor rule accurately predicted the changes in the federal funds target during the period

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

Describe how the Fed uses open market operations to change short-term and long-term interest rates.

A decrease in real GDP can

Prior to 1970,mortgages were ________ resold in the secondary market.

Write out the expression for the Taylor rule.Use the Taylor rule to explain how a decline in real GDP below potential GDP will affect the Federal Reserve's target for the federal funds rate.

Which of the following situations is one in which the Fed will potentially pursue expansionary monetary policy?

Between September 2007 and March 2008 there was a substantial reduction in the demand for housing.What action did the Fed take in response to the reduction in the demand for housing?

Figure 26-4 -Refer to Figure 26-4.In the figure above,the movement from point A to point B in the money market would be caused by

Rising nominal GDP will increase the demand for money and short-term interest rates.

Suppose the Fed decreases the money supply.In response households and firms will ________ short term assets and this will drive ________ interest rates.

Give an example of a monetary policy target.Explain why the Fed uses policy targets.

Figure 26-9 -Refer to Figure 26-9.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

Maintaining a strong dollar in international currency markets is not one of the four monetary policy goals of the Fed listed in the textbook.

An increase in the money supply will

When the Fed increases the money supply,

Which of the following characterizes the Fed's ability to prevent recessions?

An increase in the domestic interest rate relative to other interest rates should

The Taylor rule accurately predicted the changes in the federal funds target during the period

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

Suppose the Fed decreases the money supply.In response households and firms will short term assets and this will drive interest rates.